Airline Industry: a Competitive Structure

This has forced all airlines to cut costs were they can as well as add fees such as, adding a 20 dollar fee to check in your luggage. As result there are now less airlines operating in the U. S through mergers dominated by the big 4 making it an oligopoly. Competitors The major companies operating in the airline industry are U. S Airways, Jet Blue, American Airlines, U. S Airways Group, Alaska Air Group, Delta-Northwest, United- Continental, Southwest-Artisan, and Republic Airways holding. A new development in the industry has been the merging of several airlines such as United-continental.

The result of these merges has created an industry dominated by 4 major U. S Network carries (United, Delta, American, and U. S Airways). Of the big airlines American Airlines currently faces a unique problem reporting losses near 5 billion since 2008. Unlike its competitors the company did not declare bankruptcy which, other airline companies used to cut down costs as well as missed an airline consolidation package. A new marketing strategy offered by select airlines such as Delta and American Airlines is the use of a Wi-If system called GO offering customers the use of Wi-If during flights which in turn attracts more business customers.

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In 2008 American Airlines began to charge for checking in a second bag and this began a new pricing strategy using “ancillary’ fees. In using this pricing strategy American Airlines generated in 2009 7. 8 billion in ancillary fees. Using ancillary fees has now become a standard practice in the airline industry and has even helped keep operating costs down. Another marketing strategy airlines have adopted is a shift from market share at all costs, which costs airlines billions of dollars in revenue, to one of sustaining probability through returns of capital investment.

A important strategy also adopted by airlines is the use of capacity restraint effectively. In the past when airlines experienced a downturn due to fuel prices airlines would cut capacity and when demand increased airlines quickly raised capacity which led to over capacity and limiting potential fare increases. Barriers An overlooked barrier in the airline industry is the use cash reserves. An example of this is Continental in its balance sheet keeps 8. 9 billion in cash and assets this allows the company to be more liquid in the event of an industry downturn . Another barrier to entry is the volatile market price of oil.

During a 4 year course in 2008 a barrel of oil was at 147. 27, during 2009 it receded to 61. 95 and finally currently oil is at 96. 98 a barrel. Major airline companies have recently began extensively merging service in the U. S as well as abroad in Europe. The effect of these mergers is, fewer Airline Industry: a Competitive Structure By typhoon 2 willing to continue to pay these prices. As a result of these costs as well strong mergers of existing companies entering the airline business is very expensive as it’s an industry controlled by a select few companies and reduction in airline capacity.