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1. What insights can be obtained from the analysis of the US airline industry?
Rivalry within industry
The rivalry within the industry is high.
The market is not growing quickly. The industry was deregulated in 1978, allowing the entrance of numerous low cost carriers like Southwest, JetBlue and AirTran. The industry cost structure is over 50% fixed. Since legacy carriers have higher fixed costs due to higher salaries and services offered on the flights, they are less profitable than the LCCs. The industry is also very capital intensive, resulting in high exit barriers.

Threat of substitutes
Overall the threat of substitutes is low for long flights and medium for short flights.
The flights over 600 miles do not have any substitutes, while the flights under 600 miles can easily be substituted by cars, buses, trains. These substitutes have a low cost but are less comfortable and take longer than a flight.

Threat of new entrants (barriers to enter)
Overall, the threat of new entrants is medium/low.
Despite 1978 deregulation, barriers to entry are still high. Indeed, one needs to obtain route licences, airport slots for landings. In addition, there are high capital requirements for starting up an airline, which can be partially offset through long-term lease contracts for aircrafts. Economies of scale are keys in determining profitability, therefore it would be difficult for a new entrant to establish this at first. On the other hand, there is low product differentiation; therefore the consumer will easily switch to a new entrant.

Bargaining power of suppliers
Overall the power of suppliers is very high.
The plane manufacturers have high power since there are only two suppliers and service costs can be expensive especially with older fleets. Airports also have high bargaining power with limited number of landing spaces. Unions are the major supplier...