...Industry Competition 3 Chapter Outline 3-1 Industry Life Cycle Stages 3-2 Industry Structure 3-3 Intensity of Rivalry among Incumbent Firms 3-3a Concentration of Competitors 3-3b High Fixed or Storage Costs 3-3c Slow Industry Growth 3-3d Lack of Differentiation or Low Switching Costs 3-3e Capacity Augmented in Large Increments 3-3f Diversity of Competitors 3-3g High Strategic Stakes 3-3h High Exit Barriers 3-4 Threat of Entry 3-4a Economies of Scale 3-4b Brand Identity and Product Differentiation 3-4c Capital Requirements 3-4d Switching Costs 3-4e Access to Distribution Channels 3-4f Cost Advantages Independent of Size 3-4g Government Policy 3-5 Pressure from Substitute Products 3-6 Bargaining Power of Buyers 3-7 Bargaining Power of Suppliers 3-8 Limitations of Porter’s Five Forces Model 3-9 Summary Key Terms Review Questions and Exercises Practice Quiz Notes Reading 3-1 26061_03_ch03_p037-060.indd 37 1/10/08 7:01:36 PM 38 Chapter 3 T Industry A group of competitors that produce similar products or services. 26061_03_ch03_p037-060.indd 38 his chapter marks the beginning of the strategic management process and is one of two that considers the external environment. At this point it is appropriate to focus on factors external to the organization and to view firm performance from an industrial organization perspective. Internal factors are considered later in the process and in future chapters. Each business operates...
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...The Commercial Airline Industry | | The Commercial Airline Industry There are many inventions and advancements that have changed the way mankind lives, communicates, and functions, but few have established a fundamental turning point that has added new breadth to the way we live like the airplane did. Airplanes have allowed us to see and visit parts of the world we would have never dreamed existed. It has also been a key factor to defeating our enemies and protecting our allies overseas in wars. Now it has become a part of our day to day activities and it would difficult to picture our lives without it. The commercial airline industry is a growing industry. “In the past decade, air travel has grown by 7% per year…Scheduled airlines carried over 1.5 billion passengers last year alone”, (Stanford/Airline Industry) and because of globalization this number is just going to rise. Threat of New Entrants (High) One of the major barriers to entry in the Commercial Airline Industry is the high cost of capital. The immense amount of money it takes to enter this industry is not enticing especially with an average gross profit margin of around 3-5% across the industry. Another risk to be considered when entering this industry is the unpredictability of weather. Take Iceland’s Volcano eruption in April 2010 for instance; the volcanic ash left airlines motionless in the EU costing them $200 Million a day. When planning on entering this market it is vital to have a good cash cushion...
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...A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc. The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares. Some low-cost carriers operate aircraft configured with a single passenger class, and most operate just a single type of aircraft. In the past, low-cost carriers tended to operate older aircraft, older models of the Boeing 737. Since 2000, fleets generally consist of smaller, newer, more fuel efficient aircraft, commonly the Airbus A320 or Boeing 737 families, reducing training and servicing costs. Airlines often offer a simpler fare scheme, such as charging one-way tickets half that of round-trips. Typically fares increase as the plane fills up, which rewards early reservations. Often, the low cost carriers fly to smaller, less congested secondary airports and/or fly to airports in off-peak hours to avoid air traffic delays and taking...
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...Airlines also earn revenue from transporting cargo, selling frequent flier miles to other companies and up-selling in flight services. But the largest proportion of revenue is derived from regular and business passengers. For this reason, it is important that you take consumer and business confidence into account on top of the regular factors that one should consider like earnings growth and debt load. (For more about the consumer confidence survey, see Economic Indicators: Consumer Confidence Index.) Business travelers are important to airlines because they are more likely to travel several times throughout the year and they tend to purchase the upgraded services that have higher margins for the airline. On the other hand, leisure travelers are less likely to purchase these premium services and are typically very price sensitive. In times of economic uncertainty or sharp decline in consumer confidence, you can expect the number of leisure travelers to decline. It is also important to look at the geographic areas that an airline targets. Obviously, more market share is better for a particular market, but it is also important to stay diversified. Try to find out the destination to which the majority of an airline's flights are traveling. For example, an airline that sends a high number of flights to the Caribbean might see a dramatic drop in profits if the outlook for leisure travelers looks poor. A final key area to keep a close eye on is costs. The airline industry...
