Jessica Fogler

Christi Louis

Adam Wandy

Jennifer Zupnick

The Airline Industryan external analysis

• Industry revenues: est. $90.5 billion

• 75% of all American flown at least once

• Passenger air travel dominates all other types of transportation in commercial inter-city mkt

– 91% of airline industry revenues

Industry Characteristics

• Passenger airline contingent upon dev. of aviation industry– Began in 1903 w/ the Wright brothers flight

• Air as travel method popularized in 1927• Mail service spurred further development• Currently technology booms led to extreme

maturity– Jumbo jets able to carry hundreds of

passengers• This leads to extreme competition between

industry leaders

Industry Maturity

Major Airlines

>$1billion annual rev.

United Airlines American Airlines

Delta Airlines Southwest Airlines

Aviation Industry

Mail ServiceAeronautic/Gov’tPassenger Air Travel

National Airlines

$100mill-$1bill revs.

Regional Airline

<$1million rev.

Opportunities

• Globalization• World Wide Web

– Home page

– Community websites (Priceline, Expedia)

Threats

• Fear– Terrorism

– Disease

• Substitutes– Car Services, Train

Services

• Weather Conditions• Staff strikes

Suppliers

• Dependent upon numerous suppliers• High level of power:

• Airports

• Fuel Companies

• Labor Unions

•Low level of power:

•Aircraft Manufacturers

•Food Service Companies

• No switching costs between airlines

• Internet prices comparison websites

• Business travelers and travel agencies have ability to exert more power

• Power has decreased recently due to “Baby Boomers” maturing and using travel for vacation purposes

Buyers

• Strong brand identification, customer loyalty• Extremely large capital requirements• Trend towards fewer, but larger carriers• Limited number of gates and restrictions at

major airports

Porter’s Five ForcesEntry Barriers

• Increased in recent years Videoconferencing, groupware

• Numerous other forms of transportation, could substitute for flying short distances.

Trains, automobiles, buses

• Highs peed trains have increased threat for longer distance

Porter’s Five ForcesSubstitutes

• Travel Agencies

• Snack food & Convenience Meal Cos.

• Airline Attendants

Porter’s Five ForcesComplementors

Porter’s Five ForcesRivalry

• Consolidation of firms

• Mature industry with slow growth

• High fixed costs, low variable costs

• No switching costs

• Difficulty of differentiation

• High exit barriers

Domestic: Northwest & United

Hub and spoke & LCC

Transatlantic: BA & Virgin Airways

Segments

• National Majors (hub and spoke)

• Regional

• Low Cost Carriers

Trends for the Future

• Global Alliances

• Expansion

• Revamping

• Removing First Class

2002