Business Operations and Activities
Explain and outline the business operations and activities of the U.S airline industry.
The main motive of this paper is to explain and outline the business operations and activities of the U.S airline industry. The U.S airline industry is growing and leading industry in today’s competitive world. The paper explains that how the industry uses porter five forces analysis to overcome and handle the competitors. Besides this, business strategies and economic performance of the industry have been explained in detail in the task.
The U. S airline industry is remains in the midst of an historic restructuring. Over the last five years, the U.S airline industry has eliminated their annualized mainline costs and expenses excluding fuel by more than 25% or nearly $20 billion. The airline industry is focuses on the labor, fuel, customer service, external distribution, commission, pension and maintenance. It has been noted that United States has an extensive and large air transportation network. It has been analyzed that there were 86 airports in the United States that managed and handled the more than 1, 00,000 passengers in 2013. The main mission of the U.S airline industry is to provide air services to the passenger at cheaper prices to win and capture the entire market. Along with this, the vision of the company is to increase and enhance the profitability and revenue by rendering unique air services to the passengers across the world (Johnston and Ozment, 2013). It has been revealed that U.S airline industry is struggling to earn profit and revenue. Apart from this, the industry focuses on the plans, policies and strategies of the competitors to gain competitive advantages in the market. To attain long term goals and objectives, the industry focuses on the needs, preferences and tastes of the consumers. It will also help to attract and maximize the number of passengers in the marketplace. Delta and northwest merged in 2008 and united and continental merged in 2010. PESTLE analysis is done by the industry to know and understand the opportunities and threats of the marketplace. The pestle analysis includes political, economic, legal, environmental, socio-cultural and technological factors (Belobaba, Odoni and Barnhart, 2015).
It has been analyzed that porter five forces analysis is an effective and useful tool and method to analyze the macro environment of the country in which the industry operates its business actions and activities (Holloway, 2017). This analysis helps to gain competitive advantages in the global market and it helps in maximizing the outputs and revenue of the industry. The porter five forces analysis has been elaborated below.
Porter’s Five Forces Analysis
(Source: https://courses.cit.cornell.edu/jl2545/4160/submitted%20presentations/2016/airlines.pdf)
Power of suppliers: After the various studies it is noted that bargaining power of supplier is high and immense in U.S airline industry. The power of supplier is immense and huge because of the three factors such as labor, aircraft and fuel that are being affected by the macro environment of the country. The prices of the aviation fuel are subject to the fluctuations in the international market for oil that can turn widely because of the geopolitical and other components. On other hand, labor is considered the power of unions who usually bargain and get unsuitable and costly concessions from the airlines. Besides this, aircraft is also one of the significant factors that need to be considered by the U.S airline industry. Due to these factors, the power of suppliers is high in the competitive market (Hannigan, Hamilton III and Mudambi, 2015).
Bargaining power of buyers: With the creation of distribution and online ticketing system, the industry has been able to gain competitive benefits in the market. It is noted that customers have a low switching costs between airlines. These choose U.S airline based on the availability and cost. Each airline has a niche that attracts and retains the consumers in the U.S market. The online portals provide customers with airline tickets, striving on price and flight timings. Examples include expedia.com and SkyScanner.com. It is noted that the power of buyers is moderate high in the U.S airline industry as per porter five forces analysis method. Besides this, the buyers can operate and engage in price discovery to gain long term benefits and outcomes. This force also focuses on the customer loyalty and morality to achieve the goals and objectives (Rothaermel, 2015).
Entry and exit barriers: Huge investment is done by the industry to enter in the new market. They need to write down and absorb various types of losses and damages. It means the entry barriers are high in the U.S airline industry. Along with this, acquiring high costs assets like skilled employees, planes, the industry also requires to collect the necessary and important permissions and obtain parking and docking space at enormous airports. It is noted that there are effective and important exit barriers in the airline industry due to inflexible and rigorous rules, regulations and norms. Apart from this, planes are available on lease and purchased second hand as well. Starting out in a particular nation is allowed and is generally initiated as a strategy by entrants, eliminating the initial cost and complication (Grant, 2016).
