The Us Airline Industry in 2007

The United States carries over one third of the globe’s total traffic, where Over 1.5 billion passengers fly annually. Over the past 20 years, air travel has grown at an average of about 5% per year, the reason for annual change is usually differences in economic growth, and of course other environmental factors, such as the current war. As a rule, the annual growth in air travel has been about twice the annual growth in GDP. Deregulation, liberalization, and competition have essentially altered the management strategies and practices of airlines. Productivity improvements and cost management have been two of the greatest concerns for US airlines for the past twenty years. As a whole, the airline industry must continue to improve their specialization in terms of fleet utilization, pricing and revenue management, and schedule optimization.

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.

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.

The 9/11terrorist attacks seriously affected air travel and led to the demise of many airlines. Scores of airline industry workers still need to regain what they lost in both wages and benefits, and are hopeful of an industry turnaround this year (USA Today, 2009).

American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.

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).

Fuel has consistently been one of the largest expense categories for domestic airlines, ranking second only to personnel expenses. During 2003, fuel costs represented, on average, over 16% of the total operating expenses for all U.S. domestic airlines studied by Richard Cobbs and Alex Wolf (2004). Moreover, airlines are generally unable to increase fares to offset any significant increase in fuel costs. From 2001 to 2003, these same airlines experienced a 25.9% compound annual increase in jet fuel costs while average airline pricing decreased by 0.1%, as measured by revenue per available seat mile (Cobbs and Wolf, 2004). Jet fuel costs have substantially risen over the past several years putting consistent pressure on airlines to maintain positive cash flows. Any saving in fuel costs works out to profit earned.

After six consecutive years of profitability, the U.S airline industry was descended into a downward spiral. The number of passengers flying dropped from 56 million in August 2001 to 30 million in September with no passengers for two days after the attacks (Poling). It took three years for the airlines to reach the 56 million passenger mark again. The impact on the travel industry, specifically the airlines, was more severe than in other areas.

Southwest airlines were founded in 1971 by King and Herb Kellerher. They started with a low cost strategy in a risky market where profitability depends a lot on fuel prices and external factors, such as the willingness of consumers to pay ticket prices. They started growing a lot with various strategies that permitted them beat a lot of their competitors, but in order to stay in the market they need to improve those strategies and come up with new ones to stay differentiated from the other airlines. Now they’re ranked the top 7 airline that controls the share of the market, but new strategies will be needed for them to continue to be a

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.

The airline industry is interpreted as being very unstable due to the immediate reaction to tragedies. The airline industry was affected following the September 11th tragedy and it affected other industries indirectly. The airline industry plays a key role in

One of the world’s most competitive and prominent industries is the airlines industry. It generates huge amounts of income as well as employment each year. Some of the common names in US air travel service providers are Alaska, Northwest, Southwest, US airways, American etc.

4.     Although the industry is making a comeback, there are several threats to airlines that could affect their long term success. Even though it is one of the opportunities in the market, changing customer preferences are also a threat to some upper-class airlines. Consumers are demanding fewer frills, less costs, and fewer connecting flights. Financing is becoming more difficult to achieve in the industry due to the fact that so many companies are failing to turn profits and are filing for bankruptcy. Those organizations that have survived the recent down-turn in the industry are gaining the ability to acquire other companies through mergers and acquisitions. The industry is also threatened by increased technology, such as video conferencing, that has decreased the demand for business travelers.

Closely linked to economy - The airline industry can be described as highly cyclical since it

• Many airlines have been forced to undertake major restructuring in order to meet these challenges. Many researchers have used different model to decompose changes in airline profitability into two components: productivity and price recovery ability.