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Competitive Profile Matrix .

 Rating  Given to individual firms  4 . 3 – minor strength.0 (high importance)  The number indicates how important the factor is in succeeding in the industry.0 (low importance) to 1.major strength. . 2 – minor weakness and 1 – major weakness. Competitive Profile Matrix  Critical Success Factors  Key areas which must be performed at the highest possible level of excellence if organizations want succeed in the particular industry  Ideally 10-15 CSFs should be taken for analysis  They vary between different industries or even strategic groups and include both internal and external factors  Weights  CSFs should be assigned a weight ranging from 0.


External Factor Evaluation Matrix .

superior response. but they are external based on PESTAL analysis  Weights  CSFs should be assigned a weight ranging from 0. 3 – above average response.0 (low importance) to 1. 2 – average response and 1 – poor response.  Rating  Given to individual firms  4 ..0 (high importance)  The number indicates how important the factor is in succeeding in the industry. . External Factor Evaluation Matrix  Key External Factors  Same as CPM.

Industrial Analysis.Porter’s Five Force Model Potential Entrants Rivalry among existing firms Threat of new entrants Industry Competitors Suppliers Buyers Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute products Substitutes .



Bargaining Power of Suppliers  Lot of monopoly and duopoly power upstream  The unions and the airports are effectively monopolists – the unions (especially the pilots) have used this power to keep wages and benefits high and impose restrictive working practices that keep productivity low. bargaining power is with the airlines  Boeing and Airbus focuses primarily on the price and financing arrangements for new planes—their profits lie mainly in spares and service contracts .  Airplane manufacturers are duopolists – how much supplier power they possess depends critically upon the balance of supply and demand  When the plane manufacturers are suffering from excess capacity.

Industry rivalry  This is very strong – look at the frequent price wars that break out  The prime driver is excess capacity – the airlines are always willing to compete on price in order to fill empty seats  Because of the prevalence of fixed costs. . be prepared to sell seats at any price that covers average variable cost and makes a contribution to overhead  Excess capacity problem is perpetuated by the long-lived assets (especially aircraft) and failure of bankrupt airlines to exit the industry due to the protection offered by Chapter 11. in principle. airlines will.

despite the industry’s dismal profitability and the short life expectancy for new airlines  Key feature of the industry is its ability to attract entrepreneurs who have always longed to own an airline (e. and ground facilities  While the capital costs of entry may be low. Threat of New Entry  Barriers to entry are not especially high – most capital equipment can be leased. crews.g. and so can pilots. Branson and Virgin America) . putting together the whole range of resources and capabilities needed to operate an airline (including gates and landing slots) tends to be difficult  Aggressive competition from established airlines increases the costs and difficulties of entry  New entry has been a continuing feature of the industry’s evolution since deregulation.

Bargaining Power of Buyers  Biggest change during the past decade on the buyer side has been the growth of online sales and the increased transparency of airline prices made possible by the internet  More informed customers are also more price sensitive customers  Some large corporate customers and major travel agencies (both online travel agents such as Expedia and Travelocity and more traditional travel agents such as American Express and Carlson) have significant bargaining power  The major pressure that buyers are able to exercise is their price sensitivity and low switching costs .

by 2009. Threat of Substitutes  Generally weak for journeys exceeding 300 miles  After a long period of limited market penetration. videoconferencing was emerging as a viable alternative to face- to-face meetings .

Delta’s decision to buy an oil refinery is a further step in hedging fuel prices  Industry’s profits are low because so many airlines are inefficiently managed — Could all airlines be as efficient as Southwest? . rising fuel prices tend to result in rising fares – and they may be passed on directly in the form of fuel surcharges  The problem is that higher fares mean lower demand resulting in excess capacity and pressure on margins  Firms hedge their fuel purchases by forward contracts and derivatives . Other Factors  The industry is unprofitable because costs are high  In the airline business.

and Southwest  Certainly mergers and acquisitions offer the potential for cost reduction. then there is a chance that the past will not repeat itself  Industry consolidation . United. however.major US airlines have been reduced to five: American. Delta. US Airways. Outlook for Industry Profitability. . 2013-2017  Several factors will be especially important in determining whether industry is able to achieve a more reasonable level of profitability over the medium-to-long term  Capacity growth .discipline shown by the airlines during the recent recession: if the airlines can show similar awareness of the need to avoid excess capacity in the industry. has the potential to lessen rivalry on many routes. the attitude of government and the competition authorities is critical  The tendency for the airlines to build regional power bases centered on a few hubs.

 Cost reduction . etc. JetBlue.main beneficiaries will be customers rather than shareholders .Cost reduction by the “legacy” airlines is reducing the cost gap between them and the low-cost carriers. Outlook for Industry Profitability. the bottom of the model ranges offered by Boeing and Airbus overlaps with the top of the range planes made by Bombardier.  This will reduce the competitive advantage of the budget airlines (Southwest.The airlines have done much to weaken the unions.  In certain segments of the aircraft industry.prospects of any reduction in the number of airlines competing are offset by the prospects for continuing entry into the US airline industry  New low-cost carriers is the possibility that overseas carriers might be permitted to compete on US domestic routes  Supplier power .) . 2013-2017  Several factors will be especially important in determining whether industry is able to achieve a more reasonable level of profitability over the medium-to-long term  Entry . increased competition between plane makers seems likely  In 70-120 seat planes. Embraer and others.