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US Airline Industry Case Analysis Final

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US Airline Industry Case Analysis Final
Strategic Analysis of the US Airline Industry in 2012

Case Questions
1.

To what extent can the industry’s low profitability be attributed to the structure of the industry?

2.

Which of Porter’s Five Forces has had the biggest impact in depressing industry profitability?

Comparison of Airline Industry Structure
(Regulation/Pre 1978 vs Deregulation/Post 1978)
Oligopoly
(Regulation)

Perfect Competition
(Deregulation)

Concentration

Few players

Many players

Entry & Exit Barriers

Significant barriers

No barriers

Differentiation

Potential for product differentiation Homogenous product

Information

Imperfect availability of information Perfect information flow

Comparison of Airline Industry Structure
(Regulation/Pre 1978 vs Deregulation/Post 1978)
Oligopoly
(Regulation)
Concentration

CAB was established in
1938 and awarded interstate routes to the existing 23 airlines.

No new entrants between the period 1938-1978
Entry & Exit Barriers High Government
Regulation

Perfect
Competition
(Deregulation)
By 1980, 20 new airlines approved By 2012 there are 151 companies Minimization of Barriers

Differentiation

Set fares and routes, guaranteed profitability

Commodity Product

Information

CAB governed

Dictated by need for best price/highest profit

Role of Structure in Low Profitability:
Attributed to:
 Fierce

competition

 Powers

of industry members relative to suppliers and buyers

 Immediate

effect to changes in the natural environment Case Questions

2. Which of Porter’s Five Forces has had the biggest impact in depressing industry profitability?

Porter’s Competitive Model
Airline Industry Analysis

•Aircraft Manufacturers
•Aircraft Leasing Companies
•Labor Unions
•Fuel Companies
•Airports

Bargaining
Power
of Suppliers

•Alternate Travel Services
• Fast Trains
• Boats
•Private Transportation
•Videoconferencing

Threat of
New Entrants

•Foreign Carriers
•Start ups (Low Cost Carriers)
•Technology

Industry Competitors
Rivals: United,


References:  Contemporary Strategy Analysis  – Robert M. Grant 8th ed. Questions?
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