US Airline Industry Analysis

Published: 2018-03-11 03:06:46
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1.5 Threat of Substitute

The existence of substitutes determines the extent to which the services and brands perform in line with the sales targets and revenue margin. The US Airline sector is associated with an increasing number of the cumulative passenger travels, which indicates that the existence of alternative means of transport has little effect on the performance of firms. However, it is essential to note that the changing tastes and preferences of customers define the approaches that companies require to enhance customer experiences. On the other hand, the level of efficiency and affordability of the services remains as key performance indicators associated with the sector. Therefore, threats of substitutes as a competitive force has little effect on the performance of the sector.

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1.6 Viability of the US Airline Industry

The analysis of the competitive environment associated with the industry indicates the existence of adverse shifts in the market, which determine the success of the firms. The growing demand for the services also depicts the potential of the industry as a business niche. Moreover, the high level of exit, acquisitions, and mergers picture a stable market in future. The three elements show how the industry is favorable whenever firms operate on economies of scale; however, it is not a viable opportunity for investment especially for small-scale companies. Historical assessment of the success of small-scale enterprises in the sector indicates how they did not survive the economic downturn, inflation, and stiff competition. On the contrary, large entities continued to grow, and cushion loses emanating from poor performance through strategic planning.

2.0 Southwest Airlines Core Competencies: Value Chain Analysis

Southwest Airlines has a rich historical account regarding the establishment of a management framework, which has encouraged growth and sustainability (Frelberg & Frelberg, 1996). The success of a firm emanates from two basic approaches to enhance the internal and external competencies: the implementation of the Porter’s Value Chain Dimensions and the Barney’s VRIO Framework. Based on these models, the success and competitive advantage of the company emanated from the management of operation cost, efficient customer service, use of technology, leadership and teamwork, human resource engagement, and change management.

On the primary concerns of the firm were the client's position and role in the success of the business. The administration considered the high prices of the services and extended distance coverage in the market as a gap of investment (Hitt, Ireland, & Hoskisson, 2016). The establishment of low-cost carrier service that operating on short routes and at a high frequency enabled the firm to increase the customer base. The use of technology enabled the customers to access information regarding the services directly from the official company’s website. Furthermore, cost leadership has been a strength that contributed to the growth of the firm. The satisfaction of the customer was not only based on affordable prices but also the company operated a schedule that was convenient for the clients. Giving customer services a priority created an environment that encouraged high customer acquisition and retention rate.

Moreover, cost management is another competency that the firm has nurtured over an extended period. The company operates on the non-fixed schedule, limited advance tickets, and convenience trip. The designation of multiple trips to major cities in the segmented market enabled the firm to attend to the demands of the customers and improve the revenue margin. Maintaining a small equity to debt ratio has positioned the company above the competitors in the market. The VRIO Framework elements such as strong financial position and well-managed processes assisted Southwest Airline to grow their services within a short period within an industry dominated by firms operating on a large scale. The carrier services approach was unique, and established companies found it a challenge to control the market shift to low price airline services.

Furthermore, dynamic leadership, teamwork, and excellent human resource management have contributed to the level of competitiveness associated with the company. Through the Herb Keller’s transformational leadership approach, the employees emulated his teamwork, dedication, and corporation to enhance time management, cost effectiveness, and customer satisfaction, which contributed to the high level of growth in the organization. Job security increased the performance of the workers where sharing of duties such as offloading the baggage and cleaning of the aircraft was not a limiting factor to the team spirit in the organization. The nature of leadership and market approach was unique in the industry and firms trying to emulate Southwest system have failed to realize the anticipated growth.

Although the company is associated with several key competencies that have competitively positioned the business above the rest in the industry, some factors depict the limitations related to the strategic management approach. The concentration to short distances is a weakness that prevents the firm from attaining the maximum local revenue. Moreover, the fear of operating in regulated states prohibits the company from expanding its market within the United States. On the other hand, the increasing cost of operation is concern that the management should not neglect since it poses a great danger on the stable growth witnessed in the company. Furthermore, the stiff competition emanating from foreign entities and small-scale operators such as Allegiant and JetBlue is a factor considered as future threats (Hitt, Ireland, & Hoskisson, 2016). However, working within the existing framework while implementing changes based on emerging trends will enable the company to remain stable within the industry.

Worth noting is that the achievement of the firm has been centered on both cost leadership and differentiation. Value chain linkage, based on the focus of the business, has seen the company build on the market uniqueness, which calls for sustainable cost management strategies. The objective of the firm has been to guarantee the growth of the anticipated profit margin at sustainable cost with high customer satisfaction levels. However, the realization of such goals is critical and require multidimensional techniques to create an enabling environment. Although the economy of the United States did not favor the airline industry, the Southwest Airlines worked strategically in line with the performance indicators. Capitalizing on the growing demand for the services assisted the organization to survive the recessions.

3.0 Southwest Airlines Organizational Culture: Culture Web Approach

The culture of an organization plays a critical role in the sustainability of the operation. The establishment of cultural orientations in a corporate firm take time and resources; however, sticking to a particular prototype based on the available resources is essential for the success and competitive advantage of the business. The elements of the culture web show how the growth of Southwest Airlines is attributed to the competitive environment regarding the daily operations and routines as outlined below.

