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In the environment, there are various changes which exist and it is very necessary that they all shall be taken into consideration. In this report strategic position of the US, airlines will be discussed so that all the aspects in relation to it can be evaluated. For this, there will be conduction of the five forces analysis by which all the components in the market by which business is affected will be ascertained. The manner in which this will be beneficial will also be considered as all the advantages and disadvantages of using this analysis in the airline's industry will be ascertained. The economic performance of the airline's industry will also be determined in which the growth and other factors will be taken into discussion. Profitability is to be ensured in any business and so is the case with airlines industry and for this, the strategies that shall be followed for this purpose will be explained. All of this will help in ascertaining the position of the industry in the current period and also the manner in which it can be improved will also be identified.
Overview of US airline industry
In the global economy, there is great scope for the airline's industry and it has experienced growth in past years. In case of US industry, there were various challenges and hurdles which have been faced by it before it reached the position of the making of profits. There have been new entries in the market by the low-cost carriers and they have launched various new policies and also used new technologies and strategies. By them, there is an increase in the competition which has been noted and the main reason for the same is low fares which are offered by them. The situation has even worsened due to the introduction of online travel sites. This is because now the passengers were able to evaluate the various options that are available and chose the one which offered the best services at low cost (Belobaba, et. al., 2015). There was the increase in the fuel prices which has been noted in 2001. In the industry, there were various travel companies which were facing bankruptcy but later on, there were mergers which took place. The merger of Delta and northwest took place in 2008. After this various other mergers also took place and this was due to the bankruptcy which was faced by various entities and so they combined with other to sustain in the market.
The major competitors in the industry were American airlines, Delta airlines, united continental holdings Inc. and southwest airlines. There were various fluctuations which were experienced by the industry in the past period. There was steep fall in earnings and huge losses were experienced in 2008. Then some increase was made and again they were on the decline in 2011 and 2012 but after that industry balanced itself and rise started which reached to high level till 2015. For the better understanding of the same, a graph is presented below which shows the fluctuations in prices of crude oil and net profits which were made from 2007 to 2015.
Five forces analysis of US airline industry
For the analysis of the US airlines industry, there will be the use of the technique known as
Porter’s five forces
In the analysis which will be carried with the help of five forces and in that there are various components which will be included and an understanding of the same is provided hereunder in context of the US airlines industry:
The threat of new entrant:In the airlines business there are specified regulations which are to be followed and due to this there is the need to make a proper evaluation before making of entry into this industry. There is the requirement of huge investment and also skilled labor is required in this field (Dälken, 2014). There are certain exit barriers which are installed in this and so it will not be possible to make an exit once entry is made. Therefore by the help, if this it can be said that proper steps shall be taken as there are huge impacts which will have to be faced and in the US industry there are several new entries which have been made.
Supplier power:In the aviation business this affects a lot and therefore shall be included in the process of analysis. The products which are required such as fuel, labor and others will be obtained from the external supplier only. So if there will be fluctuations in this aspect there will be the impact on the whole business. If the fuel prices will rise then the cost will be affected and by that demand will also be affected as there will be a change in the fare which will be made.
Buyer’s power:In the changing technology there are online systems which have been introduced and by that the powers of the buyers have increased. This is because now they can purchase the tickets by them self and can also make a proper evaluation. They are not required to be dependent on the agents or some other party to complete the process. By this, It can be said that nor airlines industry has given the power to consumers and also they will be able to take a decision which will be best and affordable for them.
The threat of substitution:In this come to the other modes which can be used for transportation by the customers such as trains or cars. In case of the US industry there will be not much of the risk due to these substitutes as this is a developed economy and in this consumer do not usually choose other modes (Eller & Moreira, 2014). So it can be said that this risk is not much in the airline's industry. There can be some amount of effect due to the Skype and other communication means by which travel ratio of the business circle is reduced.
Competitive rivalry:There is a high risk which is involved due to this factor as competition is increasing in this sector. It can be noted that new low-cost carriers are there in the market that provide the facility at lower fares (Dobbs, 2014). The fliers have the options and they are the ones who regulate the market and due to this, the new low-cost options have the chance to grow. By this, the competition in the market increases to extreme levels.
The profitability in the business is low and this is due to various factors which include the price of the fuel and also the comfort level of the travelers as they will be willing to go by that which will give them better facilities. Competition is another factor by which profits are greatly affected.
Advantages and disadvantages
The analysis is carried by the use of Porter's five forces and there are several advantages and disadvantages of using it which are as follows:
Advantages:This is the best model as in this all the aspects of the business are covered and evaluation is made on basis of all the grounds. The information about all the resources is available by this and so resources are used in an effective manner and also decisions are taken by the use of information which is present. The strategic position of the business is determined and the manner in which benefit can be attained is identified as competition is also taken into account under this (Nguyen, 2017). In this external environment is also taken into account and by that, the opportunities and threats which are there are also determined.
