Published on August 24, 2010
Slide 1: Airline Industry Analysis Slide 2: First flight by Orville Wright, December 17, 1903 History of the Airline Industry : History of the Airline Industry Wright brothers’ first successful flight in Kitty Hawk in 1903. American Airlines in 1928 and United Airlines in 1931. Development of the mail system by the U.S. Postal Service helped create the airline industry. Increased R&D of aircraft after World War II. FAA created in 1958 to develop an air traffic control system. Deregulation in 1978. Airline Industry Goals : Airline Industry Goals Public Service. (Service to Customers) Return to Investors. Country Strategic Resource. Porter Competitive Model : Porter Competitive Model Intra-Industry Rivalry Majors: American Airlines, Delta National: Jetblue, Aitran, Spirit Airlines Regional's: Allegiant Air, New England Airlines Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Airline Industry Analysis – U.S. Market Travel Agents Business Travelers Pleasure Travelers Charter Service Federal Government U.S. Military Cargo and Mail Alternate Travel Services Fast Trains Boats Private Transportation Videoconferencing Groupware Aircraft Manufacturers Aircraft Leasing Companies Labor Unions Food Service Companies Fuel Companies Airports Local Transportation Service FAA Hotels Foreign Carriers Regional Carrier Start ups Cargo Carrier Business Strategy Change Slide 6: Airline Industry Strategies Airline Industry Value Chain : Airline Industry Value Chain INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING AND SALES SERVICE PROCUREMENT TECHNOLOGY DEVELOPMENT HUMAN RESOURCE MANAGEMENT FIRM INFRASTRUCTURE Adapted with the permission of Michael E. Porter from Competitive Advantage: Creating and Sustaining Superior Performance, copyright 1985 by Michael E. Porter. -Financial Policy - Accounting -Regulatory Compliance - Legal - Community Affairs Pilot Training Safety Training Agent Training In-flight Training Baggage Tracking System Promotion Advertising Advantage Program Travel Agent Programs Group Sales Ticket Counter Operations Gate Operations Aircraft Operations On-board Service Baggage Handling Ticket Offices Route Selection Passenger Service System Yield Management System (Pricing) Fuel Flight Scheduling Crew Scheduling Facilities Planning Aircraft Acquisition Information Technology Communications Product Development Market Research Lost Baggage Service Complaint Follow-up Baggage System Flight Connections Rental Car and Hotel Reservation System Computer Reservation System, In-flight System Flight Scheduling System, Yield Management System Baggage Handling Training Flight, route and yield analyst training Figure 4-3 Importance of Information Technology : Importance of Information Technology Convenience to Customers. Knowledge of Customers. Providing a Foundation of Other Systems. Building a Base for other Business. Can be assessed through the use of the Value Chain. Slide 9: Suppliers Services Passengers Travel & Tourism Airline Industry Carriers, General Aviation, Airports Aircraft Engines Electronics Computers Chemicals Insurance Financing Distribution Telecom Maintenance Fuel Business Travelers Leisure Travelers Travel Agents Tourist Attractions Conferences and Conventions Hotels Restaurants Retailers Lower Sales Lower Sales Decreased Productivity & Weaker Relationships Lost Revenue Impacts of a Weakened Airline Industry Induced Costs Best Airlines for Business Travelers : Best Airlines for Business Travelers Singapore Airlines Swiss Air Cathay Pacific Midwest Express ** Japan Airlines Quantas ANA Virgin Atlantic Lufthansa KLM-Royal Dutch 11. Finnair 12. British Airways 13. Alaska 14. Air France 15. Varig 16. Aer Lingus 17. Kiwi 18. Air Canada 19. American ** 20. Delta** Source: Zagat Survey of Frequent Flyers Industry Structure Problems : Industry Structure Problems The fact that low-cost carriers have been able to mature this far says as much about what's wrong with the majors as it does about what's right with their low-cost counterparts, and begs the question: does the underlying strategy or business model employed by the large hub-and-spoke airlines still work? Analysts and other industry observers believe it does, but to function properly carriers must reduce their costs and restore the balance between supply and demand. Southwest Airlines : Southwest Airlines A U.S. carrier success story. Commuter airline that concentrates on city pairs. (Average flight is 541 miles and takes about one hour) CEO Herb Kelleher, a Connecticut attorney turned Texan, had the best labor relations in the industry and an excellent company culture. Lowest cost structure in the industry. 31 years of consecutive profitability Why Southwest is Successful : Why Southwest is Successful The success of Southwest starts with the following three important factors: 1) Focus, 2) focus and 3) focus. 2. Standardizing their fleet on the Boeing 727 provides major operational and financial benefits. 3. Herb Kelleher as one of the founders and the long time CEO should probably be cited as the number one reason for the success of this airline. 4. Focus on high volume city to city routes. Southwest Success : Southwest Success 5. Southwest came into the deregulated era of the industry as a small, intra-state airline that had always been able to compete on the terms that they chose since they were not subject to federal regulation. 6. The financial success of Southwest has received a large amount of free publicity that has certainly helped to create an image of an airline to be trusted and used by many passengers. Conclusions : Conclusions A clearly structured industry. Deregulated, but still highly regulated. Vital interrelationships between business and industries Vital role of Information Systems in the industry. The industry is greatly affected by many factors. Strategies dictated by the market are crucial.