3.1 Southwest Airlines Stories

The onset of the business indicates the struggle where the other firms objected the entry of the company into the market. The legal battle is an indicator of determination that inspired Herb Kelleher and Rolling King. The company started with three carriers and 25 employees only but grew within a short period to serve thousands of customers (Hitt, Ireland, & Hoskisson, 2016; Lancaster, 1999). The commitment of the founders encouraged a spirit of persistence among workers with Kelleher being an inspiration and role model. Based on the historical account regarding growth and the associated challenges, Southwest Airlines has worked to sustain its operations and customer services, which explains why the firm survived the tough economic periods (Frelberg & Frelberg, 1996). For example, when other companies were suffering because of customer dissatisfaction, Southwest Airlines enjoyed positive feedback from the clients.

The U S Airline Industry problems

Problems in the industry

The U.S airline industry has faced many challenges in the past decades. There are two main causes of problems in the industry, global economic situation and the internal dynamics of the sector. Fluctuation in the prices of fuel is the greatest challenge facing the U. S airline companies (Sax, 2015). Economic recession which causes a major decline in business is also another major problem facing the industry. Seasonality and security are also major concerns that affect the operations of the U.S airline. The airline's management has little control over these two problems since they are caused by global economic forces.

Internally the industry suffers from the entry of low-cost airlines which cause steep competition to the existing. The industry is also facing a severe price war which to a large extent hurts the airlines using traditional models to conduct business (Belobaba, Odoni, Barnhart, & Bamber, 2015 p. 488). Excess capacity caused by the entry of budget carriers and the model they use to determine their routes is also a major challenge. The management, however, can make strategic decisions to influence the impact of these problems.

The airline industry analysis

The cost of fuel and price fluctuation for the product affects the operations of airlines massively. Fuel cost makes almost a third of the expenses incurred by carriers. A slight change in the price of fuel can cause a negative or positive impact on the profits of the company (Sax, 2015). Jet fuel like all other fuels is obtained from crude oil. The price of crude oil is controlled globally by a union of the countries that produce it. Airlines management have little influence on the price of fuel. They can, however, make decisions to minimize other expenses to mitigate negative impact caused by a random increase in the price of fuel. Airline companies can also enter into contracts with fuel providing companies to negotiate long-term deals to enable them to purchase the product at a predetermined price regardless of the market forces they would pass the risk of loss due to price fluctuation to another party.

Global economic challenges affect every sector of an economy. Usually, after financial crises, the economy goes into recession. During this period business slows down, the value of stock also decline, and there is limited growth. Since the airline industry depends on of the financial situation of its customers, it is highly affected by a recession. At this time the management should downsize its operations. During a recession, the airline companies should only operate flights that have the prospect of breaking even and making profits.

Price wars in the industry is a major challenge. Firms in the industry like other business propositions aim at making profits. The costs involved in air travel is, however, immense and to achieve their objective; airlines are forced to charge the customer more for air tickets. Budget airlines, however, have identified this as an opportunity and developed business models which allow them to charge customers low ticket fares and still make money. The low-cost airlines employ various strategies to manage cost. For example, they use non-union personnel to cut the cost of employeets salaries which makes up a quarter of the expenses in many airlines. The budget carriers also maintain a bare minimum number of staff who are well skilled and trained (Belobaba, Odoni, Barnhart, & Bamber, 2015 p. 495). The low-cost airlines also try to utilize each aircraft they own to the maximum ensuring that it does more flight hours hence more revenue. Advancement in technology has also worsened the condition for airliners since customers can compare prices on different websites with minimal cost. Price war drives down ticket prices reducing the small profit margin the companies obtain due to the high expenses.

The problem solutions in air travel industry

For companies in the air travel industry to remain profitable, they need to embrace efficiency in their operations and fully utilize their resources. For carriers to achieve a high level of standards in efficiency, they must hire highly skilled staff who are determined to work extra hard to deliver results. A company should aspire to have a small team of highly dedicated and able personnel. Such an initiative would reduce the labor cost drastically together with repair and maintenance since such work will only be done by professionals.

Airline customers initially focused on wealthy clients who could pay for flight tickets inclusive of other amenities such as entertainment and beverages. The growing middle class has however led to the increase in the need to travel by air for business or other reasons. Airlines, therefore, should be willing to adapt to this change in the market and tailor customize their prices to accommodate such customers.

Mergers are probably one of the best ways for the airlines to reduce cost. If the different enterprises decide to come together and form one big company, then they will benefit in various ways. This initiative can largely reduce costs such as airport landing fees and training for technicians who maintain the crafts.

Recommendations

Airline companies need to realize the dynamism in the industry and make strategies that ensure their sustainability. Firms in this industry must become more cost conscious and work on reducing the expenses under their control such as personnel and maintenance costs. In addressing the challenges caused by global phenomena such as an increase in fuel cost or economic recession, the companies must adopt creative means to survive. Entering into a contract with a fuel supplying company to provide the product at a particular price can allow the airliner to plan with certainty. Technology also appears to be the next frontier of competition in the industry. Companies must invest in new means of advertising and offer their customers the flexibility and convenience to acquire tickets online and pay without involving an agent.

References

Belobaba, P., Odoni, A., Barnhart, C., & Bamber, G. (2015).T The global airline industryT (1st ed.).

Sax, I. (2015). The problems facing the airline industry.T IR Magazine. Retrieved from https://www.irmagazine.com/articles/sustainability/15838/problems-facing-airline-industry/

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