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...One of the industries which perhaps has shown the most changes in market model is the airline industry in the United States. The airline industry can be analyzed different before and after deregulation and before and after the terrorist’s attacks of September 11th. These events have changed the industry in terms of both airfares and market concentration in major airports. Prior to deregulation in the 1970’s the Department of Transportation (DOT) served its goal by looking after the public interests. Once the focus of the DOT shifted to assuring airlines were operating under strict safety standards and procedures this gave a chance for airlines to take on any domestic route it felt capable of performing. Deregulation resulted in structural changes for airlines. Following deregulation, most of the largest airlines began to operate in the now well known hub-and-spoke system, which allowed for efficient connections for passengers from small- and mid-sized cities, but it also has increased airline concentration at hubs. As a result, the net effect has been to increase the choice of carriers at non-hub cities and to increase the frequency of service but also to increase the market concentration at hub cities. According to Parkin, (2011) most governments use a mechanism for allocating airport boarding gates and facilities, in some cases it even allows for competitive bidding for boarding gates and landing rights thus encouraging competition among airlines, and it also might encourage...
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...FACT SHEET: Industry Statistics System-wide global commercial airlines REVENUES, $ billion % change Passenger Cargo Traffic volumes Passenger growth, tkp, % Passenger numbers, millions Cargo growth, tkp, % Freight tonnes, millions World economic growth, % Passenger yield, % Cargo yield % EXPENSES, $ billion % change Fuel % of expenses Crude oil price, Brent, $/b Non-Fuel cents per atk (non-fuel unit cost) % change Break-even weight load factor, % Weight load factor achieved, % OPERATING PROFIT, $ billion % margin NET PROFIT, $ billion % margin 2001 307 -6.4 239 39 -2.3 1640 -6.0 28.8 2.2 -4.4 1.9 319 0.5 43 13 24.7 276 39.4 0.9 61.3 59.0 -11.8 -3.8 -13.0 -4.2 2002 306 -0.5 238 38 -1.0 1639 8.7 31.4 2.7 0.3 -9.5 311 -2.7 40 13 25.1 270 39.0 -1.0 61.9 60.9 -4.8 -1.6 -11.3 -3.7 2003 322 5.2 249 40 1.4 1691 3.9 33.5 2.8 3.3 2.0 323 4.0 44 14 28.8 279 39.2 0.7 60.9 60.7 -1.4 -0.4 -7.5 -2.3 2004 379 17.7 294 47 16.7 1888 7.9 36.7 4.2 1.0 7.4 376 16.2 65 17 38.3 311 39.5 0.6 61.9 62.5 3.3 0.9 -5.6 -1.5 2005 413 9.1 323 48 7.0 2022 0.4 37.6 3.4 2.7 2.4 409 8.9 91 22 54.5 318 38.6 -2.1 62.0 62.6 4.3 1.0 -4.1 -1.0 2006 465 12.6 365 53 5.4 2124 3.9 39.8 4.0 7.4 6.9 450 10.1 107 24 65.1 343 40.1 3.9 61.3 63.3 15.0 3.2 3.6 0.8 2007 510 9.6 398 59 5.7 2281 4.0 41.8 3.8 3.0 5.9 490 8.8 134 27 73.0 356 39.6 -1.4 60.8 63.3 19.9 3.9 12.9 2.5 2008 564 10.5 439 64 0.4 2271 -1.2 40.5 1.7 9.9 10.2 573 16.9 189 33 99.0 384 42.4 7.2 63.8 62.8 -8.9 -1.6 -16.0 -2.8 2009E 483 -14.3 369 49 -2.1 2228 -9...
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...The airline industry is one of the biggest industries in the UK. From October 2007 to November 2008 there have been a total of 238,912,000 passengers flying from UK airports (CAA 2008). Over recent years there has been an increase in the number of airlines going into liquidation. Most recently XL Leisure, which was the UK’s third largest travel operator, went into liquidation in the summer of 2008. This left tens of thousands of passengers stranded at home and abroad. Since the start of the 21st century there have been many events which have affected the industry. According to Doganis (2006) the downturn which some airlines were feeling in 2000 turned into disaster in 2001. The attacks in the USA in September 2001 had affected the industry globally. This brought about a lot of changes in the way the general public flew. This crisis was followed by a major increase in the price of fuel in 2004. According to Doganis (2006) this had a major effect on airlines, some worse off than others. Many airlines lost millions of dollars, some collapsed and some had to be rescued by their governments. I am a keen traveller and am constantly using different airlines to travel to different parts of the world. When asked to choose an industry to research I felt it best to research an industry which I am interested in. I had also been affected when XL airlines went into liquidation and was stranded in Egypt. Therefore the opportunity to analyse the industry is one which I believe I should...
