External Environment Analysis Essay Example

its use of hedging is exposed to liquidity issues. JetBlue hedges on a discretionary basis with the purpose to limit the liquidity and profitability risks of harshly rising prices. Once again a challenging economy plays as a factor in the Domestic Airlines industry with per capita disposable income. This is the amount available to people for consumption spending and savings.

Because traveling requires consumers to have high spending income the demand for flying increases or decreases according to disposable income growth or decline. JetBlue has a competitive advantage with the lowest fares in the industry satisfying price-sensitive customers. The international market is another factor affecting the Domestic Airlines industry. As international tourism increases so does the amount of passengers on domestic airlines. Most often these tourists need to get across the country and in turn will need to use domestic airlines.

Two factors that affect JetBlue with international tourism is one having a flagship terminal at JFK International airport. The JFK airport is the busiest international airport in the United States as an air passenger gateway handling more traffic than any other airport. According to the Bureau of Transportation Statistics (2010) JFK had 66,311 international scheduled services in 2010. The second factor is point-to-point routes, 63 destinations in 21 states, Puerto Rico, Mexico, and 11countries in the Caribbean and Latin America, and having major focus cities such as Boston, Fort Lauderdale, Los Angeles/Long Beach, New York, and Orlando.

The level of demand for aviation is largely influence by the number of domestic trips taken by US-residents. According to the Bureau of Transportation Statistics (2011) the total domestic passengers traveling has decrease by almost 8% from 2010. JetBlue has

not seen an impact by the decrease in domestic passengers having regenerated on July 2011 an 11. 1% airways traffic increase compare to July 2010 (JetBlue Airways Corporation, 2011). These external factors influence JetBlue’s strategic business continuity plan.

As sky rocking oil prices, the United States recession, and the global economic downturn continue to affect the industry, JetBlue is not entirely risk free. JetBlue needs to develop a plan to deal with its heavy debt load while dealing with the constraints of customers driven by price and route, low brand loyalty, and heavy capital costs. General Environmental Analysis The general environmental analysis is a study of six primary factors, which are political/legal, economic, socio-cultural, demographic, technological, and global.

This study is essential for JetBlue to compete effectively in the Domestic Airlines industry. By conducting this study JetBlue will have a clear understanding of the elements in society that directly affect the industry. Political/Legal Factors The level of regulation for the Domestic Airlines industry is medium, and the trend is steady. The different organizations affecting the industry are the Air Transport Association of America (ATA), Department of Justice, the FAA, the United States Environmental Protection Agency (the EPA), the Transportation Security Administration (TSA), and the US Customs and Border Protection.

The many laws and regulations instituted by the United Stated Government that affect the industry directly are the Airport Noise and Capacity Act of 1990 (the ANCA), the International Civil Aviation Organization’s (ICAO) Chapter 4 noise standard, and the Aviation, and Transportation Security Act (ATSA). These laws and regulations affect the cost of airline operations. Economic Factors The economy of the United States affects the output of the industry

with factors such as economic activity and disposable income. The industry has a high level of volatility.

Many factors have affected the industry with events such as September 11 terrorist attacks in 2001 and 2008 credit market crisis. Because these events are unpredictable the effects on demand can be long-lasting. Other factors affecting demand and contributing to the high level of volatility are high prices and additional fees to increase revenue. This increases the industry’s risk creating a negative long-term effect on strategic decisions. Socio-cultural Factors The view of the consumer has an effect on the survival of airline companies in the Domestic Airlines industry.

According to a study found in USA Today passengers are seeking the most inexpensive ticket with favorable route (Stroller, 2010). This study indicates that no correlation exists between satisfaction and price a consumer is willing to pay for a flight. Demographic Factors The primary purpose for a domestic airline company is to service its customers. This makes it important for JetBlue to understand the demographics of many areas to determine how to service effectively these areas. Population is a very important factor in determining where industry establishments should operate.

The key is the more people in an area, the greater amount of businesses and even tourism. According to IBISWorld (2011) the spread of industry establishments are in line with the distribution of population. In the United States the population is sifting to the Southeast accounting for 25. 1% of the population. As for the industry establishments 24. 0% is also in the Southeast. Technological Factors The level of technology change for the Domestic Airlines industry is high. These changes include the development of

fuel efficiency, automated systems, e-commerce, e-ticketing, and new technology and systems under NextGen plan.

Out of the technological changes the most impacting is the Federal Aviation Administration (FAA) NextGen plan. Under this plan programs such as Automatic Dependent Surveillance Broadcast (ADS-B), System Wide Information Management (SWIM), and Network Enable Weather program will be introduce projecting an annual saving of $22 billion to the United States economy (IBISWorld, 2011). Global Factors The global segment has minimal impact on the Domestic Airlines industry. This is contributing to US-laws prohibiting the transportation of local passengers by foreign airlines between any two points in the United States.

One factor that can change the level of globalization for the Domestic Airlines industry is the business model of low-cost airlines seeking to expand into international air travel. Industry Analysis To develop a proper strategy formulation a clear understanding of the industry environment serves as an important step. The impact that the industry environment can have on an organization can be greater than external environment factors. This is mainly contributed to the nature of competition.

