Competitive Environment and Strategies for US Airline Industry

This report offers a comprehensive analysis of the competitive environment within the US airline industry. It begins with an overview of the industry, highlighting the presence of both legacy and budget carriers. A core component of the report involves a competitive analysis using Porter's Five Forces model, examining factors such as the threat of new entrants, bargaining power of buyers and suppliers, and the threat of substitutes. The report identifies advantages and disadvantages of using Porter's model. It further explores the cyclical economic performance of the industry, linking profitability to broader economic trends. Finally, the report concludes with recommended strategies for American airliners to overcome current challenges, aiming to improve their competitive positioning and profitability in a challenging market.

Running head: BUSINESS STRATEGY AND PLANNING
Business strategy and planning
Name of the student
Name of the university
Author note

1BUSINESS STRATEGY AND PLANNING
Executive summary
The aim of this report is to discuss about the competitive scenario of the American airline
industry. In addition, Porter five forces model is used to identify the causes for lower range of
profitability for the American airliners. Effectiveness of the porter five forces are also discussed
by identifying the advantages and disadvantages of the model. Numbers of reasons are being
identified for the lower profitability. This report also discussed about the cyclical economic
performance of the American airline industry. In accordance to the identified issues, this report
discussed a few recommended steps, which will help the American airliners to overcome their
current challenges.

2BUSINESS STRATEGY AND PLANNING
Table of Contents
Introduction......................................................................................................................................3
Overview of the industry.................................................................................................................4
Competitive analysis of US airline industry....................................................................................5
Components of the competitive forces........................................................................................5
Advantages of using porter five forces........................................................................................7
Disadvantages of using porter five forces...................................................................................8
Economical performance.................................................................................................................9
Recommended strategies.................................................................................................................9
Conclusion.....................................................................................................................................11
Reference.......................................................................................................................................13

3BUSINESS STRATEGY AND PLANNING
Introduction
The current business scenario is facing the huge intensity of competition in the market
due to the presence of large number of players in the particular business sector. One of the most
competitive business sectors in the current scenario is the airline industry. This industry
especially in the American market is highly and intensely competitive in nature. Traditionally,
American airline industry was the largest airline industry in the world with the presence number
of legacy airliners. Moreover, with the entry of the budget carriers, the competition got further
increased (Fabian et al. 2013). Thus, the airliners operating in the American market are in the
need of effective and strategic policies in order to survive in the market and gain profits.
Moreover, with the increase in the competition in the market, it is becoming more important for
the airliners in the American market to determine the intensity of the competition in the market
and initiate strategies accordingly.
In order to propose innovative and effective business strategies for the American
airliners, it is important for them to identify the competitive scenario in the market along with
determining the different aspects of the competitive scenario. This will help to understand the
competition in the market and designing the strategies accordingly. This report will discuss the
competitive environment of the US airline industry with the use of Porter five forces analysis.
Moreover, the economical scenario of the industry will also be discussed in order to gain the
economical insights of the industry. Recommended strategies will be discussed in accordance to
that.

4BUSINESS STRATEGY AND PLANNING
Overview of the industry
United States is not having any national carrier owned by the government, rather all the
airliners in America are of privately owned. United States is also having a large number of
players in the market comprising of Delta Airlines, American Airlines as the legacy players and
Southwest airlines and JetBlue are the budget carriers. In the recent time, large number of budget
carriers have the entered the American market and increased the domestic competition to the
large extent (David Mc 2013). According to the reports, American aviation industry currently
stands at US$ 501 billion till 2016. Thus, the market for the airline industry is huge in the
American market but the increase in the price war is leading to the reduction in the average
profitability of the airliners.
It is also reported that the entry of the budget carriers is further reducing the business
potentiality for the legacy carriers as a major chunk of the customers are opting for budget
carriers. Another major negative factor that is faced by the airliners in the American market is
increase in the cost of jet fuel. Though this issue is facing by the global players but the impact on
the American market is more due to the reason that increase in the fuel price is leading to
increase in the fare, which cannot be done due to the increased competition in the market
(Berghofer and Lucey 2014). Thus, the American airline industry is facing issues in relation to
maintaining their profitability. The legacy carriers should have certain and effective strategies to
overcome these challenges and increase the profitability.

