A.

) Basic description of Industry

Industries such as the US airlines are a very valuable and are used throughout the world as an easier way of transportation.
Some would call this industry an oligopoly. The airline industry is classified by the government and is based on the amount
of revenue that is generated from operations. This type of industry is categorized in 4 different sections: major, regional,
national, and cargo carriers. All of these categories have ways of displaying and executing services to interested consumers.
Major airlines are also called truck carriers. They are considered nationwide. National airlines are scheduled airlines for
the planned consumers and travelers. Like the major airlines, national serve to medium and large size jets. Regional
airlines focus mostly on transporting major travelers between major cities and small communities near by. This class has
bee seen to have the fastest growing and most profitable segment of the airline industry. Lastly there are the cargo carriers.
They are part if the industry that focuses on the passengers and their cargo.
The airline industry has a main focus and that would be their customers and the satisfaction that is relayed to them. Their
main concern is the people aboard. The customer needs to know that their trip will be easy, safe and somewhat relaxing.
The airline industry has had to really focus on customer satisfaction since the tragedy of 9-11. After the huge economic
boom, the industry has had to re-evaluate their strategic planning of staying afloat. This event was with out a question, a
threat to the industry. Their planning and procedures have had to become very lengthy and drawn out to be able to provide
the correct and appropriate customer satisfaction that is needed to keep the consumers around.
As this industry has to organize their strategic planning they have to know what the customers are looking for. Things such
as their product quality in aircraft and accessories along with their strong customer services. When a consumer, like myself,
thinks of an airline industry it is usually consisted of the travel situation they are going to be in. The industry has to know
that the personal focus of the consumer is their only focus and that the trust is in the staff of the airlines to simulate a
satisfying trip in quality and service. As I stated before 9-11 has changed a lot of thoughts in regards to flying but that
should not make an industry feel they cannot improve and show the support of satisfying a unit of consumers. By doing this
strategically, the industry has to also execute a safe and efficient flight. The policies and procedures of organizing a flight
need to be relayed and practiced throughout the staff and personnel. Maintenance is also a key item that needs to be looked
at in order to improve and execute the quality and service of the industry. There are on an average 11% of personnel on
maintenance, which could be considered a weakness. Maintenance is a major part of the airline industry and if there is a
strong, dependent team then it will help increase the confidence in the industry by the consumer. If not then this could lead
to an untrusting net between the industry and the consumers and travelers.
Anyone who travels or has a limited amount of time on their hands uses the airline industry as a key asset to arrivals. There
are so much as business investors to families going on a vacation that use this way of transportation. Many companies also
use this way of travel to transport goods and services in a short amount of time to help on travel expenses. Sending things
in bulk amounts have shown to save money and time for business dealing with other business. This situation would call for
a cargo carrier the most of the time because it high focus is cargo and shipments.
In the airline industry there are many ways to get access to the tickets and passes for this type of transportation. Now
consumers and travelers can go online and purchase the time, place of departure, place of arrival and expenses on the
internet. They have also developed a quick and easier way to purchase access on to an airline in the airports itself to make it
easier and more satisfying to the consumer.
Geographic location of the industry, profit trends and near competitors: Every business, corporation, or industry is faced
with the areas that are listed above (profit, location, and competition. It is all based on how the management plans to
increase and maintain or stay on top.
The U.S. airline industry is based out of the U.S. There are more industries outside this region but is not the focus of this
analysis. Within this industry there are different types of companies such as America, Continental, Delta, Northwest,
Southwest, and US Airways. All these companies are developed for the same reasons and it depends on how they recognize
what needs to be in their strategic planning and to know what their strengths, weaknesses, opportunities, and threats are.
In the early 2000, the growth in the airline industry was hopefully around 5%. Because of the scare of 9-11, the industry
felt that their would be too many seats chasing too fewer passengers. (Business Week, 1999) The empty seat range was to
drop to 17%. Their was a promising build up within the next two years (currently) and it has shown. The planning and
strategies that were applies after this tragic event has lead to a new line of trust between the consumers and the US Airline
Industry.