Competition within an industry among a group of companies leads to competitive actions and competitive responses that affect the strategic position of a particular organization and the profit potential for the industry as a whole (Hitt, Ireland, & Hoskisson, 2009). Industry Description The Domestic Airlines industry not only provides air transportation to passengers on regular routes and schedules, but also to cargo. Depending on the size of the carrier it either operates on a network or regional scale. Network carriers have at least one hub and uses spoke systems to connect flights.

The regional carriers not only depend on network carriers’

hub and spoke systems but mainly provide service to small cities. The regional carrier’s planes consists of smaller aircrafts and jets Industry Operations Major operations are domestic mainline service, regional airlines service, and air freight segment, commuter, and charter air transport. Domestic mainline services are the industry’s largest product segment. This segment accounts for 53. 8% of the industry revenue in 2011 (IBISWorld, 2011). The regional airline segment focuses on low-use routes and plays a role in bring passengers to the major hubs for long distance flights.

This segment accounts for 31. 3% of the industry’s revenue in 2011. The air freight segment, which also includes mail transportation accounts for 5% and commuter carriers for 2. 6% of the industry’s revenue in 2011. The commuter carrier focuses on carrying passengers on at least five round trips per week. Industry Life Cycle The Domestic Airlines industry is currently at a declining stage. Factors that indicate that an industry is in decline are revenue growth is slower than the economy, large dominating firms survival, technology change is slow, low per capita consumption, and segmentation of products and brands are stable and clear.

As for the Domestic Airlines industry the participation of the number of enterprises, establishments, and employment is declining. Another factor is the per capita passenger, which numbers is fallings. Industry Dominant Economic Features The revenue the Domestic Airlines industry generated for 2011 is $147. 2 billion. Approximately 53. 8% of this amount was generated by the domestic mainline services. Wages for the industry account for 11. 1% with an approximate 2. 1 units of labor for each unit of capital. Market Size The market size of the

industry has been declining 2. % per year. In 2011, 345 participants were operating under the industry. This has been contributing to mergers and acquisitions, consolidations, and bankruptcies. Market Growth Rate The industry is expected to grow 2. 0% annually from 2011 to 2016. This is estimated on an increase in passenger traffic. Passenger traffic will mostly likely increase as consumer and business sentiments recover and spending increases. A depreciation cycle of the US-dollar is also expected increasing the demand from foreign tourists. Industry Trends

The trends of the Domestic Airlines industry are increasing for basis of competition and industry globalization, and barriers of entry are steady. Industry Competitive Analysis The Domestic Airlines industry is a declining business characterized by high fuel cost, low profits, and high operating costs. Competition is driven by price, exclusive coverage of a route, and regional carriers consuming 31. 3% of the industry’s revenue. Industry Competitors The market share concentration is at medium level for the major airlines dominating the industry. According to IBISWorld (2011) 50. % of the market share was held by four of the top industry airlines. The dominantly companies are low-cost carriers such as JetBlue. The market share is between Delta Air Lines Inc (15. 2%), United Continental Holdings Inc (14. 8%), Southwest Airlines Co. (10. 8%), AMR Corporation (9. 7%), U. S. Airways Group Inc. (6. 7%), and JetBlue Airways Corporation (2. 2%). Anticipated Competitors Strategic Moves The factors affecting market share concentration is contribute to optimum capacity utilization, prompt delivery to market, well developed internal processes, and effective cost controls.

Two additional factors are the ability to expand and curtail operations rapidly in line with market

demand and access to the latest available and efficient technology and techniques. Business Ethics and Competitor Intelligence The role of business ethics in gathering competitor intelligence determines acceptable and unacceptable intelligence gathering practices. The law cannot be expected to be the only means to determine the boundaries of acceptable and unacceptable practices.

As information and communication technologies continue to advance at a rapid rate business ethics must come into play to determine what is acceptable or unacceptable in competitor intelligence gathering. Conclusion External business market affects the Domestic Airlines industry through key drivers. By understanding these drivers JetBlue has been able to affect the drivers. Other factors affecting JetBlue and its industry are general, industry, and competitive environments. The general environment is a force that must be strongly considered for domestic airlines companies to survive in their industry.

The industry analysis serves as an important step toward proper strategy formulation. The competitive analysis environment serves to help JetBlue exists in an industry that has many competitors in the market. References Bureau of Transportation Statistics, Research and Innovation Technology Administration. (2011). Flights All Carriers – All Airports (Data Elements): 2011 data (International flights services for major airports). Retrieved from http://www. transtats. bts. gov/Data_Elements. aspx? Data=2 Hitt, M. , Ireland, R. , & Hoskisson, R. (2009).

Strategic management: Competitiveness and globalization, concepts and cases (8th ed. ). Mason, OH: Cengage Learning. IBISWorld. (2011, December). Domestic Airlines in the US Industry Report. Retrieved January 21, 2012, from, IBISWorld database. JetBlue Airways Corporation. (2011). JetBlue Airways Reports July Traffic [Press release]. Retrieved from http://investor. jetblue. com/phoenix. zhtml Stoller, G. (2010, September 15). JetBlue, Southwest beat big carriers for service, quality. USA Today.

Retrieved January 21, 2012, from http://www. usatoday. com/travel/flights/2010-09-15-1Aairlinecomplaints15_ST_N. htm