Professional Documents
Culture Documents
Team Eight
Yang Hui
Runhui Wan
Wenjie Wu
Jingyi Wang
Wen Zhao
Abstract
During 2013, the global economic is recovering from the latest recession. However,
although global economy is turning back to the right track, most people believe this world is
different no matter how people examine it from whichever points. Given that, it will be an
interesting and attracting topic to insight into an industry that contains most characters reflecting
global business and economy. Airline industry, stemming from a large number of factors that
have huge influence on this industry, including economic cycle, policy changes, and business
merges, is such a market highly related to macro-economy and international business that might
be a proper sample to determine what is different from usual in the Post Financial Crisis Era.
To keep the structure clear, this analysis report is organized in six sections; each part is
assigned to a certain teammate.
In the Macro-environmental section, several economic indicators will be focused on and
examined to determine how much they are linked with the overall airline industry, nationally,
regionally, and locally. Furthermore, other respects such as policy, society, legal and technology
will be put under the light individually as well.
In the Porters forces analysis, a big picture describing how much competition companies
are facing in airline industry will show potential investors what they are supposed to know to
enter this industry smoothly, compete with rivals aggressively and negotiate with partners and
customers successfully.
In the Segment-strategy Analysis, the whole airline industry will be divided into different
sections and examined through several distinct views to help investors understand each slices of
the whole market and the access to attracting target customers and grab market shares by
different strategies.
In the current issue section, the aim is to determine what and how recently happening
events would affect the airline industry, partially or totally, helping people to efficiently and
effectively to forecast what might happen further and what issues should be focused on.
Table of Contents
Macroenvironmental Analysis ...................................................................................................... 1
Political Factors ............................................................................................................................................ 1
Economic Factors ......................................................................................................................................... 2
Social Factors ................................................................................................................................................ 3
Consumers Consciousness Being Promoted ................................................................................................................3
Tourism Taste and Tendency Changed ............................................................................................................................3
Technological Factors .................................................................................................................................. 4
Maturity of Internet and Videophone ...............................................................................................................................4
Accelerated Construction of High-Speed Railway .....................................................................................................4
Legal Factors ................................................................................................................................................ 5
Conclusion ...................................................................................................................................... 31
Corporations: ............................................................................................................................................ 31
Investors ..................................................................................................................................................... 33
Reference ......................................................................................................................................... 35
Macroenvironmental Analysis
If we want to run a very successful company, managers have to focus on the micro and
macro environment. However, many managers only concentrate on their companys
microenvironment such as profit. The macroenvironment is also very important part to influence
an organizations decision making and performance. In this paper, we are going to use PESTEL
framework to analysis the macro environment of the airline industry. Many factors will be
considered which affect this industry including political factor, economic factor, social factor,
technological factor and legal factor.
Political Factors
Political factor is the first significant role for the airline industry, especially in PESTEL
analysis. If a country without stable and powerful government to support, the less profit and
fewer flights they will have. However due to countries with vibrant tourist industries, more
flights will be considered to cater to the needs of enormous tourists. There are several important
political measures that have occurred recently.
In the international level, the United States plays a very significant role in the international
airline industry. In the conference in Chicago, the United Stated has advocated open skies, and
after half of the century the government advanced this aviation liberalization, in early 1944. In
the late 1970s, this deregulation policy caused the redundancy of the market capacity, so the
policy maker changes mind to encourage domestic air transport enterprises to enter the
international market and try to encourage the foreign governments give airways more operating
rights. Of course, this kind of open skies is not completely equivalent, therefore America is
firmly opposed to the traffic exchange, which will damage domestic airlines. Such as the free
transport through Atlantic and the European Union countries. Although the U.S. government
announced that the open skies policy will be prompted to create a truly open to the international
air transport services environment, the actual effect of the policy for the U.S. aircraft carrier has
created a huge competitive advantage.
