The Financial Performance of Low-Cost and Full-Service Airlines in Times of Crisis

The terrorist attacks on September 11, 2001 shook the United States in a profound way, deeply upsetting the national perception of safety within U.S. borders. No industry or sector of the economy felt the impacts of these events more than the airline industry. Both the immediate reaction to the attacks and the long-term repercussions have negatively affected the industry. Today’s airline industry is much different than it was prior to September 11. There is a much smaller work force, more low-cost carriers, more security and more fees associated with flying.

September 11, 2001, was a horrific event that rocked the world and the way people viewed the safety of airline travel. The airline industry was hit the hardest after that day and it was uncertain if they could regain their customer’s

Rising fuel prices has a huge impact on the airline industry. In an article published by the New York Times in 2007, oil prices were hovering ‘near $100 a barrel’ which caused the International Air Transport Association (IATA) to ‘slash’ their predicted profits for 2008 from ‘$7.8 billion to $5 billion’ (Clark, 2007). In 2008 high fuel prices were ‘dominant factor’ in the losses that faced the industry, and continued to same effect in 2009 (Dunn, 2009). Diagram 2 shows how fuel price has increased and fallen over the last 5 years.

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

1. There are a few trends in the US airline industry. One is consolidation, wherein existing players merge in an attempt to lower their costs and generate operating synergies. The most recent major merger was the United Continental merger, which is still an ongoing affair, but has created the largest airline in the United States by market share (Martin, 2012). Another trend is towards low-cost carriers. In the US, Southwest has been a long-running success and JetBlue a strong new competitor, but in other countries this business model has proven exceptionally successful. The third major trend is the upward trend in jet fuel prices, and the increasing importance that this puts on hedging fuel prices and capacity management (Hinton, 2011).

The report finds that Delta Airlines has successfully emerged from its bankruptcy in 2005 to report successful returns in both 2007 and 2008. With its 2008 acquisition of Northwest Airlines Delta became the world's largest airline, further improving its position in the airline industry. Despite this current positive position report also finds potential adversities

In the opinion of Dr. Grace S. Thomson, “a heterogeneous mix of long and short-haul in very thing segments, passenger, density, and per capita income at end points gives [Southwest Airlines] competitive advantage. The way to establish a company in such a market as the airline industry would be to strategically expand in to airports with less competition. Southwest Airline capitalized on this fact to become a national airline (Keller 2008). Southwest Airlines satisfies what were once negligible markets. Southwest serves “64 cities in 411 non-stop city pairs” (Thompson 2008). Saturating these markets has allowed Southwest Airlines to expand without putting a strain on its pocket book (Keller

From the humble financial portfolio as a crop dusting outfit in the mid twentieth century, to the multi-billion dollar portfolio of a major airline in the twenty first century, Delta Air Lines has risen as a successful business. The airline industry is directly affected by outside economic conditions and is also cyclical in nature. These factors make it very difficult for airlines to make predictions to stay financially afloat. Delta has ridden the bumpy path of the last twenty years and managed to survive. In the past twenty years there has been many events that

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.

September 11th was the worst day for airline companies around the world. There was close to a 20% drop off in airline traffic in the fourth quarter of 2001. The U.S. commercial airline industry was in turmoil and

The Airline industry has experienced continual problems with rising costs with both fuel and maintenance which has caused them to increase their fees to the consumers to pay for those rising costs. This paper will help explain what an airline such as Delta does to help alleviate such costs without forcing its consumers to flip the bill through high fees that consist of tickets, baggage fees and food. The costs of doing business in aviation today have spiraled out of control making it very expensive for both airlines and the

This proposal addresses the needed steps to be taken in order for Southwest Airlines to see continued growth in the airline industry. Southwest Airlines has been able to remain one of the most profitable airlines in the industry for an extended period of time. Even with the hindrance of the 2001 terrorist attacks involving airplanes and the U.S recession of 2008, Southwest has continued to see strong revenue growth. Meanwhile, other companies were experiencing major losses and in some cases folding. Southwest Airlines has capitalized on the company’s strength of being the top low cost

There have been few inventions to change how people live and experience the world considerably as the creation of the airplane. Today, traveling by air has become the norm and it would be difficult to imagine life without it. Air travel has improved the way people are able to conduct business by shortening travel time and changing their thought of distance. The companies within the airline industry exist in a very competitive market. One of those companies, Southwest Airlines, features low-fare, no-frills air service with frequent flights of mostly short routes. Costs are kept down by the exclusive use of Boeing 737 aircraft, which allows for low maintenance costs and quicker turnaround times for flights, and by an emphasis on ticketless travel (Encyclopedia Britannica). This paper will address two segments of the general environment and how they affect Southwest and the airline industry; evaluate how Southwest has addressed two forces of competition; predict what Southwest might do to improve its ability to addresses these forces; assess the external threats affecting Southwest; discuss Southwest’s greatest strengths and most significant weaknesses; determine Southwest’s resources, capabilities, and core competencies; and analyze their value chain.

As with all airlines, Delta’s recent performance has been significantly impacted by industry shifts and external events. Terrorist attacks and escalating costs have significantly impacted Delta’s profitability in recent history (Rivkin 4). The company has also been losing valuable market share to the low-cost carrier Southwest Airlines throughout the southeast and specifically in the lucrative Florida market (Rivkin 8). JetBlue also began encroaching on key Delta routes, and this seems only likely to increase (Rivkin 9). Despite this, Delta has still performed better than any other legacy carrier (Rivkin 8). Still, recent history has brought several changes to this legacy carrier, and the company has turned its attention towards new competitive strategies.

Since the airline industry is a direct product of market conditions, it is greatly affected by all externalities. Many people noticed a decline in travel after the September 11th tragedy occurred due to safety concerns. When there is a huge increase in fares that definitely interferes with the demand for travel; it causes the price of tickets to continue to rise since a clear correlation between supply and demand exists. When the economy is doing well in terms of the employment rate, and when the dollar is strong people have the tendency to travel more (Jerram,1998).