The U. S. Airline Industry in 2009 Summary At the beginning of the twenty-first century, airlines were the most dominant mode of long-distance transportation in the U. S. Shorter Journeys were usually traveled by means of car, bus, or rail. Case 3: The U. S. Airline Industry in 2009, discusses the financial crash of 2008 and the tragic events that accorded on September 1 lath and how it affected the airline industry. The financial crash in 2008 led to a downward spiral for the entire economy. Airlines seen a massive decline in passenger traffic and an increased cost for labor, fuel, equipment and facilities.
Due to airlines crisis years, 2001-2009, major airlines also had to cut cost. Union contracts were renegotiated, inefficient working practices were terminated, routes that were not profitable were eliminated, and employment numbers were reduced. Airlines were already losing many of their loyal customers, as a result of increasingly cut back on customer amenities. Even though there were cutbacks on customer amenities, airlines still found a way to continue providing first and business- class ticket holders with amenities like, spacious seats and intensive in-flight pampering.
Leisure customers were not thrilled about the actions of these airlines. The airline industry needed to develop a strategy that would make them profit once again and gain back the loyalty of their customers. Porter Model To help analyze the airline industry, I will use the Porter Model. The Porter Model focuses on five forces of competitive position: bargaining power of suppliers, threat of substitutes, bargaining power of buyers, threat of new entrant. Bargaining power of suppliers help us determine how easy it is for suppliers to drive up prices.
If there are fewer suppliers to choose from the company must then rely more on their current suppliers. This means the suppliers are powerful, making the profit maximizing potential of the industry high. Threat of substitutes shows if the industry is affected by the ability of their customers to find a different way of receiving the same service that is offered by your company. Customers also look at the quality of the competitors product or service to determine if they want to switch providers. If substitution is easy and substitution is viable, it then weakens your power.
Bargaining power of buyers is determined by the ability for buyers to drive prices down. This is driven by the number of buyers, the importance of each individual buyer to the industry, and the cost of them switching from your products and services to your competitors. If there is few powerful buyers, they are most likely to dictate terms to you. Buyers have more bargaining power when a product is not differentiated, buyer purchases in bulk quantities, when shopping cost is low, and when few buyers are chasing too many goods.
Threat of new entrants is affected by the ability of people to enter the market. If Airline Industry By hammerheads protection for key technologies, the new competitors can enter the market quickly. This weakens your position. In order to be profitable and dominate your industry, one must have strong barriers to entry so you can preserve a favorable position and take fair advantage of it. Often when new firms enter into industry low performing companies leave the market easily. Bargaining Power of Suppliers in Airline Industry 1 .
Aircraft manufacturers 2. Labor unions 3. Food service companies 4. Fuel companies 5. Airports 6. Local transportation services 7. Hotels Bargaining Power of Buyers in Airline Industry 1 . Travel agents 2. Business travels 3. Federal Government 4. Pleasure travelers 5. Charter services 6. U. S Military 7. Cargo and mail Threat of Substitutes 1 . Alternative travel services (boat, train, car, bus, etc) 2. Private transportation 3. Video conferencing Threat of New Entrants 1. Foreign carriers 2. Regional carrier setup 3.
Cargo carrier Profitability To become profitable, airlines must ask themselves “Are our flights as profitable as they should be? While gaining customer traffic is important to airlines, it is not enough to ensure maximizing revenue. There are 3 ways an airline can help maximize the revenue from each flight: 1) Pricing 2) Revenue management 3) Revenue integrity. Pricing helps ensure one is not missing possible pricing opportunity or giving away market to competitors. Revenue management helps understand, anticipate and influence consumer behavior.
There are three essential notations for revenue management to be applicable: 1) a fixed amount of resources available for sale 2) resources to sell are very perishable 3) customers are willing to pay a different price for using the same resources. Revenue integrity helps maintain cleaner inventory to maximize the possible revenue per flight. This can help increase revenue, identify problem booking earlier, and release seats back to sell while there incremental revenue by using alerts and automated rules that allow you to tailor bad booking resolution process to your specific needs. Changes to Increase Profitability
In order to be profitable, once again, airlines need to adopt the new technologies that are offered today. Technologies can not only bring in revenue from prospective customers, but it can also saves money. Thus making the airline industry profitable once again. Customers want a number of things when it comes to searching for a airline, reasonably priced tickets being one of them. Airlines could provide prospective passengers with the chance to “shop around”, by using a wide range of internet- based search mechanisms that are created to compare and select from a variety of light options.
This allows customer to select a flight that is considered reasonably priced to them. Another important quality passengers look for in a airline is how convenient their flight schedules are. Technology could help passengers compare different flight schedules that is convenient for them. Passengers usually have to work around the flights schedule, but the flights schedule should work around the schedule of the customer. Smoothness and speed is another issue that passenger have.
Smooth and speed is the time spent in the actual transportation system, this includes security checkpoints, boarding in the departure terminal, deplaning, baggage claim, and checking in the flight. When you enter an airport there is normally chaos, especially during the holidays. Technology can not only speed up and make these processes go smoothly. It can also lure customers who avoid airlines because of the mayhem. With new technology, passengers will be able to check-in early via the internet and check-in their baggage at the self service check-in kiosks. Security checks also pose as a problem for passenger.
Although airlines can not do anything bout the amount of security, technologies could be created to make passengers feel safe enough to travel, while making the process go smoother. Conclusion The airline industry must embrace the power of new technology. Technology is the key to the success and survival of the airline industry. The airline industry must also gain back the trust and loyalty of the customers, by making their experience convenient and comfortable. Even though cutbacks had to be made airlines should not Just cut back on the amenities given to pleasure travelers, because they also contribute to the revenue.