Disadvantages:The environment is changing at the fast pace and all of them are not included in this at that rate because the pace of this is slow. Under this, the changes which are taking place such as technology is not taken into consideration. There are several such challenges which are to be given more importance in the airline's industry such as new methods which are used and they are not included whole carrying out five forces analysis. Under this, all the forces are given equal importance but that is not required in the analysis of the industry. The main focus shall be on the problem which is faced by the airlines which are of competition and new entries but that is not done. This leads to exclusion of certain factors which would have otherwise been given the required attention.
The industry of airlines is called to be cyclical and this is true because of the fact that the position of the economy in the country will be affecting it. The changes which will be taking place in the economy will be affecting the airline's industry also. If there is the state of depression then the income of the travelers is affected and in that case, they prefer less to travel by air and this leads to the downfall in the profits of the airlines (Tehrani & Rahmani, 2014). It can be noted that when there was the rise in the fuel prices then it has affected industry also as the 32% of the total revenue was spend on the fuel cost and labor was 26% and by this, the profits were on the great decline. In case of the boom the income is increased and so people also travel more which affects the whole economic position of the US airlines industry. There are cases in which consumers are willing to spend but the government does not make any inclusion and by that, the industry has to face the adverse impact.
The economy is also developed with the help of this industry as new job opportunities are developed because there is the growth which has been noted and by that it can also see a rise. The new additions which are being made in the industry in past also affect its economic position as all the resources will now be consumed by them also.
The GDP affects the position of the airline's industry and as there is a rise in the GDP there is the increase in the airlines capacity also and this can be noted with the help of the graph that is provided below.
It can be seen that as the GDP is rising there is the increase in the US passenger capacity by which the growth will be attained. There will be an increase in the demand and by that whole airline's industry will be experiencing the increase.
Identifying strategies for airline profitability
In all the businesses it is required that profitability shall be increased and so is the case with the airline's industry. There are various strategies which can be followed for the attainment of this and they are as follows:
Low-cost carrier strategy:Under this focus is given on reduction of the cost so that competition can be made with the carriers which are in legacy. Under this measures are taken by which consumers are provided with the least cost. For this, they buy aircraft of the similar types and by this, the reduction in training cost is achieved which leads to increase in the profit levels (Tan & Yap, 2015). Also under them, all the services which are provided on the flight are not given which saves the cost or if they are provided then extra payment is charged for that.
Point to point flights:This is the strategy in which all the flights will be made from point to point. This means that there will not be any service of the incumbents. No round trips will be offered to the customers. By this, the time which is wasted in the collection of baggage and rechecking it will be saved. Also, the amount that is spent on this process will be eliminated. There is the need to transfer the passengers from one plane to another in hub facility but this will not be done in this so all the difficulties related that process will be avoided and time which is saved in this will be used to arrange another trip in that duration which will increase the overall revenue and profitability of the business in long run.
Low fare strategy:This is the method in which the fare that is charged from the customers is kept at low level. By this, it will be affordable for all and this will lead to increase in the demand of customers. There will be more passengers and this will be leading to the more amounts of profits and also the competition can be dealt by this which provides an additional advantage over other rivals.
In the airline's industry there are several changes which take place and due to that various challenges are faced by the business. There are the new entrants which are large carriers and they are large in numbers. They are providing the facility to consumers at lower rates and also using various new strategies such as point to point flights and low-cost carriers. By that more customers are attracted and this leads to increase in the capacity of the industry. The incumbents which are there in the traditional methods have high cost but in order to deal with the new entries, they are required to cut the cost. By this, the competition has increased and there are certain steps which are taken in order to deal with such situation.
The analysis has been undertaken with the help of porters five forces model and all the components have been noted and the suppliers are identified by whom the low-cost material can be obtained so that profits are increased. The threats which are there from the new entrants have also been taken into account (Stalnaker, et. al., 2015). The economic condition of the US airlines industry has been considered and it can be said that there is the relation which exists between it and the whole country's economy. There is the rise in GDP which leads to an overall rise in economic position of the industry. The manner in which profitability can be maintained is also determined and form, this it can be said that there is the overall increase in the position of the industry.
From the report which is presented above, it can be said that the strategic position of the business is determined by the help of various components and they shall be taken into account so that appropriate decisions are taken. In this, it is identified that there is a high level of completion and in order to deal with then various strategies have been identified which will be taken into use. They will lead to increase in the profits which will be made. The analysis has been carried out and all the rivals and powers of the buyers have been determined. An identification of the economic position of the airline's industry has also been made.
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