B.) Factors that influence demand

This industry is an example of an industry that is growing and trying to stay afloat even though the economy is slowing
down and consumers are becoming more attached to not spending income so rapidly. With there being a huge impact on
the pressure of the economy, the trends within the U.S. Airline Industry has changed over the years. The main focus that
the consumers demanded a more competitive industry by seeing lower prices. Under the Deregulation Act, which passed in
1978, it declared that there needed to be a way to promote competition among carriers by lowering the costs of usage and
increasing the efficiency. This caused the airlines to push and execute all they had to satisfy the consumers. This also
influenced the industry and allowed existing carriers to enter and exit markets freely. They had to charge prices according
to the current demand but this allowed them to flow in and out of the industry as they needed.
An opportunity that this industry has for itself is that it has maintained as an option for travel and has not plunged in default.
The technology that is evolving daily is improving and developing better and stronger as the years pass. With new and
improved ideas, strategies, and opportunities the industry will evolve into a stable market and trends will eventually
maximize the success of the airline industry itself. The industry has to be able to strategically master a plan of action and
look at their shorter term along with their long term goals for the future.
This type of industry was designed for the travelers who wanted an easier and relaxed way of arriving at new locations.
This industries demographics are generally based on the business travelers and the so called on-the go investors. . I can say
that more and more business investors and less older generation of people choose to fly. In regards to age, sex, gender, or
geographic; it all is dependent on what is going on in society. The range of people that the US Airline Industries attract are
scattered throughout.
The airline industry has to make sure when setting their goals and objective for future success they need to know what is
going on with the government and all its politics. In 1999, the federal government took steps to boost the competition in the
airline industry. According to the (DOT)- Department of Transportation, the industry was given the option to get rid of
restrictions that kept the new carriers of certain airports. This would allow airport operators to give more leeway in raising
and spending money for airport-gate constructions. The air traffic was considered a problem and by eliminating traffic
confusions between the nation's busiest airports and the secondary airports. This was also mentioned to possibly decrease
the number of flight delays that occur when planes struggle to obtain the parking spaces. This could be an opportunity if it
is followed through because the consumers will not have to wait or have a bigger chance of a flight being delayed.

C.) Factors that influence cost structures and profitability

There are many factors that influence profitability in the airline industry. Potential growth, the effects of driving forces,
and/or the uncertainty or problems facing the industry in the future are just a few deciding factors. The profitability in the
airline industry is mainly influenced by revenue and cost factors. The demand drivers are those factors that determine the
revenue of airlines. The majority of the demand drivers are market based leaving little sight for government policy.
However drivers are partially influenced by government.
Deregulation of the airline industry brought about in 1978 introduced a situation in which the national as well as regional
carriers were suddenly able to compete in an environment that resembled a free market. Remember that the airline industry
was not subject to intense price competition before deregulation. As a result of this there were a number of new carriers
which specialized in regional service and the "no-frills" operations. These carriers typically purchase older aircraft and
often operate outside the industry-wide computerized reservations system. In exchange for these inconveniences,
passengers receive low fares relative to the industry as a whole, i.e. ValuJet and Southwest Airlines. By investigating these
air carriers, we can better understand the economic impacts of price versus service in the airline industry as a whole, and,
the impacts on passenger and investor relations.

Porters Five Forces

Some 1.6 million people fly on 4,000 aircraft every day. Airlines carried 643 million passengers in
1998, a 25% increase over 1993 and the FAA estimates that the nations airline system will have to accommodate 917
million passengers by the year 2008. These figures show an increase in the obtainable market share over the next ten years.
In the 40's - 60's, CAB (Civil Aeronautics Board) prevented the entry of new competition to the industry, despite the
growth, technology, and demand for the service. Therefore, the existing companies functioned as a market-rigged cartel
maintaining almost equal prices and simultaneous price hikes. CAB never imposed a price ceiling to protect the consumers
yet it made price floors to minimize competition.
In the 60's with the introduction of jet power, entry and competition became very tempting, yet with the absence of new
firms, rivalry came not in prices but in menial things such as stewardesses, luxury meals, and high frequency of flights.
However, because of this, prices rose and delays became frequent as planes often fly half full.
By the 70's, CAB's policies became hard to defend as studies showed it to prevent competition, cause inefficiency, and raise
airfare by 50%. By 1975, both parties of the government promised reduced airfares, improve consumer choices, enhance
efficiency and productivity and to "get government out of the marketplace" An act was passed in 1978 that enforced free
entry into the market by 1980 and free prices by '83. In 83, more than 60 new carriers entered the industry, cutting fares by
20 to 40%. Prices began to fall. However, the existing airlines (United and American) began to takes measures such as "hub
systems" (which made direct fights into two-part flights) and price discrimination to channel passengers their way.
By 1988, monopolies came back through huge mergers that conglomerated some of the lesser companies into a bigger one,
and new entrants would face fare cuts from the leading companies and would be forced to leave the market.