In the internal level, The United States established a strict censorship for the foreign airline
companies who apply the U.S airline route rights and also the government controls the aviation
rights for foreign carriers to ensure the interests of the American airlines are inviolable.
Economic Factors
With the rapid development of the economy, it brings a lot of opportunities and enormous
challenges for the airline industry. Although the world economic recovered from the economic
crisis and air transport market expanded clearly, the growth rate increases imbalanced. In the
global market of the airline industry, the Asia-Pacific routes market is growing rapidly, but the
original business model of Atlantic routes is shrinking. This is a direct reason why some of the
backbone airlines have to restructure, to expand new network to reduce the risk. For the market
of Chinas airline industry, Chinas civil airline enterprises complete transportation total turnover
4.904 billion ton kilometers in August 2010. However it increases about 22.8% than the same
month of the previous year. And of course the transportation increases more because of the World
Social Factors
Consumers Consciousness Being Promoted
Taking a plane being universal, the consumers awareness about airline transportation has
been significantly promoted. It is especially the events frequently occurred recently such as
compensation for flight delays, violence in airports and planes taken over by passengers that
reflect the consumers strengthened consciousness to preserve their legal rights. The details of
transportation has been known by more consumers, which gives them more consciousness of
their rights and what they should do other accidents. This has been airline companies biggest
motive to provide more humanized services to meet their standards and in the meantime to
persuade consumers to put themselves in the companies place so that they can understand the
specificity of this job.
Technological Factors
Maturity of Internet and Videophone
Internet is always exerting a subconscious influence on peoples lifestyle in modern society
since its first appearance. Airline companies established their own websites, one after another, to
promote their products. Electric tickets extensive use in airline transportation brings possibility
to B2C, a direct business model based on Internet. Besides, technologies which reflect
individuation and participation, such as electric boarding check and self-help charging system
online, are among airline companies efforts to follow the rapid development of Internet.
Moreover, videophones gradual maturity and its lower and lower price bring profound impact
on the airline transportation. But what influence most is the business travel market which is
regarded as a resource of high quality by the airline companies. To cope with the financial crisis
in 2008, many transnational corporations established teleconference system to cut travel expense.
Together with more users reducing the per-unit cost, it made these corporations more
competitive.
construct railway transportation network which can be compatible with domestic airline network.
Airline will be in obvious inferior position in the competition with railway if the journey takes
less than 3 hours. Although passengers who need a connecting flight or a long distance journey
will continue to take a plane, the market including most journeys with a distance of 1000 to 1500
kilometers will be occupied by railway, instead of airline.
Legal Factors
Antitrust laws in the United States have a history of more than 100 years. The <Sherman
Act> of 1890, the< Clayton Act> of 1914 and the <Federal Trade Commission Act> of 1914,
these three core laws become the foundation of the Americas antitrust regulation legal system
(Havel, 2009). This system simplifies the course of entry and exit formalities and pushes the air
transport market to other countries. This marked that American airline industry began to break
monopoly industry. Furthermore, it began to reform with free competition as the core of the
marketization. The United States encouraged the bankruptcy and mergers at the same time. Now
the number of U.S. airlines companies from 234 in 1987 reduced by more than 30. The top 10
airlines carve up the national market share of 97.4%. At the same time, the United States
strengthen the anti-monopoly regulation, so as to adapt to the development of civil aviation after
deregulation.
Though this analysis, I draw a conclusion that we do not only focus on economic factors
but also pay more attention on social factors. To protect the profit of the airline industry, the
government needs to prevent monopoly and unfair competition.
Threat of Substitution
Generally, the flights in the airline industry can be divided as domestic flights and
international flights.
On domestic flights, bus shuttles, cars, and trains can be considered as substitutes. The
threat of substitution depends on many factors, such as the purpose and distance of travelingthe
price of substitution or complementation, etc.
