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    US Airline Industry: By: Rachel Andersen, Joe Bossert, Jarvez Hall, Jeff Hensley, Brandon Kirkbride and Adam Tolman

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    Pradeep Choudhary
    The US airline industry is comprised of US-based firms that transport people via air travel originating or concluding within US borders. The three largest airlines are Delta Air Lines, American Airlines, and Southwest Airlines. The industry faces challenges such as high fuel prices, taxes, and pension obligations. Low-cost carriers like Southwest and JetBlue have been more profitable by offering lower fares and additional amenities. The future health of the industry will depend on cooperation between airlines and government to reduce fixed costs and increase competitiveness in the global airline market.

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    US Airline Industry: By: Rachel Andersen, Joe Bossert, Jarvez Hall, Jeff Hensley, Brandon Kirkbride and Adam Tolman

    Uploaded by

    Pradeep Choudhary
    80 views26 pages
    The US airline industry is comprised of US-based firms that transport people via air travel originating or concluding within US borders. The three largest airlines are Delta Air Lines, American Airlines, and Southwest Airlines. The industry faces challenges such as high fuel prices, taxes, and pension obligations. Low-cost carriers like Southwest and JetBlue have been more profitable by offering lower fares and additional amenities. The future health of the industry will depend on cooperation between airlines and government to reduce fixed costs and increase competitiveness in the global airline market.

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    Airline Industry

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    The US airline industry is comprised of US-based firms that transport people via air travel originating or concluding within US borders. The three largest airlines are Delta Air Lines, American Airlines, and Southwest Airlines. The industry faces challenges such as high fuel prices, taxes, and pension obligations. Low-cost carriers like Southwest and JetBlue have been more profitable by offering lower fares and additional amenities. The future health of the industry will depend on cooperation between airlines and government to reduce fixed costs and increase competitiveness in the global airline market.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    80 views26 pages

    US Airline Industry: By: Rachel Andersen, Joe Bossert, Jarvez Hall, Jeff Hensley, Brandon Kirkbride and Adam Tolman

    Uploaded by

    Pradeep Choudhary
    The US airline industry is comprised of US-based firms that transport people via air travel originating or concluding within US borders. The three largest airlines are Delta Air Lines, American Airlines, and Southwest Airlines. The industry faces challenges such as high fuel prices, taxes, and pension obligations. Low-cost carriers like Southwest and JetBlue have been more profitable by offering lower fares and additional amenities. The future health of the industry will depend on cooperation between airlines and government to reduce fixed costs and increase competitiveness in the global airline market.

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    US Airline Industry

    By: Rachel Andersen, Joe Bossert, Jarvez Hall, Jeff Hensley, Brandon Kirkbride and Adam Tolman

    Sector Information
    The United States Airline industry is comprised of US based firms that transport people via air originating or concluding within its borders.

    Major Competitors

    Choice of Competitors

    Largest 3 in America*
    Largest (non American company)* The up and comer

    * in terms of passengers

    Delta Air Lines Inc

    Headquartered in Atlanta, Georgia


    Second Largest in the world (AA)
    Largest

    Domestically Fourth Largest in Revenues

    Operations in North America, South America, Europe and Asia Bankruptcy?

    AMR Corp (American Airlines)

    Largest in the world


    Second

    in revenues

    Headquartered in Fort Worth, Texas

    Operations in North America, South America, Central and Latin America, Europe and Asia

    Southwest Airlines Co.

    Operates In Unites States only


    Headquartered in Dallas, Texas Bring a Scale The Unknown Flyer

    Air France - KLM


    Largest in total revenues Part French, Part Dutch Operate with a Profit

    Air France

    KLM

    Jet Blue Airways


    Headquartered in New York City Founded in 2000 DirectTV at every seat

    Cost Structures

    Macroeconomic Impacts

    Minimal substitutes Ex. Car, train, boat Rivalry among competitors due to barriers to exit Price wars

    Market size and growth


    Expected growth rate according to the FAA is 4.2% each year for the next 12 years Market capitalization of 34 Billion

    -South west leading with 11.2 billion

    Scope of Competitive Rivalry


    Competition (ADD pictures of rivals) Indirect competition

    Business

    Jets Small commercial airlines Car, Train, Bus, Boat

    Issues
    Sept 11th Internet helping to cut the costs Fuel prices Number of seats

    Macroeconomy
    Passengers Per Year
    720,000,000 700,000,000

    Number of Passengers

    680,000,000 660,000,000 640,000,000 620,000,000 600,000,000 2000 2001 Year 2002 2003

    Sector Health

    Not attractive to new entrants


    Capital needed Oil prices

    Very attractive to new investors Major players control the market share

    Delta, AA, Southwest Jet Blue, NWA, United

    Cost Structure
    Lay

    offs

    Sector Success Factors

    Major Hubs

    Carriers can offer travelers more choices while tying up less capital through their hubs.

    Customer Loyalty

    Frequent flyer miles

    Established industry

    Net Income
    $500,000,000.00

    Winners

    $450,000,000.00 $400,000,000.00 $350,000,000.00 $300,000,000.00 $250,000,000.00

    Southwest

    $200,000,000.00 $150,000,000.00 $100,000,000.00 $50,000,000.00 $2002 2003 2004

    $120,000,000.00

    $100,000,000.00

    $80,000,000.00

    Jet Blue

    $60,000,000.00

    $40,000,000.00

    $20,000,000.00

    $2002 2003 2004

    Net Income
    $2002 2003 2004

    Losers

    $(1,000,000,000.00)

    $(2,000,000,000.00)

    $(3,000,000,000.00)

    Delta
    $(4,000,000,000.00) $(5,000,000,000.00)

    $(6,000,000,000.00)

    $400,000,000.00

    $200,000,000.00

    $2002 $(200,000,000.00) 2003 2004

    $(400,000,000.00)

    Northwest Airlines

    $(600,000,000.00)

    $(800,000,000.00)

    $(1,000,000,000.00)

    Fuel: Travelers are back from 9/11 but surging jet fuel costs are forcing many airlines to seek bankruptcy protection. Every penny increase in the price of jet fuel adds $186 million in additional annual expenses for the industry, Federal taxes and fees: According to the Air Transport Association, the industry will pay $15 billion in federal taxes and fees this year. Air traffic control, security, and other government services to name a few.

    Pension obligations: During the next four years, the Government Accountability Office (GAO) said the carriers face $60 billion in fixed obligations, $10.4 billion of which are for pensions. The airline industry is currently seeking pension reform to avoid the risk of bankruptcy.

    Competitor Actions and Reactions

    Airlines have already been reducing rates competitively but others quickly follow suit. To the average customer, most airlines seem the same. Brand differentiation might be the key to success. Customers may be more loyal or willing to pay a premium for an airline that sets them apart.
    JetBlue:

    Cheap flights and airplanes equipped with leather seating and DIRECTV. Southwest: Cost leader on routes and great customer service.

    Impact of Change
    Working together, airlines are pushing Congress to change legislation to relieve some of the taxes, fees and pension obligations. Reducing some of these high fixed costs will contribute significantly to increased profits.

    Porters 5

    Threat of New Entrants - strong brand name and incentives Power of Suppliers - dominated by Boeing and Airbus. Power of Buyers - high costs of switching airplanes, Availability of Substitutes - What is the likelihood that someone will drive or take a train to their destination? Competitive Rivalry - highly competitive industries generally earn low returns because the cost of competition is high.

    Questions?

    Bibliography
    Bureau of Transportation Statistics Federal Aviation Administration Yahoo Finance (Reuters) The Dallas Morning News Air Transport Association

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