US Airline Industry: Strategy and Case Analysis

Running head: US AIRLINE INDUSTRY 0
Strategy and Case Analysis
US Airlines Industry

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TABLE OF CONTENTS
1. Introduction.........................................................................................................................2
2. Overview of the US Airline Industry..................................................................................3
3. Five Forces Analysis of US Airline Industry......................................................................4
3.1 Advantages and Disadvantages........................................................................................7
4. Economic Performance.......................................................................................................8
5. Identification of strategies for airline profitability...........................................................10
6. Discussion.........................................................................................................................11
7. Conclusion........................................................................................................................13
8. References.........................................................................................................................14
LIST OF FIGURES
Figure 1: Growth in Jet Fuel Prices............................................................................................4
Figure 2: Diagram of Porter's Five Forces Model......................................................................5
Figure 3: Report of the US Airline Industry..............................................................................9
Figure 4: Improvement in Passengers and Cargo Services......................................................10

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1. INTRODUCTION
In today’s competitive business world, corporations focus on analysing their strategic
position by using different strategy development tools. These tools provide them information
regarding both internal and external factors that influence their business and affect its
profitability. This report will focus on the United States airline industry and evaluate its
strategic position by using ‘Porter’s five forces model’. In past few years, the US airline
industry is facing different economic and social challenges in order to maintain its
profitability. This report will use Porter's five forces model to analyse the competitiveness of
the US airline industry. The Porter’s five forces model assist senior-level executives in order
to analyse the attractiveness or unattractiveness of an industry by determining its strengths
and weaknesses (Dobbs, 2014). The objective of this report is to perform a competitive
analysis of the US airline industry by using Porter's five forces framework. This report will
evaluate the components along with advantage and disadvantage of using the five forces
model. Further, the economic performance of the US airline industry will be discussed, and
various strategies will be given in the report for improving airline profitability.

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2. OVERVIEW OF THE US AIRLINE INDUSTRY
The US airline industry includes players from both high to economic priced zones. The
market leaders of the industry such as American, United and Delta Airlines are threatened by
low-cost airlines such as Virgin America, Jet Blue, South West Airlines and AirTran
Airways. Currently, the US airline industry is suffering due to the price war between airline
companies which is damaging the profitability of the sector (Aguirregabiria and Ho, 2012).
The new entrants in the industry focus on reducing air travel prices which have started a war
between the organisations. In order to reduce flight tickets, the new entrants are using
economic air routes, flying only specific types of aircraft and non-union workers. These
strategies reduce operating costs of airline companies which enable them to reduce their
ticket prices which are beneficial for customers (Daraban, 2012). On the other hand, growing
popularity of online travelling sites such as Travelocity, Cleartrip, Expedia and Orbitz has
increased the issues for airline companies because they provide customers facility to compare
between different airline prices and choose the most affordable option for them (Dai, Lui and
Serfes, 2014).
According to the data of IATA (2018), the increase in jet fuel prices has a negative impact on
the US airline industry (Figure 1). The rise in jet fuel prices increases airline’s operating
expenses due to which they have to hike their prices in order to compensate the loss. As per
the case study, labour and fuel are two primary expenses of airline corporations which
account for 58 percent of total expenses (labour 26 percent and fuel 32 percent). Bryan
(2018) provided that in 2016, labour costs (22 percent) surpassed fuel expenses (21 percent)
and it is expected to jump to 30.9 percent in 2018. Between late 2000s and early 2010s, a
large number of mergers affect the US airline industry. In 2008, Delta merged with
Northwest Airlines, and in 2010, United and Continental merged. Furthermore, American
Airlines filed for bankruptcy in late 2012 (Treanor et al., 2014). However, along with risks,
there are different opportunities in the US airline industry as well such as improved customer
service, effective baggage handling process and reduction in missing flights.