Airline Industry and Contestability Project What is a contestable market?

There are many different factors that come into play regarding the airline industry. Airlines such as Delta operate in an extremely political environment that requires an abundance of government regulation, especially after incidents like 9/11. As shown in Appendix A, the state of the economy, such as changes in GDP, per capital income, disposable income, and industrial production can also drastically impact the Airline Industry (Teresa Cederholm). In order to remain competitive in the airline industry, companies such as Delta must adopt the latest technology. For a full PESTEL analysis, refer to Appendix

As the nature of the good is a seat on a plane, clearly capacity constraints are present in the form of the limited seating on aircraft, as well as the inability to in the short run increase output beyond full capacity. During the setting of price, clear communication will most likely result in a non-static equilibrium. As well as this, the symmetry in terms of the market and cost structures has played a part in creating a successful cartel. Each firm produces a relatively homogenous good in terms of economy, business or first class, with a limited amount of features it can differentiate itself from its competitors. As well as this, using Figure 1, which will be discussed later on, demonstrates that the main costs to an airline are those which cannot be easily reduced or offset, most notably the cost of fuel and aircraft maintenance. Therefore both firms have near perfect knowledge of the cost structure and revenue through observing prices, and will aid in choosing a certain pricing strategy.

With only a few large companies across the globe (Boeing, MD, and Airbus), the commercial aircraft industry essentially exhibits the qualities of an oligopolistic competition with intense rivalry. Here is an analysis of competition in the commercial aircraft business using Porter’s Five Forces.

This is an analysis of the Airline Industry in Europe. The paper will cover the current market situation, including financials and market volume. Following this will be a Five Forces analysis on the factors that affect industry competition. The paper will conclude with key insights into the profitability of the industry and a SWOT analysis of one of the industry’s best performers and what rivals and possible future entrants can learn from their success.

Some governments provide subsidies that provide an unfair advantage and prices lower than market conditions which affects the functioning of airline industries directly and Global

Overall, the five forces model suggests that the overall intensity of competition in the airline industry is likely to be severe. Back in the early 1980 's competition was very intense. During the late 1980 's the monopolization of major routes by a few major carriers, the limited availability of free landing spots at major hubs and the emergence of limited brand loyalty and tacit price agreements have all helped reduce the intensity of competition. However, as already mentioned, slumping demand in the early 1990 's plunged the industry once more into a severe price war. Airline travel is a commodity-type product, with limited potential for differentiation.

Discussion 2, Barriers to Entry. Analyze the major barriers for entry and exit into the airline industry. Explain how each barrier can foster either monopoly or oligopoly. What barriers, if any, do you feel give rise to monopoly that will allow the government to become involved to protect consumers?

The risk of entry into the airline industry by potential competitors is low due to the “liberalization of market access, a result of globalization. According to the IATA (International Air Transport Association), about 1,300 new airlines were established in the last 40 years,” (Cederholm, 2016). The cost structure of businesses in an industry is a determinant of rivalry. In the Airlines Industry, fixed costs are high, because before the organization can make any sales, they must invest in air crafts, fuel and service employees. These items come attached with hefty price tags. Industries that require such enormous amounts of start-up capital as predicted by many analysts

Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms increases (David, 2013). Competition in the airline industry is intense because of barriers to entry being low (Cederholm, 2014). According to Cederholm, about 1,300 new airlines were established in the last 40 years (2014).

Oligopoly Behavior in the Airline Industry. Case Analysis This case illustrates the pricing behavior of firms that are oligopoly whose market is characterized by the relative few participating firms offering differentiated or standardized products or services. Such firms in an oligopoly have market power derived from barriers of entry that wards off potential participants. As seen in the case, it is clear that because there are a small number of US Airlines firms competing with each other, their behavior is mutually interdependent – thus, the strategies and decisions by one airline management affect managements of the other airlines whose subsequent decisions then affect the first airline. In the airline industry, such oligopolistic

A drop in fares has been the best result of the Airline Deregulation Act of 1978. It has been the impetus for the increase in the number of flights, which in turn has spurred a drive for greater safety in airlines. But with the current airline market, this development has given us one negative. Since ticket prices have dropped to new lows, the realities of an industry which operates on such economies of scale dictates that only a few competitors have the capacity to operate within the market. This is not the desired effect of either political side on this issue, but it is an economic necessity with the environment that has been created, very similar to that of public utilities and phone companies.

The airline business is a highly competitive industry. According to Morningstar article Southwest Airlines Co Analyst Report, the airline industry has many barriers to entry, which creates an intense industry rivalry. This claim is backed up by the text Attention All Passengers by William J. McGee, which states “Air travel has become a commodity, and the airlines themselves an oligopoly.” (McGee) Therefore, a sustainable cost advantage is the only way to survive in this cutthroat industry. (Dihora) Furthermore, the same Morningstar article claims that the airline industry is not growing. This is because the top four airline carriers control approximately 80% of the domestic market in 2015. This can be compared with results from the year 2000, when around 9 carriers controlled as much. (Dihora) This statistic shows that the number of organizations in the market is in fact

British Airways (BA) is a company that encountered several difficulties back in the 1970’s and 1980’s. The poor performances of the organization, was leading the company to failure. BA was offering a service that even though it accomplished the mission of the company, was not providing customer satisfaction. The organization was not taking into consideration the needs of the costumer and was not providing an acceptable customer service experience. “Productivity at BA in the 1970s was strikingly bad, especially in contrast to other leading foreign airlines” (Jick, Peiperl, 2010, p.28). Due to numerous changes, the company increased their revenues and became a respectful and well know organization.

The airline industry is filled with more and more airlines entering the industry in search of profits. Though most airlines do not make this profit on a consistent basis, this has not discouraged new carriers from entering the industry. Therefore, it is clear that the industry rivalry is quite high and it is something that affects Virgin Atlantic.The rilvaary amognst airlines is leading to many mergers due to the lack of profitability and airlines think the bigger they are the more profit they will be able to achieve. This has led to mega mergers in the

The airline industry is a competitive method of travel and continues to grow at a rapid rate globally. In fact, the industry has doubled over the course of a decade from $369 billion in 2004 to $746 billion by 2014 per the International Air Transport Association. However, is the airline industry “hampered by slim profit margins, forcing carriers to focus on both cost reduction and revenue growth through better customer interactions?” (Industry Perspectives, 2015) With revenue growth comes concerns for airline firms like that of Southwest Airlines. Examples of these concerns are the variety of costs. Costs include: fuel, labor, professional services, food and beverage, landing fees, maintenance material, etc. Fuel costs are about 10% to 12%