Airline Industry

• Is this a profitable industry?

• How do Five Forces account for profits?
• How do airlines compete?
 Major Players
• Delta • Southwest
• US Airways • Alaskan
• United • Midwest
• American • ComAir
• Northwest • ASA
• Continental
• TWA
 Differentiators/Niche Players?
• JetBlue
– “Low cost” Business-class only
• Virgin
– Sleeping space
– Showers
– Pick-up Service
– Back massage
 Airline Industry Profitability
8 ROS
6
4
2
0
-2
-4
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999
 Capacity Utilization
800
Available Seat-Miles (in millions)

Capacity
700
Utilization
600 Break Even
500

400
300

200
 Keys to Profitability?
• Increase total utilization rate:
– Which business-level strategies?
– Retire excess capacity?
• Decrease break-even utilization rate
– Efficiency (quick turnaround, new planes)
– High-load routes
– No-frills service
– Secondary airports