Analysis of the Airline Industry Parameters of the Industry American Airlines is a subsidiary of MAR Corporation and one of the leading airlines in the U. S. It has two subsidiaries, that is American Eagle and American Connection. It is the second largest airline in the world based on revenues used in its operation, its size of fleet and miles covered in passenger transport. It has an extensive operation of both domestic and international flights in North America, Latin America, Europe, Asia and the Caribbean.
It was formed through acquisitions by around 82 small airlines in 1930 and has extensively grown since then. It was only six years from when it was founded and it was already the number one domestic carrier. Three years later is opened up at the New York Stock Exchange. In 1950, it merged with Pan American World Airways, making it into a bigger airline than it was before. In 1959, it became the first airline to offer east coast- west coast travel. With all these major improvements, American Airlines created two membership programs.
In 1981, a frequent flyer program called Advantage was created. Another membership program they created was called American Airlines Admirals Club. These programs darted as an “airline invitation” flyer member program were celebrities and VISP were members. It is a paid membership program. It was a reward program that helped customers to be able to earn miles and preferential services. In 2001, American Airlines planes were hijacked on September 1 1 . American Airlines is one of the world’s largest airlines. Its headquarters is in Fort Worth, Texas.
It has two major affiliates American eagle and American connection. The largest hub is the Dallas International Airport. It is the one of the founding members of the one world airline alliance. It is one of the world’s three largest global alliances. It serves 260 destinations in 4 continents. The main focus city is Laggardly Airport (New York). The four main hubs are Dallas, Texas for the Americas, Chicago, Illinois for Europe and Asia, JEFF New York for Americas and Europe and Los Angles, California serves Asia and Pacific.
They have over 300 planes that are serviced by Boeing, 200 planes in service by McDonnell Douglas. Right now, they have orders for 260 planes by Airbus. The goal is to replace McDonnell Douglas. The main competitors of American Airlines are Delta and United Airlines. As for regional airlines, their main competition is Southwest Airlines. On a financial standpoint, American Airlines filed for bankruptcy in 2011, unblocking $4 billion of cash. The annual revenue for 2011 was $22 billion. The net income was -$470 million, and this was a loss.
PEST Analysis The general environment effects upon the industry are Political: In regard to American Airways, PEST analysis puts into account the political, economic, social and technological environments within which this company operates. Within the macro-environmental aspects, focus is put on those factors that impact more on the airline. The September 1 1, 2011 terrorist attack markedly shook Pest Analysis: American Airlines By entombing the political stability to the United States. This led too tall in business and air travel.
This had negative implications on income generation and profits. Other factors that implicated negatively on the Airlines business include regulation on pricing, legislation of wages and trade union requirements, emphasis was put on the airport, and the national security as well and the policies of 1978 being deregulated. Prior to the September 11 attack, the United States economy was in some mild recession. The industry was fighting carriers on discounts. Economic: The economic aftermath of September 11 impacted dramatically on the airline industry which was in a slight contraction.
This led to deceleration on economic growth, fuel costs went high trade accounts had to be balanced, and there was a tremendous fluctuation on the exchange rates of the dollar against the Yen and the Euro. Social: Social factor, emphasis on this analysis is laid on September 11 attacks because the event had a global impact. The social implications here in included staff layoffs, decline in both lower and middle class travels, it impacted negatively on safety of air travel; decline n consumer travel plans in regard to air travel and low fare became an acceptable alternative.
Technology: Technological aspects – The internet has profoundly impacted on the consumer behavior. This is because this new mode of communication has influenced the mode of airline ticket sales. Some of the technological developments in American Airlines include: The SABER system, shopping services, which include Attractively, Orbits, and Expedite, the internet has become a tool for flight shopping, online reservations of tickets and ticketing and a decrease in the number of travel agencies. Porter’s Five Forces Analysis Supplier Forces For an airline company, aircrafts are costly and vital pieces of equipment.
With regard to commercial passenger aircraft manufacturers, there are really only two suppliers that exist: Boeing and Airbus. The limited nature of this industry gives these aircraft supplier’s greater power in setting prices. Air travel is also a fuel- intensive industry, thus making the airlines very sensitive to swings in fuel prices offered by fuel suppliers. As a result the power of supplier forces is very high. The airline industry is an oligopoly, there is limited competition. The market is only shared by a small number of companies. Buyer Forces Buyers of airline tickets include many individuals and organizations.
With such a large pool of separate customers, the buyers as a cohesive group exert a lot of power in the industry. The power of buyers is very high in the airline industry. They are many airlines and they are all very competitive with the prices of their services. Customers have lot of choices concerning the airlines they want to use. It is because of this tremendous power that the buyers have, that when one airline changes the rises of tickets or introduces a new rewards program, all the other airlines follow suit, to be able to keep up with the competition.
Buyers of airline tickets include many individuals and organizations. With such a large pool of separate customers, little power is exerted by the buyers as a cohesive group. Substitute Forces Passenger rail lines, bus services, and personal transportation (cars) are all substitutes that exist in relation to air travel. They are generally lower cost and considered more convenient tort snorted distance travel; however, air travel in the U seems to be preferred for longer distances. If customers want to travel long distances, they are no substitutes forces, so as a result they will be forced to fly.
The level of substitutes in the airline industry is medium low. Entry Forces Entry into this industry is very difficult to the huge capital requirements that are required. Low traffic levels (since 9/11/01) and a lack of desirable gate access in airports has contributed to the industries barriers of entry. Also, the capital- intensive, labor-intensive, and energy-intensive nature of the industry can cause difficulties for new entrants. There are only a few suppliers in this industry and cause of that they have power to put any price they want, hence there is little negotiation.
As a result, if you want to enter the industry you have to have enough capital that covers all the startup costs. There are many regulations that are required once you are in the industry, and these only make the entry into the industry more difficult. As a result the level of new entrants is low. Industry Rivalry The rivalry in this industry is very high. The major rivalry to American Airlines is Delta and United Airlines; they have become major airline companies in the US and the world.
These airlines primarily compete on price and service; however, to a lesser extent they do compete on frequency of flights, frequent-flyer programs, reliability of flights, and other amenities. In recent years, pressures have somewhat eased as established carriers have stayed within their existing geographical areas of dominance, concentrating more on returning to profitability than expansion. However, there have been pressures from low-cost carriers (Southwest, Getable… ) whom have been in a state of expansion. Conclusion In conclusion, this industry is a very competitive industry.
Suppliers and buyers have lot of power; American Airlines have to deal with them carefully. To be able to remain successful in the airline industry American airlines needs to pay attention to the servicing of particular geographical markets as they are essential in the nature of the airline industry. It needs to offer routes between markets that are desired and utilized by customers. The costs that are inherent in the operations of an airline are a real limit to how low airfares can be. Costs include maintenance, fuel, labor, fees and lease payments for operating in airports, and various other costs (food, entertainment… ).
Those airlines that are able to control costs can attract customers with lower fares and can improve overall profitability. An airline with a reputation for reliable service has been shown to develop a positive image among customers, which can lead to more repeat business. Reliability in the air travel industry is measured by several elements: reports of mishandled baggage, the on-time arrival of flights, involuntary boarding denials from overbooking flights, and passenger complaints. If American Airlines is able to control these elements, then it can be said to provide better service to the customer, and thus offer more reliable service.
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