* US Airlines Industry

BY GROUP 10 BHAUMIK TRIVEDI DHIVAKARAN TAMILCHELVAN MAYUKH CHAUDHURI PRANJAL KUMAR

SHAKUN TAKKAR

*
Airline Industry Regulation 1930-1978 :

1) 2) 3) 4)

Kelly Airmail Act in 1925 & Air Commerce Act in 1926 Anyone can enter the industry

Route allocation regulated by McNary Waters act of 1930

Three dominant airlines emerged United Airline controlled northernmost routes, TWA central route and American airlines southern most routes. Competitive bidding system introduced- New Airlines like Delta and continental emerged, while the major airlines drive off smaller airlines to be competitive. In 1938, Civil Aeronautics Board regulated the prices, entry & exit, Merger & Acquisition CAB introduces cost based pricing, protecting airlines from excessive competition.

5) 6)

Airline Industry Deregulation 1978-1988

1) 2) 3) 4)

After deregulation in 1978, prices dropped significantly, carriers could enter the routes severed by other carriers. Emergence of new airlines 22 Airlines in 1979 and 43 Airlines in 1982 Out of all the Airlines started Between 1979-82 only 6 Airlines survived in 1995. 8 carriers with share of 89.4% dominated the 49 Billion US dollar domestic airline market.

*
* * * * * *
In spite of deregulation industry was still adjusting to the competitive environment Demand for travel diminishing Industry suffered from Cut throat price competition. Airline Industrys Profit was volatile. Airport Congestion after deregulation

Complexity of Hub and spoke system

CUSTOMER
Supply Side: 19 Airline Operators. Demand Side: Business Travelers least flexible to travel pans and sensitivity to price, Leisure travelers more sensitive to price and more flexible to Travel plans. Travel Agents accounting to 75% of Airline Reservations.

COMPETITION
By 1983, 196 Airline operators entered the market, giving a tough competition. The CRS system made the airlines industry give good incentives to travel agents and CRS provider to make them prominent. The Low cost airlines started shuttle routes and point to point service to minimize the cost.

CLIMATE
Deregulation of Airline industry in 1978. Allowing Carriers to enter into the routes where others. Providing chartered services more flexibility to compete with major carriers.

United Airlines were the first to start ticketless travel and saved $5 per ticket. American Airlines were the first to introduce CRS, FFP & create restricted discount fare. Delta Airlines pioneered the Hub and Spoke System, with its hub at Atlanta. The low cost strategy of Southwest Airlines had made them financially successful.

COMPANY

*
Barriers to entry (Low) Easy to deploy
airplanes to new routes Economies of scale were small Deregulated Environment Inputs (Food service, aircraft maintenance etc) can be outsourced

Threat of Substitutes (High)

Telecommunications Video Conferencing High speed Rail-roads

InterOrganization Rivalry (High)

Severe price competition Increase in market concentration To appear first in the travel agents Computer reservation system Cost reduction efforts to achieve growth and profitability Homogeneous Product

Bargaining Powers of customers (High) Corporate discount

Buyer Information Similar incentives from other Airlines Price Sensitivity for leisure travelers Low Switching cost

Bargaining Power of Suppliers (High)

Fuel price volatility Limited Manufactures for large commercial aircrafts Labor such as pilots, cabin crew etc are typically unionized

*
1) Clearly defined strategy to cater particular market segment (e.g. Low cost strategy or full service )
2) Create secondary

hubs to reduce pressure on existing hubs.

3) Reduce the number of flights offered by increasing load factors

4) Implementing the additional fees for services that were earlier included in base ticket price 5) Exchange of Slot between airlines to maximize market share.

*
Pros
Clearly defined strategy to cater particular market segment Reduce the number of flights offered by increasing load factors

Cons Other market would be left untapped or less penetrated Less flexible schedule to customers, more waiting time

Able to maximize market share in particular segment Full capacity utilization, cost reduction

Implementing the additional fees for services that were earlier included in base ticket price ( e.g. Add on service)

Option of pay for service for customers, enable tradeoff between price and service Able to penetrate the untapped market
Flexible routing and customer convenience

Less customer satisfaction, complexity in operations

Exchange of Slot between airlines to maximize market share Create secondary hubs to reduce pressure on existing hubs

Risk of loosing the market share in own market

Operation cost is higher

*
LOW COST CARRIER Dominant Approach Minimal number of aircraft types Reasons Reduce the O&M activities and cost, enable capacity utilization, good supplier relationship Emphasize on med/long haul routes To tap the untapped market

Emphasize on secondary airports

Dominant Approach Target more international routes

Lower landing and parking fees

Reasons Less competition in international markets, requires high capital investment Differentiate their service offerings by the needs of travelers Provide flexible routing alternatives, relieve pressure on individual hubs

LEGACY CARRIER

Clarify strategic market position Create secondary hubs