Economic Performance
Threats of substitutes: The U.S airline industry is not a threat from the substitutes and complementarities as unlike in the developing countries. The consumers do not prefer train and bus for travelling. Therefore, flight is important option for the consumers. It is noted that potential consumers have the ability and potential to choose different methods of transportation such as buses, trains and boats. However, switching cost is associated with it. Therefore, the consumers may not prefer other methods of transportation for shorter distances. The technological communications like video conferencing, WebEx and Skype techniques are slowly becoming a substitute to the U.S airline industry especially for the business meetings. Threat of substitutes is one of the significant issues in the U.S airline industry (Flouris and Oswald, 2016).
Intensity of competitive rivalry: It has been stated that airline industry in the U.S is excessive competitive because of enormous reasons that include entry of low cost carriers, and tight regulations of the airline industry wherein safety become a paramount leading and growing to high and immense operating expenses. It is noted that the operations and activities of the industry are carried according to the business model that is a quite outdated and old. Besides this, the U.S airline industry is regulated and carried on the supply side more than demand side. The competition is high in airline industry in the environment due to time to time entry of low cost carriers and difficult regulations due to the issue of safety which increases and improves the operational expenses. There is very little differentiation between the loyalty programs such as flyer miles and available choices. This could affect the image and goodwill of the industry in the international market.
Advantages of the porter five forces analysis
- This analysis is used by the industry to understand and provide the way of market forces analysis.
- This analysis helps in gaining rivalries benefits in the international market.
- Peace of change is possible through this analysis.
- The analysis is based on the idea of competition.
Disadvantages of porter five forces analysis
- This analysis static thus all the changes are not recorded by the industry.
- The porter five forces analysis has limited value because it is failed to provide change situation.
- The competitors are unable to maintain cooperation and communication in the international market.
- Barriers to entry are one of the biggest disadvantages for the U.S airline industry.
- The porter five forces analysis is unable to provide meaningful information and facts about how best to take eliminating and preventive actions.
It is noted that U.S airline industry launched and introduced the economic performance of the airline industry. The economic performance outlines that how air transport is adding value for the whole consumers, government, investors and wider economy (DeGrasse, 2016). The airline industry continuously focuses on the profitability by improving and enhancing the efficiency and effectiveness. The industry also focuses on the transport costs and investments to beat the competitors in the international market. The investors will get more favorable results and returns from the U.S airline industry. The industry average return on invested capital is expected to reach maximum 5.4% in 2014 however, with the improvement and enhancement, there is a still a gap before return on invested capital in the country (Delgado, Porter and Stern, 2014). The industry is forecasting to make substantial investments and major participation to employment and economic development. Since March the economic environment has deteriorated (Jenatabadi, 2013). The business confidence has fallen due to various issues and concerns. The U.S airline industry continues to improve and enhance their own performance and efficiency through an improved and develop the industry structure. The U.S industry’s total operating revenue came to just over 200 billion U.S dollars in 2016. It is noted that operating revenue of the U.S airline industry is increasing and boosting day by day (Statista, 2018).
Profitability Strategies
There are various strategies initiated by the U.S airline industry to stand out against the competitors and to maximize the revenue and returns in the international market. Some of the effective and unique profitability strategies are discussed below.
Lower level business strategy: One of the significant strategies used by the U.S airline industry is lower level business strategy that helps to stay in the competitive market. It is analyzed that U.S airline industry is intensively competitive. The global economy downturn generated a thriving a market for low cost, and no frills airlines in the marketplace. The lower business level strategy is used by U.S airline industry in order to provide a value to consumers and attain competitive benefits by exploiting the core values and competencies in specific and individual products and services in the marketplace. The three types of effective and dynamic business level strategies include focus strategy, differentiation strategy and cost leadership strategy. These strategies help the industry to be a leader in the rivalries market. Furthermore, it also helps in attaining long term success and growth within maintaining sustainability in the marketplace. The differentiation strategy is implemented by U.S airline industry to differentiate its services from the competitors.