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...Individual Reflection Paper Before beginning our analysis of the airline industry, I had made some assumptions based solely on my experience as a customer. Some of which were verified but others turned out to be false. Seeing that there are minimal competitors, I assumed that it would be a difficult market to enter which was verified in our study showing the airline industry is an oligopoly. Another pre-conceived notion about the industry that proved to be correct was how fuel cost drove airfare and fee pricing. As fuel cost increased, so did airfare along with the creation of more ancillary fees for things such as baggage or roomier seats. I had also assumed that new successful entrants would be attacked in a way that would cause them to go out of business. In reality, they are targeted but for acquisition reasons which was a surprise to me. I found the percentage of the workforce employed to be particularly interesting along with the schooling necessary to obtain each position. The interesting aspect is that every group in the workforce does not require a degree from a traditional university. All training necessary for a career within the airline industry is specific to that role and is not easily transferrable over to other career paths. This makes me think that many individuals have decided before graduating high school that they will pursue a career in this industry since the traditional university does little to help. Once they have started at a local university,...
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...THE AIRLINE INDUSTRY: Trends, Challenges, Strategies John Wensveen, Ph.D. Dean, School of Aviation Dowling College New York, USA www.dowling.edu President, Airline Visions www.airlinevisions.com The University of Sydney Faculty of Economics and Business Leadership and Policy Seminar Series Sydney, Australia 23 February 2010 Presentation Objectives • Provide background on the global industry • Present a regional analysis • Discuss current and future evolvement of the industry (trends) • Discuss challenges and strategies impacting the industry • Discuss the new breed of airlines • Discuss why airlines fail and how to achieve success Background Section 3 Stages of Development Impacting the Airline Industry • • • • Regulation Liberalization Deregulation “Re-regulation” Phases of Industry Restructuring (resulting from Deregulation / Liberalization) • Expansion • Consolidation • Concentration Past, Present and Future Trends The Global Airline Industry 2012 2010 2008 Time 2006 2004 2002 2000 1998 Survive Adapt Recover Rethink State of Industry “Scenarios” • • • • • SARS 9/11 War Financial Crisis of 2008, 2009, 2010… What to prepare for… – – – – Globalization Change in international political landscape Distribution of natural resources (oil, gas, water) Internal conflicts (shifts in power) and unintended consequences and unintended consequences of good intentions Public and international perception War Terrorism Continued financial issues – – –...
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...[pic] [pic] As shown on the income statement the profit margin has been negative in the airline industry since 2000. However, in 2006 U.S. airlines generated an operating margin of 4.6 percent on operating profits. After factoring in $4.1 billion in interest expense, $653 million in income taxes and $301 million in miscellaneous non-operating income, the industry posted net earnings of $3.0 billion and net profit margin of only 1.9 percent. This was well below the average for U.S. corporations. In 2006 things started changing for the airline industry. In 2006 passenger airlines utilize nearly four fifths of the seating capacity. Also, rising passenger yield and aggressive cost control drove the average break-even load factor down four points to 79 percent. While that threshold remained weakly high, allowing for only the slimmest of profit margins (airlines.org). Operations U.S. airlines posted record passenger and cargo traffic in 2006. About 744.6 million passengers took to the skies on U.S. airlines, which was a 0.8 percent increase over 2005. Domestic and international grew 0.2 percent and 6.8 percent, respectively. Passenger traffic, as measured in system wide revenue passenger miles (RPMs), grew 2.4 percent. Domestic RPMs increased 1.0 percent, well below the prior year’s growth rate of 5.0 percent. International traffic increased an notable 6.4 percent, but trailed the 2005 growth rate of 9.7 percent. Traffic growth was particularly strong in the Latin...
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...Tony Fernandes Jetstar, an Australian incorporated company, is a subsidiary of QANTAS currently managed by CEO Bruce Buchanan Industry Both companies operate mainly in Asia Pacific region’s budget passenger airline industry. However, both are not fully integrated as they do not build their own aircraft. Both companies only offer economy class for its flights, which travels within Asia Pacific region and to selected international destinations. Core activities include ? Activity Analysis: First, you identify the activities you undertake to deliver your product or service; Value Analysis: Second, for each activity, you think through what you would do to add the greatest value for your customer; and Evaluation and Planning: Thirdly, you evaluate whether it is worth making changes, and then plan for action. Access the industry’s future growth Current- life-cycle position of the industry Generally, based on the information given, it seems that the airline industry in overall is on a decline. This is supported by the fall in premium air passengers by 25% and the declaration of bankruptcy by Japan Airline However, due to these factors, the initial public offering of Tiger Airways, another budger airline and the prediction of increase in revenue in Jetstar’s operation by Bruce Buchanan, it is likely that the budget airline industry is growing at a rate more than 10%. Key issues affecting future growth | |Description ...
