External Factor Airline Industry

The airline industry is a hyper-competitive marketplace as many airlines have gone out of business

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

Five major passenger airlines dominate their industry by size (Grant, 2013, p. 479). But their size, legacy costs and hub and spoke business model created significant exit barriers (Grahm & Vowles, 2006, p. 108). New competitors not only started with no entry barriers but also few if any exit barriers. Legacy carriers had to identify new innovative strategies to augment their core business models to profitably compete.

Buyer power has changed significantly in the airline industry over the last 20 years due largely to industry deregulation and technological innovation related to the impact of the Internet. Prior to deregulation, the Civil Aeronautics Board’s control over pricing and airline routes gave the consumer very little power as it did not provide the choices of unregulated competition. If consumers did not like the prices available for air travel, they were forced to look for substitutes, none of which offered a similar value proposition as the airline industry.

airline industry has never matched the profitability of even the average U.S. corporation (ATA Report, 2007). In its “”FAA Aerospace Forecast Fiscal Years 2008–2025,” the Federal Aviation Administration (FAA) reported on the industry’s 36 mainline air carriers that use large passenger jets (over 90 seats) and 84 regional carriers that use smaller piston, turboprop, and regional jet aircraft (up to 90 seats) to provide connecting passengers to the larger carriers (FAA, FAA Aerospace Forecast Fiscal Years 2008–2025, A Review of 2007), stating that “three distinct trends have occurred over the past several years that have helped shape today’s U.S. commercial air carrier industry: (1) major restructuring and shrinking by the mainline network carriers; (2) rapid growth by low-cost carriers, particularly in nontraditional long-distance transcontinental markets; and (3) exceptional growth among regional carriers.”

Since the merger of U.S. Airways and American Airlines, most people would now agree we are living in the age of airline oligopoly. Oligopolies form when there’s a state of restricted competition, and new companies cannot break into the industry for reasons like high-entry costs or government restrictions. This is the condition of the airline industry, today. In order to breach the oligopolistic nature of the airline industry, airlines must be able to break through high barriers to entry such as: retaining substantial capital requirements, having the need for technical and technological ingenuity and jurisdiction of patent rights. In addition, airplanes must be purchased, employees must be trained and facilities must be procured. Even after all these expenditures, some airlines still experience substantial financial losses. As a result, most of these airlines experiencing a financial hardship are subject to an airline merger. For this reason, the major airlines in the United States now consist of four competing large carriers: American Airlines, Delta Airlines, United Airlines and Southwest Airlines. These companies have survived the deregulation of the airline industry and sustained their places at the top of the industry. In an effort to stand out in an oligopolistic industry, airlines must experience: economy of scale, growth through merger, mutual dependence and price rigidity and non-price competition.

More business travelers are now traveling on low-cost airlines. Business travelers are valued due to the frequency in which they fly. Large, network carriers have traditionally served most of this market.

The airline industry has always been a fiercely competitive sector. Since the invention of low-cost carriers, also known as no-frills or

The passenger airline industry is very mature and competition has forced many airline companies to reduce prices in order to utilise capacity. A remote analysis and industry analysis was carried out showing that the industry’s growth and profitability will be low.

Low-cost carriers pose a serious threat to traditional "full service" airlines, since the high cost structure of full-service carriers prevents them from competing

The future of the industry is in JetBlue’s “cheap chic” style. Airlines need to maintain a cost effective price point while also not appearing cheap. Small

Development and implementation of cooperations, associations, and partnerships with other larger, more established, and highly regarded airlines both within and beyond the region to provide an extensive range of

Another factor that lowers the threat of new entry is that this industry requires plane and flying experience. New airlines will have to hire and train pilots, flight attendants, baggage handlers, dispatchers, customer service and others. If someone wants to open an airline company not only he will have to invest large quantities of money to function, but he will have to dedicate a significant amount of time.

In today’s extremely competitive market environment, it’s almost close to impossible to without partners and this seems to have become a dominant feature in the airlines industry. Alliances are an immediate result of globalization, increased competition among the airline companies and most importantly due to customers increasingly demanding ‘from anywhere to anywhere’ service which is almost impossible for any airline to supply efficiently. As a result of which, airline companies across the world unite their various resources by entering into strategic airline alliances.

It is easy for people nowadays to travel around the world because the Airline industry can provide fast and convenient service for the passengers. However, in the world with a lot of competition, it is not easy for the business to survive.