Based on the book when there are competitive markets such as airlines, a company certainly needs to look at costs and revenue very closely. (Brickley, Smith, & Zimmerman, 2009, p. 180) In this case I believe that the flights from San Francisco t Washington DC should be discontinued. Even though United Airlines is a large company and profitable if they continue these flights in the long run they will lose money. The other option that they would have would be to increase the fares to cover those costs, but since the airline industry is a competitive market people are more likely to go with a lower cost airline. The first thing the airline must do is look at the firm supply.
Based on the summary table provided in the text book – the first thing that jumps out is how disproportionate the labor volume/number of employees is to the number of aircraft that the company has. The company has to make some tough decisions in streamlining the labor force to reduce the cost of labor and make itself more competitive with its peers in an industry where competition is stiff at the least. In addition to this the idea that they will be using more regional jets e.g. Mesa Air in medium markets may help alleviate operating costs that are also currently very high. US Airways may also want to look into the option of merging/working with one of the more successful low cost carriers as a strategic partnership 2.
They don’t have efficient control system that can oversee from designing and planning to manufacturing along with suppliers. For example, Dreamliner was aimed to reduce the financial risks involved in a $10 billion-plus project for designing and developing a new aircraft and reduce the new product development cycle time. But with the trouble getting enough permanent titanium fasteners, Boeing has to highly dependent on a few suppliers. This will inevitably increase cost. With bad communication, various manufacturers can’t design a proper software program for test the nose
Question One: The airline industry can be broken down into three primary segments: major airlines, regional airlines, and low-fare airlines. JetBlue Airline is a domestic airline in the United States using a combination of low cost and differentiation as its strategy. In order to know the key forces in the general and industry environment that affects its choice of strategy. Based on Porter’s Five Forces Model, the key forces directly influences are: The threat of new entrance is low. In JetBlue case, the current economy situation creates high market entry barriers, which consists extremely high fixed cost and numerous capital requirement.
EasyJet- Case Study 1 Q1. Analyse the structure of the industry in which easyJet competes. How attractive was the industry in the late 1990s? The core objective of easyJet was to establish a sustainable mode of air travel at a price that would be comparatively cheaper to its rivals. By using a framework by (Porter 1980) we can illustrate the compatibility of such a strategy in the existing aviation industry Potential Entrants Despite the high volume of new entrants during the period of easyjet’s inception, only a minority were actually able to survive.
After weighting the costs and benefits of going public, in my opinion, private placement would be a better idea for JetBlue to raise funds particularly following the terrorist attacks of September 2001, because private placement is less expensive, less time consuming and do not need for registration, and at the same time, JetBlue can also raise funds quickly through private placement. At that time, the whole economy slowed down and it was hard for JetBlue or any other firms to perform well, the price
Southwest clearly defines its existing purposes, which is to provide the lowest fares for business and leisure travelers traveling between states. Instead of competing with large-scale airlines to fly international routes, Southwest focuses on “point-to-point” interstate short trips, and more on maximizing the profitability than focusing on market share. This strong vision outweighs the allurement of international flight market, keeping Southwest airline concentrated on its own niche to gain profit. B. Cost-consciousness Since low fares have become its selling point, decreasing the cost becomes very important. Southwest Airlines tries to save money by simplifying its operating process.
To Improve Air Safety - Safety in the industry would be influenced by the stability of the Air Carriers. If the Air Carriers are unstable and financially weak, then they would be less likely to invest in safety. 3. To Reduce Cash Subsidies - If the Air Carriers are economically regulated, then fewer of the Air Carriers would need federal subsidies in order to make them stronger. Early Federal Legislation Air Mail routes were established in the early beginnings of Air Transportation.
Highly competitive industry 2. Unsuccessful implantation of growth strategy 3. The hiring of competent staff who maintain the culture of JetBlue JetBlue’s strategy of maintain customer excellence and providing needed low cost service is a definite way to stay up above the competition, customers want a low cost airline that gives them what they need in terms of pricing as well as destination. JetBlue, will be in a position of failure if a growth strategy is not in place to increase capital and foresee methods in which to cover debt and make a profit “ Achieving our growth strategy is critical in order for our business to achieve economies of scale and to sustain or increase our profitability” (JetBlue,2004) Gating is an important issue that must be looked at, due to the fact it could limit their sales “We will also need to obtain additional gates at some of our existing destinations. Any condition that would deny, limit or delay our access to airports we seek to serve in the future will constrain our ability to grow” (JetBlue, 2004).
Advances such changing engines from piston to jet engines and new software allows aircrafts to function more efficiently with less wear and tear and for longer period of times. Additionally, Delta’s changes in depreciation from 1986 through 2006 had a positive effect on the company’s financial statements. Although depreciation does not affect cash flows or revenue, it does have an effect on the bottom line. By stretching out depreciation, Delta decreased its depreciation expense resulting in higher net income. This is very beneficial for Delta; the airline industry is always being pressure to show more profits and results.