are the general economic conditions of the U.S. regional airline industry macro
environment? What is the relationship of the industry to the national and
global airline industries?
airline has been a major contributor of globalization, through connecting
buyers and sellers all over the globe. It transports goods from one area to
another, breaking the barrier of distance and time. The external factors greatly
affect this industry demanding that it makes a shift to its business models,
pricing, revenue, and their cost structures in order to accommodate the
gradually changing needs of the customers.
are political and legal factors affecting this industry, which include the
government intervention on every economic activity of a specific industry. This
industry is under scrutiny by the government due to protecting the interests of
the passengers and maintaining their interests.
healthy economy acts as a conducive environment for growth. With a rise in
disposable income and industry production, then the airline business is set to
thrive. Correspondingly, there is the issue of fluctuation in oil prices, which
encourages business and more profit.
has been an increasing demand for air travel in the society. This indicates
that there is a change in travelling preference among the citizens, in that
people desire air travel over other means. The future of U. S travel is set to
boom with most customers between 16-34 years willing to spend on travelling.
technology is advancing on a daily basis. The company needs to adopt the latest
technology, to maintain a competitive advantage. The latest technology can be
adoption of advanced aircraft technology, which controls fuel consumption
resulting to a reduction in cost of operation and improved efficiency.
political and legal framework affecting this industry is that it is greatly
impacted by regulations related to international trade, tax demands, and
competition. In addition, it is affected by catastrophes like war, terrorism,
and outbreaks of diseases, which require government intervention.
does a Five Forces analysis of the industry tell you about competition in the
regional airline industry? Which forces tend to be the strongest? The weakest?
Five force analysis
evaluating the potential of business success even with industry threats.
bargaining power of suppliers in this case is very high. This results from the
limited supply of oil, aircraft and even labor. Oil is greatly affected by the
market prices and thus the suppliers decide the price. Consequently, they can
only access aircraft through purchasing or lease from only two main suppliers
who are Airbus and Boing thereby they control the market.
bargaining power of suppliers is gradually increasing resulting from online
application of the travel ticket. In addition, the passengers have been
protected by set regulations, making it hard to exploit them. With the rising
of various airline companies, then the passengers have a choice and can always
chose the best package with fulfilling customer care and affordable price.
is a very high entry and exit cost. Starting capital for this business is very
high thus blocking potential competitors and the exit cost is high since they
have to let go of many investors. Exit strategy is regulated by the state in
that airlines are not allowed to easily exit the market.
United States does not face threats from substitutes. This is because customers
do not take planes or bus for their long journey. The issue of air travel is a
common phenomenon and substitutes are not a threat.
There is competition
rivalry in that after emergence of the low cost carriers, and then the airline
needs to upgrade their services in order to retain their customers.
on the above cases bargain power of suppliers and competitive rivalry is high
with threat of substitute goods being the least force.
3: What factors are causing change in the regional airline
industry? and what is the individual and collective impact of these changes on
the regional airline carriers?
Financial uncertainty. Students should quickly note
that the effects of the September 11, 2001 terrorist attacks and the deep
recession that began in late-2007 have placed additional financial pressure on
an already struggling industry. The low profits and numerous bankruptcies in
the U.S. airline industry are making the industry less attractive. The
stability of regional carriers is directly impacted by the solvency of their
major customers. Industry consolidation. It was expected that
bankruptcies in the industry would lead to mergers among major airlines.
Consolidations would mean more limited growth opportunities for regional
carriers if major carriers decide to eliminate flights or shut down hubs around
the country. Increasing operating costs. Increased fuel costs were
creating downward pressure on profits for all participants in the airline
industry. Security concerns. The September 11th
terrorist attacks created some additional passenger fear of flying and
introducing inconvenient airport security features. Technological innovation. Introduction of new, longer
range, regional jets have allowed regional carriers to service longer routes
and brought them into more direct competition with low-cost carriers.
4: What are the key factors that determine success for
companies in the regional airline industry?
Impeccable Safety Record. Airlines must develop and
maintain a strong safety image since passengers will not fly with an airline
that has an unsafe image. Good performance on customer service metrics. On-time
arrivals were expected of regional carriers by both passengers and major
carriers alike. To insure passengers, continue to fly with a regional airline,
the airline must deliver the passengers to their destination on-time. In
addition, legacy carrier partners expected regional flights to arrive at hubs
on-time so that passengers didn’t miss connecting flights. Passengers also
became dissatisfied when regional airless or major carriers mishandled baggage,
cancelled flights, or oversold flights.
Maximizing revenue by implying creative and
competitive pricing structures to attract all the profitable segments and
sustaining frequent and profitable customer base is most important key success
factor for this industry. Efficient management of cost by focusing on the price
hedging during volatile periods and maintaining fuel procurement is an