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Airline industry analysis
- 1. * STRATEGY 390 – Section 005 Ali Khalil HaeJun Jeon Michael Kondoleon Joanna Lu Will Wang Jason Zhang
- 2. * • Business: Transport passengers and cargo regionally, domestically, and internationally • Focus: Domestic passenger airline industry • Five major players with majority market share:
- 3. * Pre-flight Operations Pre-flight Logistics Flight Service Post-flight Services -Acquiring aircraft -Scheduling staff -Client transportation -Shuttles/Car rentals -Hiring staff -Setting routes -On-flight services -Partnership deals -Purchasing materials -Setting fares -Baggage handling -Points/membership system Post-flight logistics -Connections -Missed flight support -Lost baggage support
- 4. * Threat of Entry Low - High Saturation - High Cost - Gov’t Controls Threat of Suppliers Intra-Industry Rivalry Threat of Buyers Low High Low - Fare Comparison - Passenger Pricing - Boeing, Airbus Power - High Marketing - BP Shell , - No Backwards - Diff Services Integration Threat of Substitutes Medium - Car, Bus, Train - Proximity - Travel Time
- 5. * Cost Leadership • Mergers • Financial Restructuring • Conservative Cost-Cutting Product Differentiation • Technology • Regional Market • Price Leadership • Amenities • Operational Efficiency Cost Leadership + Product Differentiation (Hybrid)
- 6. * • Reduce costs primarily through M & A • Renegotiate labor contracts, pensions, etc. • Maintain traditional model while cutting costs • Continue offering routes to all destinations • Maintain frequent flier, lounges, perks Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 7. * • Completed: Delta/Northwest (2009) • In Progress: United/Continental (exp. 2012) • Unsuccessful: • US Airways/United • US Airways/Continental • US Airways/Delta Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 8. * US Airways • Forced to cut costs alone • Retired aircraft • Liquidated pensions • Cut routes Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 9. * American Airlines • Only traditional legacy airline • No mergers or bankruptcy restructuring • Cut costs through austerity measures • Eliminate routes/hubs • Negotiate labor costs Labor Cost as % of Total Cost AMR- 31% Legacy Airline average- 25% Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 10. * Cost Leadership • Mergers • Financial Restructuring • Conservative Cost-Cutting Product Differentiation • Technology • Regional Market • Price Leadership • Amenities • Operational Efficiency Cost Leadership + Product Differentiation (Hybrid)
- 11. * • Capture market share through differences in product offerings Alaska Airlines • Regional Carrier • Monopolistic market share in Alaska • In-flight meals on most flights • High flight attendant/customer ratio • Complementary wine and other services Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 12. * Cost Leadership • Mergers • Financial Restructuring • Conservative Cost-Cutting Product Differentiation • Technology • Regional Market • Price Leadership • Amenities • Operational Efficiency Cost Leadership + Product Differentiation (Hybrid)
- 13. * Southwest Airlines • Cost Leadership • Focus on low unit costs • Short aircraft turnaround time • Mitigation of fuel price risk • Product Differentiation • “Point-to-Point” network model • Secondary markets (BWI, MDW, LGA) • No baggage fees Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 14. In millions Delta US Airways United AMR Alaska LUV Revenue $ 31,755 $ 11,908 $ 23,229 $ 22,170 $ 3,832 $ 12,104 Domestic profits $ 332 $ 291 $ 147 $ (283) $ 226 $ 459 Profit margin 1.05% 2.45% 0.63% (1.27%) 5.90% 3.79% Market cap $ 6,290 $ 692 $ 5,490 $ 543 $ 2,260 $ 6,130 Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 15. * • High market share • High margins • Saturated market • Strictly regional • Point-to-Point • Hub & Spoke • Limited amenities • High amenities • Overall, Southwest strategy more sustainable • Allows for growth potential • Alaska has risk of overreliance on monopolistic position Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 16. * • Long-term strategy is valuable and rare • Hybrid strategy incorporates best of both strategies • Point-to-Point promotes streamlined services, route flexibility • Understanding customer priorities allows for strategic budgetary allocation Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 17. * • Cost leadership firms should find ways to improve service without compromising margins • Hybrid firms must remain adaptable and cognizant of changing consumer needs Product Cost Leadership Hybrid Analysis Conclusion Differentiation
- 18. *
Hinweis der Redaktion
- not been any growth in the past 5 years but there is slight projected growth in the next 5 years. It is profitable as a whole but individual firms have had trouble staying afloat.
- Cost Leadership pursued by legacy airlines
- Both Delta and United did mergers to become the nations largest airline. Allows them to continue traditional service model by leveraging economies of scale as the market becomes more competitive.US Airways tried but failed.\\http://www.underconsideration.com/brandnew/archives/united_continental_logo.gif
- USAir couldn’t merge, so had to restructure on their own. Cut items that could have been saved with a merger
- Running a few years behind, has NOT declared bankruptcy yet. Trying to do austerity measures
- Cost Leadership pursued by legacy airlines
- High margins on monopoly routes allow them to provide the perks and compete in western United States
- Cost Leadership pursued by legacy airlines
- Fly into Midway instead of OhareBought Fuel OptionsAll others use Hub/SpokeOne of the only to not have baggage feesLower fares and fewer comforts doesn’t make up low ticket price with poor service Production Differentiation methods Lower costs Limited Amenities
- AQR: CUSTOMER COMPLAINTS, ONTIME ARIVAL, LOST BAGGAGE, OVERBOOKING
- Customer satisfaction vs. profit maximization
- Able to realize that should NOT charge for bags, but okay to charge for food or provide no entertainment