1. Conduct a competitive analysis (Porter analysis) of the US airline industry.

What does this

analysis tell you about the causes of profitability in the industry?

The competition in the US airline industry was pretty intense as most of the airlines competed by
lowering costs from that offered by rivals so that they create more value. At the most
fundamental level, a company has a competitive advantage if it can lower costs relative to rivals
thereby creating more value.
Some of the analysts point to the factors such as low-cost budget carriers entering the industry
and use of nonunion labor. These new entrants helped to create a situation of excess capacity and
taken share from incumbent airlines with much higher cost structure. This resulted in protracted
industry price war.

After conducting Porter analysis of the US airline industry, it states that the causes of
profitability in the industry is due to lowering costs and merger agreement with American
airlines. The driving forces behind mergers include desire to reduce excess capacity and lower
costs by eliminating duplication. To the extent that they are successful, they could lead to a more
stable pricing environment in industry and higher profit rates.

2. Do you think there are any strategic groups in the US airline industry? If so, what would they
be?

In the US airline industry, they are pursuing low cost strategy being implemented and lowering
costs below those of rivals is a particularly powerful strategy. For companies focusing on the
lower-income end of the market, or a segment that desires value for money, a different calculus
comes into play. First, such companies tend to produce a more basic offering that is relatively
inexpensive to produce and deliver. This may help them to drive down their cost structures.
In the US airline industry, where Southwest Airlines has established a low-cost position.
Southwest’s operating efficiencies have enabled it to make money in an industry that has been hit
by repeated bouts of price warfare, and where many of its rivals have been forced into
bankruptcy. This airline is striving for the lowest costs and does everything it can to be
productive and drive down its cost structure by focusing on most lucrative routes typically flying
from point to point and competed by offering lower fares.

3. What macro-environmental forces impact the US airline industry? Discuss them.

Some of the macro-environmental forces that impact the US airline industry are competitive
edge between the airline companies, implementation of low cost strategies and the merger of the
airlines. To complicate the matters the rise of internet travel sites such as Expedia, Travelocity
and Orbitz has made it easy for consumer to the comparison and choose between various choices
and keep the fare lower. The beginning of 2001 was witnessed with increase in the oil prices,
therefore complicating the matters further.