5BUSINESS STRATEGY AND PLANNING
Competitive analysis of US airline industry
Components of the competitive forces
The above five forces analysis is showing that threat of entry is lower in the American
airline industry. This is due to the reason that huge capital investment is required for the new
entrants in operating in the airline industry. Operating in the airline industry will require huge
investment in maintaining infrastructure and assets. Thus, it will be difficult for the new entrants
to have the access to this huge capital. Moreover, it will also be difficult for the new entrants to

6BUSINESS STRATEGY AND PLANNING
gain the economies of scale in the industry (Nayak Karopadi et al. 2014). Moreover, strict and
extensive regulations associated with the airline operation will further refrain the new entrants to
enter in this market. Thus, it can be concluded that the stringent regulations faced by the airliners
cause huge cost to meet the standards (Choi, Lee and Olson 2015). In addition, airliners should
have to maintain their hubs, aircrafts and other operational activities along with managing the
customers and employees. Thus, cost of operation is more for the airliners, which is one of the
major causes for lower profitability for this industry.
The above analysis is also showing that bargaining power of the buyers is more due to the
presence more options in the market. Customers can choose from number of airliners in the
market. In addition, emergence of the online ticketing mediums is also reducing the profitability
of the airliners. This is due to the reason that customers can compare the fare of different
airliners through the online portals and will select accordingly (Gurito and Siringoringo 2013).
Thus, charging more fare is not possible for the airliners because this will reduce the potential
target customers for them. This factor is also responsible for the lower range of profitability for
the American airline industry. Bargaining power of the suppliers is also high for the American
airline industry. This is mainly due to the reason that suppliers for the airliners include aircraft
manufacturers and fuel suppliers. Both these suppliers are having higher influence in the airline
industry. Cost of fuel is determined by the fuel producers and it influences the fare rate of the
airliners (Ryerson and Hansen 2013). Thus, the profitability of the airline industry is determined
majorly by the suppliers.
American airline industry is having number of substitutes in the forms of roadways and
railways. Though, the percentage of the traffic of roadways and railways is comparable with that
of the airways but in the recent time, the drastic improvement of the roadways and railways is

7BUSINESS STRATEGY AND PLANNING
attracting a good chunk of passengers. Thus, the more will be the number and development of
alternate substitutes, the lower will be the profitability of the airline industry. With the
development of the other transport modes, the traffic of airline industry is reducing and causing
lower profitability for them (Yayla-Kullu and Tansitpong 2013). United States is having free
market economy and thus there is higher probability of entrance of the global players in the
American market. This will further increase the competition in the market and will reduce the
profitability of the airliners in the American airline industry.
Advantages of using porter five forces
 One of the major advantages of using porter five forces is determining the competitive
forces in the industry. Porter five forces identify the intensity of the competition in the
particular industry and how much it is impacting the business potentiality of the
organizations (E. Dobbs 2014). Thus, it helps the business organizations to initiate
strategies in accordance to the identified factors.
 Porter five forces also help in identifying the influence of the suppliers and the buyers for
the business organizations. Thus, it helps the business organizations to initiates strategies
in order to regulate the influential power of the external stakeholders (Srivastava,
Franklin and Martinette 2013).
 It also helps the new entrants in evaluating the competitive scenario to be faced by them
in a particular business sector. Moreover, the new entrants can also identify the threats
and challenges for them in entering in the particular market (McAuliffe 2015).
Accordingly, they can initiate their business strategies.
 Porter five forces enable the business organizations in initiating their business strategies
in terms of differentiation or cost leadership or market focus (Banker, Mashruwala and

8BUSINESS STRATEGY AND PLANNING
Tripathy 2014). This is due to the reason that porter five forces help the business
organizations to identify the competitive rivalry and the threat of substitutes in the
market. Thus, business organizations can have the understanding of what strategies
should be initiated in order to cut off the intensity of substitutes.
 Porter five forces can be used for any industries and having without much data and
information. Thus, it is more convenient to use in any given situation. Porter five forces
also not having the requirement of experts and thus, it can be done by anyone. This
convenience of the model is contributing in gaining popularity among the different
business organizations.
Disadvantages of using porter five forces
 One of the major limitations of using the porter five forces is more concentration on the
external factors. This model considers only the external factors rather than considering
the diverse internal factors of the organizations. Thus, the analysis of the porter five
forces cannot be applicable across all business sectors.
 This model analyzes by considering only the industrial elements. Thus, it is not possible
to use it for the specific organizational purposes (Wijaya and Akbar 2013). This is due to
the reason that specific organizational factors will be different and diverse and thus the
industrial analysis of the porter five forces will have no use.
 Porter five forces analyze the specific industrial trends. However, in the current business
scenario, there are number of business conglomerates that are having their presence in
different sectors. Thus, porter five forces cannot be applicable for these organizations.
 Porter five forces consider the threat of substitutes in general. This means that all the
close and distant substitutes are being considered for the analysis (Ciliberto and Williams

