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.
As delays will often frustrate travellers, this can make WestJet that traveller’s top choice. An order winner is the low price fares that WestJet is able to provide to customers in order to entice them to fly with them. Bargain-basement airfares may appeal to many travellers and the affordability of fares may be what drives that traveller’s decision on whether to drive, or purchase from another airline. 2. WestJet’s competitive priority relates to cost, quality and delivery.
There are several options available for customers to choose in this industry because the standard product and service are in this industry, so customers are more care about the price. And also the Internet makes customers research cheaper flight much easier than before and switching cost is low. The threat from substitute is high. Numerous options for customers can instead airlines, such as trains, buses, boats, and personal vehicles. Customers usually desire a cheaper way to travel if there are many options for them.
Therefore, if when a consumer enters a store and sees similarly priced products, one imported and one made domestically, they can choose a US made product without feeling as if they are overpaying for the same product. Many American consumers would like to purchase American products but if American products are considerably priced higher than imports, it will make it a difficult decision. Since the protective tariffs would even the playing field for the consumer, it would be a beneficial implementation. 2. Point #2: Tariffs protect American jobs and wages.
Negative externalities occur when social costs are more than a private cost. Governments may usually intervene when negative externalities arise, this is to tax demerit goods, which are goods that have negative externalities and are over produced in an economy. However, the government may find other solutions much more useful, for example; they find it more effective to subsidise merit goods, goods giving out positive externalities and also provide more information about the effects of demerit goods to discourage them. If markets were over producing demerit goods, those selling those goods such as firms would be taxed, so raw materials for the goods may be more expensive or possibly the machinery. This would increase the costs and result in the firms passing on the costs to the consumers, this would increase the prices of the goods causing negative externalities and discourage them from being bought.
Group Case Write-Up: American Airlines What is “Value Pricing” and why did AA introduce it? Value based pricing is a business strategy that sets prices primarily on the perceived value of the good or service to the customer, rather than on the actual cost of the good or service, the market price, competitors price, or the historical price. American Airlines’ value pricing has three key points that compromise the new plan, which are the following: 1) 4 four different fare prices for a given flight (first class, regular coach, 7-day advanced purchased discount coach, and 21-Day advanced purchased discount coach); 2) prices are based on mileage; and 3) lower prices would be available to more business and leisure travelers due to the fact that the new fares were set below the levels of the comparable existing fares. American Airlines introduced value pricing for several reasons. The first major reason was the nature of the airline industry.
The cost minimisation strategy employed by British airways during the recession proved to be an influential choice. It forced BA to be sensitive and cautious about cost and the passengers' volume has been cut down in terms of business and tour travellers. The industry competition is getting fiercer as by the joining of the lower cost airliners which indicates BA has to master the value creation process, or the value chain, with business perspective and cautious. In addition, the cares on the stakeholders in each stage of the business should be paid attention to, or it may leads to the negative impact to BA such as the staff strike took place in January 2007, which gives BA's brand image a big shock. These cuts the company has to make resulted in employee dissatisfaction.
They also included a share of the costs associated with running the hubs at the two airports, such as ticket agents, building charges, baggage handlers, gate charges, etc. Suppose that the revenue collected on the typical United flight from San Francisco to Washington does not cover these costs. Does this fact imply that United should discontinue these flights? Explain. 1.
Exploitable- JetBlue could design the interior of the aircraft to improve passenger comfort and use E190 as an useful tool to expand market and attract new customers. Implication: The E190 provided a unique opportunity for the growth of JetBlue. However, this plane did not completely match the company’s current capabilities and costed a lot. Thus the CEO of Jetblue must change their strategic strategy to either keep E190 as a VRINE resource or sell it. Capability 1: High level of service (Bill of Rights) Valuable-
The resources and capabilities that are critical to Southwest Airlines operations include a no-frills flight service to lower costs and minimize turnaround times, a family type corporate culture that ensures employee satisfaction and a frequent flyer program that retains loyal customers while adding new ones. These resources and capabilities are difficult to imitate by competitors which gives Southwest its sustainable competitive advantage. Southwest operates a linear route structure (point-to-point) through less-crowded secondary hubs in order to avoid flight congestion and high costs that are associated with primary hubs. This strategy perfectly caters to frequent business and leisure travelers who are willing to forego the frills offered by Southwest’s competitors for cheaper tickets. Southwest uses only Boeing 737 model planes for their flights, the usage of 737’s only reduces plane maintenance time and avoids delays.