RUNNING HEAD: THE AIRLINE INDUSTRY
The Airline Industry
Table of contents
Products and services: 4
Major players in the airline industry: 5
Economic impact of the airline industry: 8
Employment within the industry: 9
Key trends in the airline industry: 9
- Economic forces: 9
- Technological forces: 11
- Socio-cultural forces and political-legal forces / Government Regulations 13
Logistics and supply chain factors 14
Porter’s Five Forces Analysis: 16
Strategies used by airlines: 17
Expected Entrants: 18
Conclusion and Recommendations: 18
List of Abbreviations 20
Valid generic strategies to use include the differentiation, overall low cost, and niche strategies.
The Airline Industry
The airline industry (SIC Code 4512) is one of the key sectors in the US economy; contributing close to 5% of the country’s overall GDP, employing more than ten million people, and generating more than half a trillion in annual revenues (ATA, 2009).
Products and services:
According to First Research (2010), the main products or service in the industry is air transportation. This includes the scheduled or unscheduled transportation of passengers, mail or cargo. The bulk of the revenues in the industry (estimated by first research (2010) to be 70% of total revenues) come from the scheduled transportation of passengers. Cargo and express mail contribute up to 10% of total industry revenues, unscheduled (i.e. Charter flights) gross 4% of total industry revenues, with the balance coming from other services such as “providing maintenance, servicing, training, and reservations. Some airlines carry only cargo, using specially equipped planes” (First Research, 2010, p.1).
The US airline industry is made up of three categories of players, classified by the Department of Transport (DOT) on the basis of their revenues. These include the major airlines, the national airlines, and the regional airlines (Gale, 2005). The major airlines are those airlines which have annual revenues of more than $1 billion. Some of the leading major airlines include Delta Airlines, Jet Blue, Southwest Airlines, Continental, United Airlines, and American Airlines. National airlines are those which have revenues in the range of $100 million and $1 billion, while those which annual revenues of less than $100 million are generally classified as regional airlines. Some national airlines include Midwest Airlines, Hawaiian Airlines and ASTAR Air Cargo while examples of regional airlines include Grand Canyon Airlines, Republic Airlines, Aloha Air Cargo and Ameristar Air Cargo (ATA, 2009).
According to the ATA (2009), there are twenty major airlines in the US airline industry. There are thirty national airlines, and more than one hundred regional airlines. This means that the US airline industry is made up of more than 150 players. First Research (2009) puts the number of companies in the industry at 3,000. The airlines operate either through the hub-and-spoke model or through the point to point network model. The hub and spoke system is composed of a central airport (the hub) through which the flights are routed out; and the spokes (or routes which the airplanes take out of the central airport). In the point-to-point system, there are no hubs and spokes; instead, the aircraft flies directly from one destination to the other.
Major players in the airline industry:
The ATA (2009) has ranked the major players in the American airline industry on the basis of five key performance...