Airline Industry Analysis

Deregulation around the world in sass and sass lowered fares, raised efficiency, increased competition, encouraged new entrants and expansion of existing networks. Led to overcapacity with insufficient liquid reserves to wait out the inevitable downturns. Students need to use this information to describe the situation today. Just saying it adds little. Airline Industry Analysis By bantam’s ; Green movement ; The increase of video teleconferencing as a substitute to transportation Demographic ; Not worth mentioning? ; Students must support an argument that demographics matter. E. G. Rise in women with incomes to support travel and rise in women traveling. Foreign ; North American market ; Competition with the US 3. Demand Analysis Immediate customers, if different from End users End users ; Two distinct customers: business and personal ; Leisure – holidays ; When do people spend money on leisure ; Global economic recession/slowdown impact Business users pay premiums Substitutes ; Discuss the distance between cities – thus a car/train is not a threat now This is a good place to mention the growth of alternatives to business traveling Other airlines are not substitutes, they are competitors.

Real and nominal growth Trends and cyclical variation around trends ; Hard to find much that is interesting in the macro data. Possible real growth is limited to 2-3% p. A. In the long-run. Add inflation for a possible 5% nominal growth. If costs are going to rise faster, consumption will be constrained. 4. Supply Analysis Degree of concentration who are the rivals, what are market shares? Easy of entry Industry capacity Returns to scale vs. returns to scope all the scheduled airlines are large.

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The niche players like Porter and North operate in limited markets, either cherry-picked or ones that major airlines cannot service. No such thing as scope in the airline market. ; There is an overcapacity, shown by the number of airlines that have failed 5. Profitability Supply/demand analysis Cost factors – fuel – volatile ; Discuss the factors that are most important to the profitability of airline industry ; Perishable inventory . International Competition and markets – US mainly. Its airlines and Canadian airlines now compete cross-border. Competition lessened by code- sharing deals.

E. G. United and Air Canada code share; so if you book with Air Canada, you may fly with either United or Air Canada. Reduces price competition and improves capacity utilization. 7. Porter Five Factor Analysis of the Industry (Assessment using the information from the preceding sections) ; Names and market shares – domestic and foreign ; Big Jet – Boeing and Airbus ; Smaller size Jets and turboprops – Embrace and Bombardier . SOOT (Strengths, Weaknesses, Opportunities, Threats) of one company in the industry Strengths ; Look at the load and yield factors.

Must do it, cannot Judge strength otherwise ; Deep pockets. This industry is so cyclical a company has to be able to ride out a downturn even with the very high fixed costs of the airplanes. Since 1974 some of the most famous names in the airline industry around the world have failed or been forced to merge. This can be a strength or weakness. ; Service. You make the argument that it matters and how well or badly AC or W] does. Chris believes WAS has much stronger reputation and it is a perceived weakness for AC, but you could find the evidence.

AC claims in its annual report that it got more international quality awards than any airline in the world, but such awards are always a bit questionable, in Chrism’s opinion. Threats ; Sustained rise in fuel prices with a simultaneous economic downturn ; What if American airlines could freely offer domestic flight in Canada ; High speed rail Montreal-Toronto or Montreal-Windsor ; Sustained economic recession – Chris believes the party is over forever ; Is video-conferencing a significant threat to business travel