For the purpose of traveling factor, keep all else factors being equal, business passengers
have less flexibility in time than leisure travelers, and they are less sensitive to price changes
than leisure travelers as well, so the threat of substitution for business passengers is lower than
leisure travelers. For the distance of traveling factor, the threat of substitution for long-haul
routes is generally lower than that for short-haul routes. Taking a flight for a long-haul route can
save substantial time comparing with bus shuttle, car, or train. Based on the Expedia search
result, it only takes four-hour flight from Los Angeles to Atlanta with no stop. Normally
passengers need around three hours to check-in, baggage handling, security, boarding, and
taxiing, so the amount of time will be around seven hours. However, if someone wants to drive
from Los Angeles to Atlanta, it takes as much as thirty-one hours without a stop based on the
calculation from Google Map. Furthermore, driving a car for a long journey is more dangerous
than taking a flight. For the price of substitution or complementation factor, decrease the
substitution price or increase the complementation price will decrease the demand for air travel.
In a few countries, such as China, high-speed rail is now making an earthquake in the airline
industry. It takes only ten hours from Beijing to Shenzhen and reduces about fourteen hours by
taking high-speed rail instead of train. Flight from Beijing to Shenzhen may cost around six
hours including flight time and preparation time. Thus, the airlines in China have to offer deep
discount fares in order to match the high-speed rails price. The threat of substitution of the
airline industry is higher in the cities offered high-speed rail than not; however, in reality, the
countries that tails of high-speed rail are very limited and the actual mails are really low. The
chart 3 and 4 below are from Boeings 2013-2032 Current Market Outlook Report. Up to 2013,
only three countries have the high-speed rail over 2,000 Km, and the total track length of rail is
only 2.5% of the airline routes. Thus, the threat of substitution is about medium to low level in
domestic.
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On international flights, there is no competitive substitution for the airline industry, so the
threat of substitution is extremely low.
Looked from the overall, the threat of substitution in the airline industry is in low level.
Rivalry
The degree of rivalries intensity highly influences the profitability of the industry. In the
airline industry, due to the nature of the industry, the fixed costs of planes, fuel, equipment, and
salaries for pilots, engineers, and other staffs for carrying baggage and customer service are
extremely high.
Dasai and Pater (2002) have described the rivalry within airline industry as follows:
The product differentiation among airlines and switching costs for passengers also magnify
rivalry. An example of switching cost is the cost incurred if individuals or corporations change
airlines and forgo the benefits of adding frequent flier miles onto previously accumulated miles
on another airline. The decision to go with a new airline becomes burdensome since miles
between airlines cannot be transferred. Even though the introduction of frequent flier programs
was intended to increase customer loyalty, low cost airline strategies have diminished the
effectiveness of these membership plans (Desai, 2002, p.3).
The table 5 and table 6 are from our previous data analysis. From the table 5, it is obvious
to see that the industrys revenue keeps a stable growth from 2008 to 2012. The table 6 is year on
year growth trends. It shows the industrys growth rate declined significantly from 18% down to
7%. High fixed cost, low industry growth, low product differentiation, and low switching costs
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Power of Buyer
As we discussed in rivalry section, the switching costs and product differentiation in the
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airline industry are really low. These make the airlines suffer in a price war to attract customers.
Price seems to the one of the most factors determine the customers decision and others such as
service quality does not do a very important role in decision making. In addition, since the
capital requirements for an airline is very large and starting an airline business requires
professional engineers and staffs in various fields, the threat of backward integration by buyers is
really low. All of these factors lead the buyers have high powers to reduce the airlines industrys
profits; however, the concentration of buyers market is extremely low. The global airlines had
over 815 million scheduled passengers traveled in 2012 based on the Department of
Transportations Bureau of Transportation Statistics reported. Therefore, it is hard to determine
the power level of buyers.
