Report On US Airlines For Airline Industry

The US Airline Industry: An Overview

Write about the Report on US Airlines for Airline Industry.

The airline industry of the United States has undergone rapid changes in the modern times. The industry has to suffer to make significant profit due to the increased cost of labor and fuel price. The new entrants in the US airline industry like the Jet Blue, Southwest Airlines and AirTran have all introduced lower cost airline tickets to the passengers, which has caused financial loss of the companies like American airline and Delta Airlines. As the customers have the freedom to choose from wide range of airlines companies, there is tough competition in this sector. There are also several online agencies that help the customers in online ticket booking. With the help of the internet booking service it is possible for customers to compare the price of different airlines (Barros, Liang and Peypoch 2013).

In this report, the past scenario of the US airlines is mentioned along with the present scenario. The competitive force that exists in the industry is discussed along with the economic performance. There are several strategies that can be implemented to improve the business performance of the airline industry and detail discussions of these strategies are mentioned in this report.   

The airline is the most reliable forms of transportation for the citizens the United States. There are more than 86 international airports that are operating all across the country and 12 out of the world’s 30 busiest airports. All the airports of the United States handle more than 1,000,000 passengers every year. Due to the geography of the US and large distance between the major cities of the nation the air travel is the most reliable form of transportation.       

The US airline industry had struggled a lot during the time of the World War I and European counter parts had developed at greater pace during this period. During the time of post World War I the military aircrafts dominated a major part of the US airline industry. At the time of World War II, the US airline industry received huge investment from the government and thus was able to expand at a greater rate (Jiang 2014). At the beginning of the 21^st century, the US airlines suffered major loss due to the terrorist attacks of 9/11. The consumers started to lose confidence about the safety level of the airlines and the industry has to suffer a loss of $300 million every day for the first several days of the attack. The rise of the cost of the aviation fuel is also one of the major causes of financial loss of industry. The rise of labor cost, which accounts for 40% of the total expense of the airline industry, is also one of the major areas of concern for the US airlines. Major airline companies like American Airlines and Delta Airlines have reduced the total number of flights in order to minimize the loss. They also had to reduce the total number of employees, which caused increased rate of unemployment.

A Competitive Analysis of the Industry

There are two types of airlines that are present in the US airline industry. The passenger airlines that are compromised of three international carriers namely Delta Air Lines, American Airline and United airlines. There are also nine other additional airline carriers that mainly operates within the domestic circles. The Air Cargo is another important part of the US airline industry, which compromise of large number of parcel carrying flights of courier companies like United Parcel Service and FedEx. The domestic postal service of US is also dependent on the service that is provided by the air cargo (Obermeyer, Evangelinos and Püschel 2013).

The increased numbers of private firms are entering the US airline industry the level of competition in the sector has increased significantly in the last few years. Moreover, due to the increased expense due to higher fuel and labor cost the airline companies are facing tough challenge to minimize the loss they are facing. The US airline industry has also become highly capital intensive that has resulted in increased cost of service maintenance.

The Porter’s five force analysis tool can be applied to analyze the external competitive environment of the US airline industry (Magretta 2013). All the external factors that have affected the US airline industry can be analyzed using this tool. The decline of the number of passengers has been one of the main causes for the decline of growth of US aviation.

The power of the supplier is one of the primary elements of the Porter’s five forces that help to analyze the influence of the suppliers that can affect the airline industry. The suppliers of the airline industry contribute the three major requirements that include fuel, labor and aircraft. As the price of the aviation fuel is subject to huge change and the airlines companies are totally dependent on the service given by the fuel suppliers. The variation of the price is dependent on the geopolitical influence of a region. As there is limited supply of fuel due to huge demand of aviation fuel all over the world, the airlines companies have are dependent on limited number of fuel supplies. The price is also dependent on the rate of supply and production in the global market. The labor is another crucial factor that can be influenced by the power of suppliers. The aircraft is the most important requirements for the aviation firms. The industry is totally dependent on companies like Boeing and Airbus, which are two biggest suppliers of aircrafts in the world. Hence, in terms of requirements the power of suppliers can be considered as the high in terms of the assessment of the Porter’s Five Force analysis.