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...ANALYSIS OF THE AIRLINES INDUSTRY Introduction The airlines industry in the U.S. provides air transportation services for passengers. To determine the current state of the airlines industry, various analyses were performed. An analysis of the macro-environmental factors affecting the industry was first analyzed. Then, a Porter’s five forces analysis was used to determine the attractiveness of the industry, and current changes in the industry as a whole. Key success factors were analyzed to determine a firm’s ability to thrive within the marketplace. And lastly, a strategic group map was created to assess the companies that are best positioned and worse positioned in the industry, along with a financial analysis of major competitors in the industry. Macro-Environmental Factors Affecting the Industry Macro-Environmental components include, “demographics, social values and lifestyles, political and legal factors, economic conditions, environmental conditions, technological factors, and global forces” (Gamble, Thompson, & Peteraf, 2012, p. 79). The most influential factors in the airlines industry are economic conditions and environmental factors. The economic recession in 2009 greatly affected the airlines industry. Poor economic conditions reduced the demand for consumer and business travel. According to the IBIS World database, “Rising unemployment rates and falling disposable income during the recession resulted in a stark 16.3% decrease in revenue” (Brennan, 2013)...
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...Airline industry Indian Airline Industry Management Economics P a ge |1 Airline industry A Project report on INDIAN AIRLINE INDUSTRY Submitted on 13Oct2012 in partial fulfillment for the requirement of the subject "Managerial Economics” during academic course of PGDM-Executive 2012-13. Submitted by Abhas Desai(06) Bharat Dalvi (05) Nitin Palve (19) Prasad Babu (10) Arjun Singh (04) Ravi Sastry (22) Vivek Misra (16) Guide: Prof. J Bhargavi K.J.Somaiya Institute of Management studies and research Mumbai Management Economics P a ge |2 Airline industry Industry Outlook: Global Positioning Airlines Industry analysis : Management Economics P a ge |3 Airline industry • • • • Economic growth environment is weak Industry profitability not perfectly but closely correlated High fuel price no problem when growth is strong But growth now close to point where profit turns to loss Management Economics P a ge |4 Airline industry • • • • Price of jet fuel persistently high In 2008 spiked higher but just 7 months Jet fuel price >$120/b for past 15 months Even after recent fall still higher than early 2011 Given difficult environment cash flow performance to date good at around 10% of revenues, except Europe (1/2 that) Financial market signal more or less consistent with change in cash flows since 2009 Management Economics P a ge |5 Airline industry • • • Demand for air travel expanding well above trend...
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...The Airline Industry of Germany Presented by Elizabeth Chi Jia Liu To be discussed... Market overview Porter's five forces analysis Major airports and airlines The trend for the future? German Airline Industry Volume vs. Value German Airlines Market Segmentation Volume vs. Value Market Forecasts Volume vs. Value Porter’s Five Forces Analysis Leading Companies Lufthansa Air Berlin PLC & Co. Luftverkehrs KG Germanwings GmbH Ryanair Holdings plc http://www.youtube.com/watch?v=tr Airports Hub/base of Airlines Strategic location The importance of slots Frankfurt am Main International Airport Passenger traffic -- No.1 in Germany; No.3 in Europe; No.8 worldwide Cargo traffic -- the busiest airport in Europe A hub of Lufthansa, usually with over capacity operations Munich International Airport The second busiest airport in Germany and the 28th busiest in the world It was named the "Best Airport in Europe" and the 4th best worldwide A hub for Lufthansa and Star Alliance airlines, main base for dba and LTU Düsseldorf International Airport The third largest airport in Germany Serves as the main hub for the airline LTU and as an important secondary hub for Lufthansa Hamburg Airport Germany's oldest airport in operation The 4th biggest German airport Berlin Tegel International Airport Has the most scheduled flights among 3 Berlin Int'l airports The main base for Air Berlin and LTU...
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...The European Airline industry has gone through a lot in the past century since the establishment of the first public airline after the World War I. Until a few decades ago most of these airlines were national and at least partially state owned, and most of the European countries had at least one, with direct government control. Significant change in this only came in the 1990’s with the appearance of the low cost airlines. While the business model existed for some time (first such in 1973 US), the appearance of these in the European market needed the liberalization brought forth by the EU, implementing the „Freedoms of the air” in three stages. In 1997 the first LCC (Low Cost Carrier), the Ryanair began its operation, and in a few years a few more followed, which gave the national and network airlines a new problem to the existing economic problem, shrinking market and others such as 9/11. By today the changes in the past two decades have shifted and diversified the industry, which was once a mature and to some level declining in structure. The new regulations, companies, investors and consumers have brought new life, the industry once again mature with fragmented characteristics. The ideal tool for the assessment of the airlines industry is Michael Porter’s five force model. It aims to find and demonstrate the forces in the microenvironment which influence the industry, internal and external as well. Threat of new entrants (barriers to entry) • High capital investment ˇ ...
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