Another way to analyze power of buyers is looking at demand elasticity. Buyers normally
have more power when buyers are price sensitive or air travel is elastic, and less power when
buyers are price insensitive or air travel is inelastic. According to IATA, the elasticity of air
travel demand varies according to the coverage and location of the market in which prices are
changed and the importance of the air travel price within the overall cost of travel (International
Air Transport Association [IATA], 2008)
Following are the estimated price elasticities of passenger demand matrix. From the level
of aggregation point of view, the average of route level (where competition between airlines or
city- pair markets is high) is 1.4, the average of national level is 0.8, and the average of
supra-national level is 0.6. The route level is elastic because the high competitions exist. Buyers
easily switch to the airline that offers the lowest fare, and buyers in route level have high
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bargaining powers. The national level and supra-national level are inelastic since the buyers have
less choices or substitutions, and for those buyers they have low bargaining powers. In the
geographic point of view, Intra Sub-Saharan Africa and Trans Pacific are inelastic, buyers that
flight to these places may have to afford high prices and have low bargaining powers. Flight intra
Europe is elastic and buyers have high bargaining powers in this region. Taking an average
calculated from the matrix below, the average price elasticity in the airline industry is 0.97 which
showing a low bargaining power for airline passengers.
Table 7: Price Elasticities of Passenger Demand Matrix
Power of Supplier
The suppliers of the airline industry are numerous and varied, such as aircraft
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manufacturers, food suppliers, airports, electronic systems, laborers, fuel providers, etc. In order
to simplify our analysis, we only pick one of the major aspects to analyze in this section that are
aircraft manufacturers.
The table 8 below is the list of the world's aircraft manufacturers involving in the
commercial aircraft business based on the Hoovers search result. Compared to the number of
airline operators, the suppliers of manufacturers market are extremely concentrated. In addition,
the switching costs of the airlines are extremely high. If an airline terminates a long-term
contract with Boeing and switch to Airbus, it may get up a benefit of favorable credit terms or
spend a lot of extra money to hire engineers and train pilots. The availability of substitute
products is really low since we cant find a perfect substitute product outside the airline industry
and switching costs are very high among the aircraft manufacturing industry. These three factors
make the suppliers bargaining power pretty high. However, in the airline industry the inputs are
extremely standardized. Airline companies only seem to differentiate with airfares and amenities
provided by the services. The planes are very similar and the functions are similar as well. The
importance of customer is extremely high for the manufacturing industry because Airline firms
are the only source of income for these manufacturers. Furthermore, because the nature of
complicated and professional operation, and large capital investment, the suppliers may not
consider to be involved in the airline operating industry. Low threat of forward integration, low
differentiation of the products and high importance of the customer make the bargaining power
of suppliers very low. Thus, the overall power of suppliers is medium.
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Summary
In airline industry the threat of new entrants, the threat of substitute products, and the
power of buyers is low, the power of suppliers is medium, and the intensity of competition is
high. Based on this landscape, how to survive in this highly competitive industry is crucial.
Based on the Porters generic strategies, there are three directions can be considered.
First one is cost leadership. The airlines employing cost leadership have to minimize the
costs and pass the saving on to its customers. They focus on fast, no-frills service. Southwest
Airlines has never served meals, does not have advanced seat reservations, and flies only Boeing
airplanes (Analyzing Southwest Airlines, 2012). They only use the low price to attract
passengers and survive in the price war. Southwest Airlines is a typical example in the airlines
that implement cost leadership strategy. They minimize the time that their planes spend on the
tarmac in order to keep them flying and to keep profits up, claimed Scilly (Scilly, 2013). In
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2012, the sales of Southwest Airlines were $17.1 billion. The sales volume is ranked the fourth in
U.S airline industry and the sixth in the world airline industry. The second strategy is
differentiation strategy. The airlines employing differentiation strategy focus on fantastic and
enjoyable service as well as maximum comfort for passengers. The airfares for these airlines may
be much higher than cost leadership airlines, but they are more profitable. Singapore Airlines is
the best example for differentiation strategy. Singapore Airlines is one of the leaders in the
passenger airline industry. In the words of Roll (2013), they replace their airlines every 4-5
years, taking advantage of new technology. The company is always the first to introduce new
innovative ideas for example hot meals, free alcoholic and non-alcoholic drinks, hot towels,
personal entertainment systems, and video on demand. Singapore Airlines will also be the first to
own the new Airbus Super jumbo A-380 in 2006 (Roll, 2013). All of these make the Singapore
Airlines awarded the worlds NO. 2 best airlines in 2011, and NO.3 best airlines in 2012 (The
world's top airlines, 2013). The third strategy is focus strategy. The airlines employing focus
strategy may only offer a few routes or pick up small near city airports.
