The Us Airline Industry in 2007 Essay Example

we are likely to see depressed income levels and a rise in unemployment, the growth in demand for Airline services will likely peak off. With people having less discretionary income, vacations are likely to decrease and alternative methods of travel are likely to be used in efforts to save money. In addition the price of supplies in an industry such as the Airline Industry where there is a high supplier power makes companies really at the mercy of suppliers. These suppliers can basically set the price of supplies and companies within the industry are forced to pay it.When key input components such as fuel are increasing at a rapid pace there is little mobility for the industry players to combat this, which is threatening to the industry as a whole. A brief look at the overall history internally of the Airline Industry is troubling.

A total lack of profit since its conception makes it for an industry that one would seem to want to stay away from. Many of these shortcomings can be attributed to the heavy impact external factors have on the industry. Internal success has been unable to deal with pressures of the external environment.Fortunately internal success has seen to turn around recently as companies figure out ways to become more efficient and limit price competition. Profits will continue to increase if companies can continue to figure out ways to utilize the firm’s resources.

The SWOT analysis breaks down strengths, weaknesses, threats and opportunities of the US Airline Industry. The strengths lie mainly in that growth for airline services is growing while the number of players is shrinking. This is promising as it

is shifting the supply demand curve both ways in favor of the industry.This allows them to raise prices and ultimately increase revenues.

Since the supply side of the industry possesses almost all of the control in negotiations, a huge weakness is presented. The airline industry has very little mobility in reducing these fixed expenses and each player is forced to pay whatever suppliers require. This is easily exploitable on the supply side which can greatly diminish the Airline Industry’s profit. Although these weaknesses showcase some of the inability of the Industry to reduce expenses, this does not mean there is not opportunity here at all.

There is always the possibility of increasing efficiency measures by carefully analyzing current measures and implementing better forecasting in the future. Speculation is a key concept that could be used to reduce expenses by locking in fixed costs of fuel and parts. If profit could be predicted at these locked in prices then this would take away one less concern, leaving focus to be put forth on other measures. The threat that is most imminent for the Airline Industry at this moment of time is the looming recession.

This has already slowed down many avenues of commerce and the Airline Industry is likely to be affected.A threat like this, one in which the company has no control over is a very direct and scary thing for the future outlook of Ford. Also the emergence of new players is always a risk. Although the barrier of entry looks like they would hinder competition from joining, the past has shown this not to be the case and the emergence of new rivals is

likely.

The general industry assessment is that the industry is in a favorable position. Key players should remain in the industry and structure themselves in a way to increase efficiency.This means reducing expansionary plans and refocusing on increasing load capacity. The emphasis is not on more planes but on filling the current ones, and filling them in a quicker more efficient way.

By using the model put forth by Southwest, those in the industry need to figure out how they can replicate it. In doing so things that they can directly control, such as Turnaround time, will be reduced which will increase profitability. Additional profitability measures will be seen in the reduced size of fleets and the reduced operating costs involved with flying each additional plane.Another strategy to enhance bottom line profit is to set up contracts with fuel companies in an effort to lock in certain rates.

This will allow less fluctuations in cost of supplies and aid profitability measures. In order to achieve higher efficiency measures, a higher level of productivity is going to have to be seen from the ground floor all the way up. New goals must be set for decreasing turn around time and penalties must be enforced for failure to do so. For capacity utilization, an immediate stoppage of plane expansion is needed.To further increase load capacity better predictors are going to have to be used to forecast capacity and programs are going to have to be implemented that ensure higher load capacities. These programs can come in the form of reduced cost flights, whatever to ensure that the goal of no empty seats is fulfilled.

Strength Growing Demand-

more people are flying which means there is a greater demand for the airline industry as a hole. Industry Consolidation- The industry is getting smaller with less players, post deregulation. With less players fighting for the same piece of the pie, there is more profits to go around for everyone.Weaknesses Industry’s Cost structure- A high structure of fixed costs makes it difficult for industry players to reduce certain costs.

Suppliers possess power- many of the suppliers can set prices and companies in the airline industry can do very little to combat this. Opportunities -Increasing Efficiency measures: By taking a better approach at items such as turn around time, companies can greatly increase bottom line profits. Strategies like Southwest’s could be implemented by other companies and this would lead to a smaller fleet of planes servicing a larger number of flights. Speculate: Industry players have the ability to speculate on future supply costs and potentially set contracts to reduce operating expenses. Threats -Looming Recession: The current state of the economy could potentially greatly hurt air travel. - New Players Emerge: There is always the threat of new companies emerging in Airline Industry.

Even though it possesses high barrier of entries, people are fooled into believing that there is an abundance of profits to be made, and new players emerge all the time.