The power of the buyers is another element of the porter analysis, which is dependent on the choice that is enjoyed by the customers (Brueckner, Lee and Singer 2013). With the introduction of the online ticking system, the customers of the airlines have the option of booking their ticket, without the help of the agents. Moreover, as several new firms are entering the market of the US airlines, the customers have the option to choose the best cost-effective flight for their journey. There is also tight regulation of the from the demand side of the airline industry that has resulted in the high level of protection for the customers. Thus, the demand of the customers, for the airline industry of US can be considered as moderate. Moreover, as the price of the fight tickets varies depending upon the time, the customers have the option to choose the best available price.   

The people of the US are highly dependent on the air transport due to large distance between the major cities. Moreover, with healthy economic conditions people of US can easily depend on the flight journey. Hence, the threat of alternatives to the fight journey, which includes bus or train journeys, can be considered to be low (Fuellhart et al. 2016). Nevertheless, the people of the modern generation prefer the motor journeys for long distance travel. The airlines are offering other free service to the customers within the flight that includes the free wi-fi and meal service, which will help the people to choose the flight journey.

As several of the new companies are entering the market of US airlines there is tough level of competitive rivalry. The new airline companies are providing lower cost of flight tickets to the customers so that they are able to attract more people to travel by air. Safety is one of the prime concerns for the people of US as they travel by the air. Hence, the new companies of the airline industry are assuring high level of security to the passengers. However, it is also challenging for the airline companies to provide high level of security with lower price of tickets.

The high cost of the entry and exit of the airline industry for all the major firms is also one of the biggest challenges. The private firms that are willing to enter the US airline industry have to pay huge expense that includes the seeking permission from the airport authority and buying cost of aircrafts. The companies also need to hire expert flight engineers for maintenance of the aircrafts and ensure full level of safety. There are also several barriers for the exit from the US airlines industry as the companies have to follow strict protocols (Ferguson et al. 2013).

The airline industry of the United States has huge contribution to the economic development of the nation. The report that was published by the International Air Transport Association (IATA) suggested that the international flights of the US airlines have increased ten times in the last five years. The share of the US airline industry in the global air travel secrtor has also increased 3-4 times during this time. Over the years the contribution of the US flight industry in the GDP of the nation has also increased to 6% from 5% (Winchester et al. 2013).

In spite of the struggle of the industry has suffered due to the rise of fuel cost in the last decade, the modern innovative technology of the recent times will help to deal with the increased fuel cost. During the second quarter of the financial year 2015, the airline industry of US has witnessed significant improvement in spite of facing revenue challenge. However, the higher cost of labor is still a matter of concerns for the most of the US airline company.

With improved and modern techniques of aircrafts building, every flight is having increased capacity to carry passengers. Moreover, the lower cost of filght tickets is also encouraging the train and road travelers to choose the medium of air. With the help of highest capacity aircrafts, the US flight industry has been able to increase the profit margin by 15% of both domestic and international sectors. Since the year of 2000, the aviation industry has suffered a loss of 1.3% in the operational sectors. However, due to the stronger performance since the middle of 2014, the industry has been able to seek 19.7% annual growth.

The unit profit that is defined as the profit gained by the aviation firms by traveling each mile has increased by 62%. The huge decline of the price of the aviation fuel in the global market in the last few years is mainly responsible for this huge growth in the recent times (Ismail and Jenatabadi 2014).