In concluding, business strategy is the main and crucial factor surviving in the airline
industry, and it will be crueler in the future with the development of new technology.
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we divided the airline industry into several segments to compare each one of those companies.
Given so, the results we received might beyond our expectations.
Nowadays, the competition in the airline industry and between most industries is becoming
more and more severe, requiring investors to be cautious and companies to be sensitive to any
changes, and therefore making segment analysis necessary.
Segments Analysis
Two different forms of segmentations are being used in this analysis, which are generally
defined as external factors and internal factors. The external factors are main refer to the
companies sizes compare, locations and geographic analysis, and business or cargo type analysis;
while the internal factor analysis the industry from psychographic ways, such as, the service type,
social class, as well as the market promotions.
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Source from airlines industry data analysis
From the data of year 2012, the market share of the industry generally has the positive
relationship with the company size, which means the larger the company is, the more market
share it owns. This refers that the larger companies may have more airline routes, offer longer
distance travel, and the security satisfaction rates in customer survey are also higher than others,
therefore, they have comparative advantages than those smaller companies in acquiring market
share.
For more accuracy, the market share analysis of year 2011 also calculated as above, the two
charts have a high similarity on the conclusion. However, the companies which sizes between
$1-5 B seem share more market than those whose size between $5-10 B. The reason why this
phenomenon consistently happens may contain one reason is that the company size between
$5-10 B, is positioned in the middle of the whole industry, they can compare neither to the very
low fare of the small companies, nor to the larger companies which have more aircrafts and
routes in total. This gives the relatively smaller companies the opportunity to enter into the
market and share the profit.
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domestic airlines may bring the barrier for the investors who want to enter the airline industry.
A look back to the last four years regional growth in passenger-kilometers performed ratio,
shown as Table 12,
Table 12:
In terms of PKPs on total scheduled services, the world ratio was generally increasing in
these years, which means the economic recovery contributed to the development of the airline
industry. Among all the areas, the Asia/ Pacific, North America and Latin America and Caribbean
segments PKPs ratio have a significant growth, combing the former profit analysis of each area,
may help the companies establish the further strategy.
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determine which one is more profitable during the past years and how it will perform in the
future years.
Table 13:
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Competitor's Performance
Since all the industry and economics turn to be more and more globalizing, the competition
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for the whole airline industry also broader than before. After analyzing the different region
airlines profit and volatility above, entering the domestic airline industry may be a good choice if
the risks can be better controlled, or the international airline part may be a relative stable way of
not losing capitals.
Current Issues
Merger
AMR Corp., the parent company of American Airlines filed for bankruptcy protection in
November 2011, and then it agreed to a merger offered by US Airway Group Inc., in February
2013. According to Checkler, a federal judge on Thursday confirmed AMR Corp.s plan to exit
bankruptcy-court protection through a merger with US Airway Group Inc., leaving a U.S.
antitrust lawsuit as the deals final, if formidable, barrier (Checkler, 2013).