Corporate strategy: It is one of the significant strategies of U.S airline industry. It provides design in all the aspects of their business. Under this strategy, the U.S airline industry provides television on all flights and excellent customer service to all of their passengers. Under this strategy, the industry provides air travel customer services to the clients and passengers. By using this strategy, the industry has been able to overcome the competitors in the global market. The U.S airline industry focuses on the needs and requirements of the consumers by using this strategy within the organization (Hickman and Silva, 2018).
International strategy: It has been analyzed that international business strategy is used and initiated by the industry within the organization to accomplish the desired goals and targets. International business strategy refers to plans and policies that guide and assist commercial transactions taking place between entities in various countries. Along with this, it is analyzed that international business strategy helps the U.S airline industry to accomplish the goals and maximize the returns and revenue. No company can strive and grow without using effective and unique international strategy. The U.S airline industry should focus on the international strategy to cope with rivalries in the international market (Wensveen, 2018).
Innovation strategy: This is one of the leading and attractive strategies for the U.S airline industry. After the various researchers, it has been found that innovation strategy is a heart of the U.S airline industry. This strategy helps the industry to distinguish the company’s products from the rivalries. Big data, forecasting innovation and the development and expansion of unmanned aircraft are included in the innovation strategy. This strategy helps the industry to make a bright and unique future in the market. Advanced and latest technology and resources are used by the U.S airline industry to maximize the outputs and minimize the risks and challenges of the market. Along with this, training and development programs are held by the industry to provide training and learning to the employees for serving best services towards passengers (Kim and Mauborgne, 2014).
Merger, acquisitions and alliances: It has been found that merger and acquisition strategy is used by the U.S airline industry in order to earn more revenue and benefits. It helps in fixing the deal with clients. Through merger and acquisition strategy, the U.S airline industry focuses on cost cutting and excess capacity reduction to combat rising recession and fuel prices. Apart from this, alliance strategy is also implemented by the industry in the workplace increase the sales and revenue. Alliance strategy helps in expanding and flourishing the network through code sharing among the customers. Cost sharing can be done with the help of alliance strategy. It is much easier strategy for the U.S airline carriers to collaborate and communicate with other carriers through airline alliances and code sharing network (Lee, Seo and Sharma, 2013).
The U.S airline industry is one of the important and effective industries that provide air services to the passengers in all over the world. It has been noted that various models and strategies are used by the industry to reduce and eliminate the barriers to entry for new airlines (Zou et al, 2014). Apart from this, unique and effective code of conducts is followed by the team members when providing air services to the passengers all over the world. Besides this, porter five forces analysis, pestle and SWOT analysis are used by the industry strive with competitors across the world. Porter five forces analysis helps in attaining as competitive advantages in the market. On the other hand, this analysis restricts the industry to expand the business globally just because to limited presence in the entire market (Williams, 2017). In today’s modern world, the company has declined its profits and revenue due to high and immense competition exist worldwide that may affect the sustainability of the environment as well as industry. After analyzing the various strategies, it has been found that corporate and business level strategies shall be used by the U.S airline industry to boost and maximize the outcomes and profitability (Lee, Seo and Sharma, 2013). It is recommended that the airline industry should also focus on the leadership strategy to motivate and encourage the team members for enhancing and improving the performance and productivity. Along with this, marketing campaigns and programs shall be done by the U.S airline industry to attract and retain maximum number of passengers (Cornell, 2018). The company needs to focus on the deregulation to make a strong position in the market.
Conclusion
The above mentioned analysis shows that how the U.S airline industry is playing a major role in each and every economy of the country. The analysis indicates that how the industry provides air travel services to the consumers. Here is the discussion about the porter five forces analysis that is used by the industry to attain the enormous competitive benefits. The analysis shows the effective and unique strategies of the U.S airline industry. Apart from this, economic performance and mission of the U.S airline industry have been explained in the task
References
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