With the rise of demand of people as they prefer to travel through air, the airline firms can use this opportunity to expand the performance of the aviation industry. One of the best ways to increase the profit from each individual flight is to increase passenger carrying capacity of each individual flight. This will help the flight companies to reduce the cost of individual tickets and thereby encouraging more people to choose the medium of flight for long distance journey. As the price of the aviation fuel are subject to change and can vary hugely, it is important for the companies to discover alternative techniques of providing fuel for the flight.

The airline industry also needs to encourage people to directly purchase tickets instead of relying on agents; this will help them to purchase tickets at lower cost. There is also no need for the airlines to provide high cost meals in case of shorter duration of flights. The total number of economic flights also needs to be increased as it will help to increase the passengers carrying capacity of the every individual fights. Improved customer service, which is achieved by friendly behavior of the flight attendants, will also help the airline companies to encourage more passengers.

In spite of the recent development the US airline industry has not been improve like that of like the European airlines (Assaf and Josiassen 2012). The recent development in the US aviation sector however, has been promising as the total number of passengers is increasing significantly. The global financial crisis of the 2008-09 has huge impact on the aviation industry. However, the recent changes in the cost of the entry and exit from the airline industry have encouraged many enterprises to enter into the business of the airline industry. Due to several new companies entering the airline markets, the level of competition have increased significantly that has resulted in decreased in price of the air tickets. The recent agreement between the American and European Airlines have the potential to provide better quality service to the international passengers and also boost the economic performance of the US airline department.

The government of US has a strong duty to ensure that there is high level of security that is maintained in every airport. Moreover, it is also the duty of every flight companies to ensure that they check the performance level of every aircrafts, which will help to eliminate the risks that are associated with every flight journey.      

Conclusion

The US airline industry is one of the fastest growing sectors of its type in the whole world. Due to increase fuel and labor cost, the industry has to face tough challenges to make profit. Several of the new companies are entering the US airline industry to use the opportunity that exists in the current scenario. The recent economic performance has shown that the US aviation industry has been able to show improved performance as more passengers prefer air travel.

It is also the duty of the aviation department of the US government to ensure that there is a healthy competitive environment in the airline industry and no organization can introduce the system of monopoly make profits in unethical ways. The private airline companies also need to increase the total number of passengers in order increase the level of profit. 

Reference

Assaf, A.G. and Josiassen, A., 2012. European vs. US airlines: Performance comparison in a dynamic market. Tourism Management, 33(2), pp.317-326.

Barros, C.P., Liang, Q.B. and Peypoch, N., 2013. The technical efficiency of US Airlines. Transportation Research Part A: Policy and Practice, 50, pp.139-148.

Brueckner, J.K., Lee, D. and Singer, E.S., 2013. Airline competition and domestic US airfares: A comprehensive reappraisal. Economics of Transportation, 2(1), pp.1-17.

Ferguson, J., Kara, A.Q., Hoffman, K. and Sherry, L., 2013. Estimating domestic US airline cost of delay based on European model. Transportation Research Part C: Emerging Technologies, 33, pp.311-323.

Fuellhart, K., Ooms, K., Derudder, B. and O’Connor, K., 2016. Patterns of US air transport across the economic unevenness of 2003–2013. Journal of Maps, pp.1-5.

Ismail, N.A. and Jenatabadi, H.S., 2014. The influence of firm age on the relationships of airline performance, economic situation and internal operation. Transportation Research Part A: Policy and Practice, 67, pp.212-224.

Jiang, Q., 2014. The evolution of US airlines’ productivity and cost performance from 2004-2012 (Doctoral dissertation, Massachusetts Institute of Technology).

Magretta, J., 2013. Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press.

Obermeyer, A., Evangelinos, C. and Püschel, R., 2013. Price dispersion and competition in European airline markets. Journal of Air Transport Management, 26, pp.31-34.

Winchester, N., McConnachie, D., Wollersheim, C. and Waitz, I.A., 2013. Economic and emissions impacts of renewable fuel goals for aviation in the US. Transportation Research Part A: Policy and Practice, 58, pp.116-128.