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The merger process has not been completed so far, and there is no guarantee that it will
complete in the end. However, the airline industry seems to restructure through merger, alliance
and joint venture. Look back the history of domestic airline industry in the U.S., there have been
several mergers and takeovers in the past decade, including ValuJet purchased AirTran in 1997,
American acquired TWA in 2001, American West acquired US Airways in 2005, Southwest
Airlines purchased ATA Airlines in 2008, and the most recently Continental merged with United
Airlines while Delta merged with Northwest Airlines. Not only did the U.S. airlines have been in
the trend of mergers, the international airline industry has the same path as well. This includes
Air Canada acquired Canadian Airlines in 2000, Air France merged with KLM Royal Dutch
Airlines in 2004, Cathay Pacific purchased Dragonair in 2006, LAN merged with TAM in 2012
and so on (Brain, 2013).
The frequency of mergers, alliance, and joint venture suggests that the airline industry is
highly competitive and there are lots of risk factors could affect a companys performance and
profit. Based on the analysis about the frequency of foundation in airline industry, we see that
there were many new entrants after 1990s, which indicates that the industry is more competitive
than it was before. Besides the competition from new entrants, the merger, alliance, and joint
venture enables those companies to share their network and other resources so that they may be
able to cut down their cost. This could send other companies in competitive disadvantage. With
the increase and volatility of fuel price, economic recession in 2008, terrorist and aircraft
accidents, many airline companies are concerned about future performance and profit. As
historical data suggests, the airline industry suffered a great loss in revenue in 2001 and 2008
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because of terrorist attack and economic crisis respectively. Some airlines have failed to survive
through such a recession period and have to file for bankruptcy or to consolidate with others.
The benefit of merger, alliance, and joint venture is significant even though there are some
companies that have not cooperated well to gain the benefit they expected to. Companies that
involve in a merger, alliance or joint venture can be able to share their resources, including
access to new markets, reduce risk on the volatility of fuel price, plan a more efficient route, and
so on. If cooperate successfully together, it will help companies to reduce their cost. This cost
advantage will make them more competitive in the market and more profitable in the future.
Meanwhile, a merger means reducing two competing airlines to a monopoly in the market. The
new company may have better power control over the business such as fares.
The merger between AMR Corp. and US Airways Group Inc. is not done yet, and no one
can predict the result. If the merger fails, AMR Corp. may need to plan a new strategy to survive
in the industry. A strategy the company considers is to expand aggressively to compete against
others by cutting cost, renewing its fleet and increasing its departures with more flights. This
plan strayed from the industry trend of capacity cuts that has helped increased airline fares and
profits (Nicas, 2013). Therefore, it may destabilize the industry. If the merger completes, the new
company will be the largest airline in the industry, and it is possible to increase airline fares as
what Delta and Continental Airline did after merger. This may help to increase the profit margin
in the airline industry, but may hurt consumers benefits. Whatever this merger goes, the airline
industry needs to be profitable to keep in business.
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September 23, 2013, the 2013 industry profit forecast was cut by 8 percent to $11.7 billion. On
its previous forecast, theres also $1 billion downgrade that reflected the increase in fuel price
driven by the Syria crisis (IATA cuts 2013,2013). Look at the performance and cost structure
of global airlines, most companies experienced significant increase in fuel and oil expense, leads
the fuel cost to be the largest operating expense for recent years. United continental Holdings,
Inc. has experienced an increase of fuel price from 30 percent of total operating expense in 2010
to 37 percent in 2012. The average price per gallon is also increased from $2.39 to $3.27. Deltas
fuel consumption increased from 30 percent of total operating expense in 2010 to 36 percent in
2012. Southwest Airlines fuel consumption increased from 16.5 percent in 2003 to 37.2 percent
in 2012. The worldwide industry has been through the same situation in the past few years.
The increase high fuel price and its volatility make the airline industry less profitable.
Besides the geopolitical events such as Syria crisis, there are many other factors, which are
beyond airline companies control, can affect the movement of fuel price in the future. Economic
growth expectation is one of the most important facts that affect fuel price. Due to the economic
crisis in 2008, fuel and oil price fell dramatically to the bottom. With the slow recovery of world
economy, fuel price also increased. The economic condition in the future is ambiguous, and it is
difficult to predict the fuel price. Even though some companies have the strategy to reduce the
risk associate with fuel price, such as hedging trade, it is still rather risky for airlines due to the
volatility of fuel price and its high price level.
