The Cost of Competition

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.

Industry competition intensified from 1988 to 1989 because there was a significant slowdown of the growth rate of the air express industry due to increasing geographic saturation, the acceptance of electronic transmission, and rapid consolidation of

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

A. Describe the environment, as viewed by Michael Porter’s model of competitive forces, that Valuejet was trying to compete in. consider competition, suppliers, customers, new entrants, substitute products? The five competitive forces that shape strategy are competition, suppliers, customers, new entrants, substitute products. Michael E. Porter demonstrates how the five competitive forces can be used in any industry. The results from all five forces not only look at the narrow aspect of competition rivals but as well as broader aspect of competitive interaction within an industry. These five competitive forces can also be used in the case of Valuejet. Competition within the airline industry is highly

Market structure can be defined as patterns of behaviour by enterprises in an effort to adjust to the markets in which they operate (buy or sell). Pricing strategies and collusive behaviour mergers are a few dimensions of market conduct. It is the industry norm for a legacy carrier to offer service to most popular destinations; Delta reducing routes to a similar schedule as the low-cost airlines is not an option in the multi-billion dollar industry. In order to gain market share from low-cost airlines, Delta must create a value proposition that differentiates itself from its competitors. Many customers will pay a premium if the level of service provided is higher than the low-cost, no-frills

Although the company has been able to gain a competitive advantage by distinguishing themselves from the competition, it still remains a difficult industry to compete in. Because the competition is very high it is simple for customers to look elsewhere for a better deal. The product is air travel and there are many competitors offering the same destinations. Airfares and rates vary and the competitors are always pushing to lower rates in order to fill empty seats and ensure profits.

Porter’s Five Forces analysis is a tool to analyze the external environment in which an industry operates. In the European airline industry, the threat of new entrants is low. Entrants will need high capital investments to compete with existing firms. The substitutes in the airline industry are the railway networks, rental cars and sea transports. Rental cars and sea transports are more expensive than the airlines therefore they don’t pose a threat to the industry. It takes longer to reach a destination by train than a plane, which causes the threat of railways be low. Existing firms pose a threat to the industry because there are 35 firms operating in the European airline industry, which creates intense price rivalry among firms. Customers are price sensitive and customer can easily switch to another airline causing the threat of buyers to be high. Suppliers can charge a high price for their

Porter’s Five Forces analysis is a tool to analyze the external environment in which an industry operates. In the European airline industry, the threat of new entrants is low. Entrants will need high capital investments to compete with existing firms. The substitutes in the airline industry are the railway networks, rental cars and sea transports. Rental cars and sea transports are more expensive than the airlines therefore they don’t pose a threat to the industry. It takes longer to reach a destination by train than plane, which causes the threat of railways be low. Existing firms pose a threat to the industry because there are 35 firms operating in the European airline industry, which creates intense price rivalry among firms. Customers are price sensitive and

A situation in which the market can not effectively allocate resources. The market can not in the greatest possible satisfy consumers.(Steven G. Medema ,2007 ).

Competitive markets means strong rivalry amongst firms or companies which are trying to achieve and outdo each others by increasing their market share, profits and sales by using the methods of marketing mix which includes prices, products, distributions and promotions. It can also be described as a spectrum of a purely monopolistic, in which a company is the sole producer of good and services, this means that a sufficient number of firms or companies are relatively equal to their sizes, which eventually none of the big competitive companies can influence the market in any way.

This paper intends to find out if competition affects performance, through the method of having student sort poker chips; first alone, then competing against each other. It was concluded that competition does increase performance.

2. Preferences would have to be given to city-centric airports, convenient departure and arrival times, and basic service. Competitors like Easy Jet, Air Berlin, Basic Air, BMI Baby are catering to the Value market segment. They have been successful in establishing slots at some primary airports and providing basic cost effective services. Acquisition of Aer Lingus has not only enhanced Ryanair’s expansion plans and market share but also helped it to stay in the top position of being in the low-price segment. The SWOT analysis given below explains how Ryanair can achieve its goals and mission by capitalizing on opportunities and utilizing its strengths and eliminating its weaknesses and threats.

For years many companies have struggled to be and to remain the best. To do this they had to go through advertising their products; televisions, radio, internet and sports. This is called competition; the main purpose for this is mainly to attract customers. These procedures can benefit but also be harmful towards the company. Thus brings the main concern of this essay which shall discus both sides of this situation opposing and supporting it.

During 2002, Ryanair would charge its one-way fares at about 50 Euros. The Pricing approach adopted by Ryanair more commonly termed the ‘Ryanair effect’ had become a popular marketing strategy worldwide. Part of the Ryanair’s strategy for increasing market demand is the distributing of free tickets. In the first few months of 2003, Ryanair had distributed 100,000 free seats as a way to celebrate its opening of its new outlet at Bergamo. As a result, Ryanair received 90million passengers in 2004 and consequently offered 900,000 seats at 90 pence. Researchers have accumulated that within 5 years time, Ryanair would plan on giving away 50% of its flight tickets for free. Accordingly passengers’ perception of LCCs will thus expect lower fares from Low-Cost Carriers, especially from Ryanair. Research was drawn to asses the cross-price elasticity of demand between Low-Cost Carriers and full-Service Carriers. The aim was to figure out the behavioural patterns of passengers if they are willing to switch from Low-Cost Carriers to traditional airlines if fare levels reduced significantly. Results show that If Full-Service airlines reduced their fares by 30%, then 45% of Ryanair’s passengers and 39% of Air Asia’s passengers would be willing to switch airlines. Even if Low-Cost Carriers in Asia was just relatively a new phenomenon, they have already adopted strong low fare