9BUSINESS STRATEGY AND PLANNING
2014). However, in the real world situation, there are some sorts of differentiation
between the products, which are not considered in the porter five forces analysis.
Economical performance
Economical performance of airline industry is cyclical in nature. This is due to the reason
that revenue of the airline industry depends on the economic growth of the country. Travelling
by air is still majorly considered as luxury and not the necessity. Moreover, it involves huge cost
for the passengers in travelling by air. Thus, the impact of economy development is more for the
airline industry. It is considered as cyclical due to the reason that the economic development of
the country is also cyclical in nature (Aghion, Hemous and Kharroubi 2014). The more will be
the economic development, the more will be the disposable income for the average customers to
pay for the air travel and vice versa. Market for the airline industry will get increased with the
development in the national economy and will reduce with the recession in the national
economy.
This also can be considered as one of the major reasons for dwindling profitability of the
American airline industry. This is due to the reason that the profitability of the entire airline
industry is depending on the national economy of the country. In the recent time, United States is
going through rough phase in terms of the economy. Rate of the unemployment is also increasing
in the country. Thus, this is creating negative implications on the business performance of the
American airline industry. They are also facing the issue in terms of profitability due to the
adverse economical environment in the United States.
Recommended strategies

10BUSINESS STRATEGY AND PLANNING
 It is recommended for any particular airline currently operating in the American airline
industry to have their presence in both the higher end and budget passenger market. It is
also recommended that airliner companies should have a sub brand to cater to different
market segments. This will help the airliners to have persistent profitability in the market.
This is due to the reason that incurring loss in the higher end airline market can be
adjusted with the profits in the budget category and vice versa. The more will be the
target market customers, the more will be the probability of generating revenue from the
market.
 It is also recommended to the airliners that they should have their routes in as much
locations as possible. In the current time, American airline industry is rapidly increasing
in different routes especially in the smaller routes. Thus, the airliners should have their
routes in these regions also. This will ensure that target passenger sector will be wide.
However, in this case, it is to be noted that only the profitable routes should be chosen for
operation. It is important for the airliners to identify the profitable routes only. Operating
in the routes with having less passenger traffic will only cause loss for the airliners. On
the other hand, operating only in the profitable routes will increase the ratio of
profitability.
 Airliners should have both wide and narrow body aircrafts in their operation. This is due
to the reason that narrow body aircrafts are suitable for shorter haul journey. Moreover,
narrow body aircrafts are also more fuel efficient compared to the wide body aircrafts.
Thus, operating these aircrafts in the shorter routes will fetch more profits for the
airliners. This will also enable them to offer more competitive fares in the market due to
the less cost of operation of the narrow body aircrafts. The customer share will thus get

11BUSINESS STRATEGY AND PLANNING
increased. On the other hand, they should operate wide body aircraft such as Airbus A380
for the longer haul route. This will help them to carry more passengers in the single go
and thus the average cost of operation per customer will get reduced for the airliners.
Strategically using both type of aircrafts will ensure that the airliners will have the option
to optimally utilize the resources.
 American airliners should not only get depended on the market of the United States
market. This is due to the reason that American market is going through rough phase and
it is important for airliners operating in American airline industry to look for the foreign
countries. Some countries especially the developing countries are having much more
economy growth compared to America. Countries such as India and China are having
more economic growth compared to the United States. Thus, it is recommended that
airliners operating in the American market should enter the foreign markets also. This
will ensure that market segment and market share will get increased. In addition, this will
also help them to reduce the risk in operating only in the single market.
Conclusion
Thus, it can be concluded that American airline industry is one of the most competitive
industries in the current business scenario. This is mainly due to the reason that huge number of
players are operating in this sector in different price segments. This report discussed about the
current competitive scenario of the American airline industry by using the Porter five forces
analysis. It is identified that some of the major external factors such as buyers and suppliers are
the major influential power in determining the profitability of the American airline industry.
Moreover, it is also identified that huge competition in the market and increase in the budget
carriers are the key reasons for the lower level of profitability for the American airline industry.