Cost Drivers
The size of the airline can greatly increase or decrease the company's costs. The major cost drivers influenced by the
market are increased fuel prices. The small regional airlines have a lack of market power that may affect the prices they pay
for their inputs. Some carriers may not be able to buy fuel at same price as other companies. A larger carrier such as Delta
may obtain a lower cost per gallon on fuel than say Southwest airlines due to the overwhelming size of the larger carriers.
The exchange rate is also a factor in costs. For example, the U.S. Dollar has increased, which has decreased the cost of
aircraft, parts, and fuel. The opposite can be said for the Australian Dollar. It has fallen, which has increased the costs.
The more flights scheduled the more pilots and required crew increase, which increase costs across the board.
The government can also influence costs. Regional airlines are subject to a range of taxes that are common to all
businesses. These include a tax on fuels, payroll tax on wages and fringe benefits. Included in these costs are license fees,
which are usually .02% of total costs, depending on the carrier. Since the early 1990s the renewal of airline operating
licenses has taken place with increased frequency and with increasing. Even more since 9/11.

D.) Opportunities in the Industry

It seems that the opportunities are endless at this point in time in the airline industry. Major airlines have cut back on their
fights since 9/11, with the industry's passenger capacity down 15% in the fourth quarter of last year and the U.S. airlines
parking some 350 aircraft. Even though it is slowly making its way back to the norm, there is a great opportunity to score a
larger market share than held prior to 9/11. Meanwhile, JetBlue has been expanding its routes, adding service as of May 1
adding service at 3 new Airports. This is a great opportunity for the lower cost carriers to take on new markets. They are
able to price tickets where they are making money where the majors are pricing tickets where they lose money. Because
operating cost are low, JetBlue is able to post profits while spending less than many of its competitors. The same can be
said for Southwest airlines. In a years time has dropped from 10.90 and topping out at 18.25 per share, showing a
substantial recovery in the past year.
Another opportunity for the airline industry is the advancement of the jet engine into a turbine-propelled aircraft. This
advancement in technology can greatly reduce operating cost by cutting the amount of fuel used as well as the down time of
planes. The turbine engine is almost 15% more fuel-efficient. When you're talking thousands of gallons of fuel a day,
you're talking huge profits.
Today, there has been an important growth of strategic alliances in the airline industry because of the airlines wanting to
compete at a global scale. Airlines are cooperating with other carriers through alliances. There are four major airline
alliance groups. Star alliance led by Lufthansa and United Airlines and Oneworld led by American Airlines and British
Airways each have about twenty per cent of the world market. The other large groups are Skyteam led by Air France and
Delta Airline and the alliance formed by KLM and Northwest Airlines. Often the decision of starting a partnership is driven
by the need for new market access, economic factors such as economies of scale to increase volume and revenues, or
motives associated with sharing expertise and technology. Also some companies are looking for a brand improvement,
being in an alliance will provide companies to gain popularity thanks to the reputation of the industry leaders.
But sometimes, alliances can be done for a more strategic and competitive reason. Strategic alliances can have an important
effect on the industry 's competition. This cooperation can either boost the market competition allowing the entry of new
companies or can be used to build barriers to entry, which reduces competition. Alliances are sometimes, for "weaker"
regional airlines, and non-dominant airlines companies a good way to survive, to get financial support and protection, to
improve image and reputation, and be in a favorable position to compete with other airlines outside the alliance.
But most of the time, the main reasons for airline companies to enter into strategic alliances is simply to benefit from the
technology, and gain access to a wider market.
In the Airline industry, all strategic alliances between carriers are called horizontal alliances: which means that they are
sharing agreements with others companies offering the same product, or service in the same market. Other than horizontal
alliance, the vertical alliance can be used by airlines to offer total travel packages, meaning that the airlines will enter into a
partnership with an hotel for example, benefiting from the total cost from the consumers on travel. An external alliance is
not commonly used by the airline industry, this is more like a diversification strategy. It is limited to joint ventures in
marketing promotions, such as special offers on fares, frequent flyer bonuses, package holidays, insurance etc.

E.) Threats in the Industry

Threats to the industry can be picked out throughout this analysis used to explain the environment of the industry as well as
cost drivers. One threat facing the industry is the cost of fuel to power the jets. The price of jet fuel on average has
increased by almost 60% globally from February 1999 to June 2001. This poses a problem especially for regional airlines
that may not be able to purchase fuel at the same price as domestic airlines and subsidiaries of the airlines. The exchange
rate around the world has changed dramatically since 9/11. For instance, If a carriers plane in Japan needs parts made in
America the exchange rate may have changed where the part has become very expensive. Since 9/11 many people have
been worried of the safety of flying. This has become a huge threat to the airline industry. Alternative modes of
transportation have become a favorite to a larger population of travelers. Such as, Busses, rental cars, cruise ship, or taking
a road trip in their own car. Although the percentage of airline passengers has slowly increased the feeling of insecurity still
exists.