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recession period. The security problem will still be a large issue to airline industry in the future
because the world is not at peace at all and accident happens. A serious security problem is able
to destroy companies in the airline industry.
Government Regulations
The International Air Transportation Association (IATA) is urging governments across the
world to foster a more economically vibrant airline industry, with a focus on the U.S.
government. IATAs director general Tony Tyler criticized regulators in the U.S. for increasing
regulation of the airline industry, which raises the air travel cost (Bellamy, 2013).
Airline industry is subject to extensive regulation. For the U.S. domestic industry, it is
regulated by the Department of Transportation (DOT) and the Federal Aviation Administration
(FAA). It is also subject to the foreign regulation for international business. Any new rules and
regulations could affect a single companys operations and performance. For example, on
January 16, 2013, the FAA announced an emergency airworthiness directive to require operators
to cease Boeing 787 aircraft operations until the FAA finishes its review of the 787 aircrafts
critical systems. The redesigned 787 battery system has been approved, but theres still a lot
comprehensive testing before it can return to flight (Brown, 2013). This could adversely affect
airlines business. If the government extends its regulatory grip on issues such as security
measures, environmental concerns, aircraft operation and safety, and taxes and fees, it will
increase the cost of airlines operations. The airline industry risky as it is subject to the
uncertainty of government regulations.
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Overall, the airline industry is extremely competitive, energy intensive, and highly
regulated, and there are lots of factors can affect the airline industry. The environment can
change immediately and affect the industry. Therefore, companies should be able to change to fit
the new environment so as to survive in the industry.
Conclusion
Based on the above analysis on different aspects reflecting various current situations in the
airline industry, a clear picture is given to evaluate things happening in this domain and estimate
what will happen in future. Specifically, team 8 provides different suggestions for corporations in
this industry and advices for potential investors who might enter this industry. In other words, we
offer advices from the view point of both firms and investors.
Corporations:
Team 8 offers following suggestions for companies on size level, since airline firms in
different size segments are competing with their rivals by unique competitive advantage.
For Huge scale companies (>$20B): Cut cost, or purchase others
In airline industry, top 7 firms are controlling up to 41% the world market and the top three
ones are controlling 65% market shares in the U.S., indicating a strong capital advantage over
their rivals. However, net incomes, on the other hand, are not as promising as revenues. Analysis
on this part reveals that increase in oil price partially explains why cost for this size segment is
rocket high recently, and further provides convincing evidence for the severe drop of net incomes
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In airline industry, 37 firms considered as middle scale corporations are controlling 27%
the world market, and among them, 7 firms are controlling 13.52% market shares in the U.S.
Gaining a better profit compared to companies in other segments, middle scale companies still
faced by severe competition troubles from huge companies that might seize more market share
by raising capital and expanding into regional markets, since the market share a company can
obtain is determined by its capital size..
Therefore, a method to keep their position against those big sharks in airline industry is to
ally with others to build up enough capital to ensure their market shares and competitive
advantages on regional level, and if possible, purchase some smaller companies to expand into
profitable area during up-going macro-environment.
For small scale companies (<$1B): Grow up or die
In airline industry, 18 firms considered as middle scale corporations are controlling 2% the
world market, and among them, 6 firms are controlling 1% market shares in the U.S.
Suffering from their low capital scale, companies in this segment have to grow up as soon as
possible in case lose their market share by competing from big sharks or crushed down by
increased cost such as rocket high fuel price.
Investors
Generally, pursuing different aims, investors are divided into two distinct types: Some
investors would like to undertake high risk to seek high return; Other investors, on the other hand,
are reluctant to bear risk and prefer constant and stable returns in long-run. Considering the
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