Case Study on US Airline

Industry
Course: MGT 450.2
Submitted By:
Adiba Ferdousi (131007402)
Nasrin Akter (131009802)
Md. Osman Gani (131004602)
Mou Dev (131003702)
Razia Mohiuddin (131009902)
Submitted To:
Rabiul Hossain Dovash

1. A competitive forces model has given below of U.S airline industry?

a. Threat of new entrants: As the existing companies like Delta, United have a high cost
they have been hurt by low cost budget carriers by jet blue, southeast airlines etc. These
new entrants use non union labor; they use the most profitable route & competing for the
low prices so this is a threat for the existing companies & opportunities for new entrants.
High profitability & demand for new airlines reduces existing air travel.
b. Rivalry among established firms: In U.S airline industry rivalry among established firm
is very high. The large companies such as limited, Delta and American compete with
each other to sustain in the industry as the threat of new entrants are very high. Their
price is very high but they try to keep them in low mode to compete in the industry.
c. Bargaining power of buyers: Bargaining power of buyers is high in U.S airline industry
as there many substitutes available in the industry. The prices of tickets are fixed as
buyers in generally cant bargain much more than they are planned.
d. Bargaining power of suppliers: Suppliers have also little power in the U.S airline
industry. If they increase their prices others may keep the price constant. As consumers
will attracted towards low cost prices companies and higher priced companies may fall
down.
e. Threat of substitutes: The U.S airlines industry faces very high substitutes. Low cost
budget carriers like southeast airways, virgin America, jet blue are the substitutes for
consumers. Consumers has many option to select their desired services.

2. The strategy group of US airline industryA strategic group is a concept used in strategic management that groups companies within an
industry that have similar business models or similar combinations of strategies.
The larger carriers such as delta, united & Americans belong to some strategies group
because their strategies are similar to one another but different from the companies of
other groups like southeast airlines, jet blue, Virgin America.
Delta, united & Americans focus on vary heavy spending on R&D, they focused on a
very high priced method. Therefore they look very high risk high return strategy. So they
can be defined as proprietary strategic group.
Southeast airways, jet blue, Virgin America focused on the most lucrative routes &
compete by offering very low prices. They can be defined as generic group. Both groups
business are similar but the strategies they follow are different from one another.

3. Industry life cycle analysis of US airline industry

US airline industry life cycle is in a fluctuating trend. The analysis has given belowGrowth Stage: From 1985 to 2001 the industry is in a growth stage as oil price traded in a
range between $15 and $25 a barrel. When industry grows customer become familiar with
the product, prices fall, threat of entrants are high same as US airline industry. Entrants like
southeast airways, jet blue, Virgin America emerged.
Shakeout Stage: After growth stage new entrants for surviving in shakeout stage used
nonunion labor, typically fly point to point, using most profitable routes.
Declining Stage: The US airline industry is in a declining stage from 2001-2007 as they lost
billions of dollars therefore negative growth which leads to excess capacity companies begin
to cut prices.
Mature Stage: In the mid of 2008 prices began to rise due to strong demand from
developing nations like china, India. Most industries in the maturity stage have consolidated
& become oligopolies. Like in 2008, Delta & northwest merged. In 2010 united &
continental merged and others are planning to merge within 2013. The reason behind is the
desire to reduce excess capacity and lower cost by eliminating duplication.

4. Macro Environment of US airline industry

The U.S airline industry face the following macro environment forces
Global forces: Economic growth in China, India has created the opportunities for industries to
grow their profits by increasing prices. Oil prices tend to increase high of $147 a barrel in the
mid 2008.
Technological forces: Larger carrier has been hurt by low cost budget carriers. The new entrants
used very lucrative router, most importantly they used low pricing strategy. The existing
companies had to respond to low prices and internet travel sites developed like expedia,
Travelocity, orbitz and therefore easier to consumers to comparison shop and has to keep price
low.
Legal force: Legal forces are outcomes to changes in laws and regulation. Many airlines
industry bankrupt in the 2000s.However they are forced to continue to fly organized under
bankruptcy laws. These companies thereafter come out of bankruptcy protection with low labor
cost but generating revenue still remained challenging for them. From 2010 to 2013 the
companys consolidated and become oligopolies. The reason behind doing these to reduce excess
capacity and grow more profit thus lend to a more stable pricing environment.