Case Analysis Us Airline Essay

772 Words Feb 10th, 2012 4 Pages
Case Analysis: The US Airline Industry in 2009
Introduction
Throughout it’s more than 100 years of existence; the Airline Industry has struggled with firms’ ability to cover their costs of capital. The industry experienced many years of difficult with relatively short durations of sustained profitability (Grant, 2010).
The airline industry history can be broken down into two distinct eras, the regulation era, prior to 1978, and the deregulation era, post 1978. During the regulation era, with fare prices fixed, customer service and extra amenities were the main areas of achieving a competitive advantage. During this era, there were little new entries into the industry, indeed, “not a single new carrier was approved between 138 and
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In addition, the threat of foreign carriers extending to the United States is present (Grant, 2010). Industry Rivalry The four firm concentrations in the airline industry in 2008 reached a low of 49.1% from a high of 88% in 1938. Deregulation, along with government intervention in efforts to consolidate all contributed in the decrease of this concentration. This demonstrates the large number of suppliers in the market. “As the number of firms supplying a market increases, coordination of prices becomes more difficult and the likelihood that one firm will initiate price cutting increases” (Grant, 2010, p. 74). Contributing to this issue is the diverse nature of the firms, from legacy firms to new low cost firms with varied strategies. As mentioned above, despite efforts, the products offered from competing firms are, in the customers mind, indistinguishable. This leads the customer to shop primarily on price making brand loyalty difficult. Attempts have been made to increase differentiation and loyalty through frequent flyer programs. Despite these attempts the product remains viewed as a commodity. The industry’s ability to deal with excess capacity has seen improvement in recent down years, although the fear remains that airlines will revert back to

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