General Environment Analysis The US Airlines Industry was going through a tough time during the period of 2004 - 2006. Major Airlines, such as United and Continental were trying to consolidate in order to survive. US net losses include $6.1 billion restructuring costs in 2006 [Exhibit 2, Source]. With several major airlines filing for bankruptcy, it was even more difficult for the regional airlines, which were primarily dependent on the major players for their existence. A more detailed environmental analysis is provided below: Economic Trends:  Net profit trend - Although the forecasts of the International Air Transport Association (IATA) seemed to be promising for 2007(collective profit of about $2.5 Billion), the situation till December 2006, seemed to be pretty bleak (Threat)  Seasonal Fluctuations - Another problem was the seasonal fluctuations in demand.
It has also deferred the delivery of the last eight A380 super jumbos it has on order, as well as the last three of 14 new 787 Dreamliners due for Jetstar. It will also shelve growth plans for Singaporean budget offshoot Jetstar Asia amid intense competition with other budget airlines in the region. Qantas shares fell sharply Thursday, down about 6.5 per cent at $1.1875. Qantas declared a statutory loss of $235 million for the six months to December, compared with a $109 million profit in the same period a year earlier. Revenue fell 4 per cent to $7.9 billion.
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
Problems: Since deregulation (1978) the average return on investment below cost of capital for the 5 largest carriers. Due to 911 the demand for air travel declined sharply. • Airline’s profitability hinged on the fraction of its flown seats occupied by passengers- load factor • Costs measured in cost per available seat mile (CASM) – cost required to fly one seat one mile • Yield- total passenger revenue/number of revenue passenger miles (RPM) • RPM- number of revenue seats times the number of miles flown • Average stage length-flight distance • Marginal cost to add a passenger is negligible • Turn-time of the plane important • Cost per available seat mile was low for airlines that flew long distances • After deregulation- high fixed costs and expensive labor, in need of systems to ensure high load factor • Shift to hub and spoke model- which helped achieve high load factor and market power • Segmented into major, national, and regional carriers • $ was the overriding concern of 1/3 of passengers • Airlines encouraged loyalty by frequent flier programs, differentiation of service, frequent departures, and a distinctive culture • Business travelers less sensitive to price- concerned most with schedule • The rise of the internet made customers more aware of price • Yield Management- the computer system became a powerful tool for “adjustable rate airfares” • The internet placed increasing pressure on the airlines • The Air Transportation Safety and System Stabilization Act- attempted to compensate airlines for losses incurred due to attacks Total Cost 40% employee salaries and benefits –largest expense 10-15% Fuel 15-20% Services 15% Aircraft and facility rental After 2001 only the low cost carriers Southwest, JetBlue, and AirTran remained profitable. Southwest- love theme, prided itself on being different, no meals, no seat
A. Resource Weaknesses: During the first 4 years of the simulation, the most significant resource weakness was the amount of available cash on-hand after all required cash outlays. Impala Athletics began year 11 began with only $5 million available in cash. The lack of available cash prevented the company from expanding plant capacity or pay down existing debt. In addition, the company’s B+ credit rating prohibited the company from obtaining loans with low interest rates.
Price competition has been the primary focus of the rivalry among airline companies. Many of these companies offer the same service such as flight routes, flight times, baggage handling, etc. And many customers are highly price sensitive in the current economy, so many airlines have started bidding wars. However, this price competition has decreased profits in the airline industry and lowered the price-cost margins of most of the major airline companies. Not to mention, the startup of some discount airlines such as Southwest has hurt the major airline companies even more.
Productivity Commission Inquiry: Economic regulation of airport services Submission by Virgin Blue Airlines Non-confidential version 18 April 2011 Contents 1 Introduction and Executive Summary 1.1 1.2 1.3 1.4 1.5 2 Airports have substantial market power Airlines have limited ability to negotiate pricing outcomes with airports There is strong evidence of monopoly pricing and service standards The current regulatory regime is not effective Proposed model for economic regulation of airports Page 4 4 4 4 5 6 7 7 8 8 8 9 10 10 11 13 13 14 15 15 15 16 Background to the economic regulation of airport services 2.1 2.2 2.3 2.4 2.5 The privatisation of Airports Initial regulation 2002 Productivity Commission inquiry 2006 Productivity Commission review The current review 3 Virgin Blue’s business model and the importance of airport pricing 3.1 3.2 Virgin Blue’s business model: providing high quality service with a low cost base Airport aeronautical charges are a significant proportion of costs 4 Market power of airports 4.1 4.2 4.3 Overview Countervailing power as a constraint on the airports’ market power Changes in overall market power due to constraints from other airports 5 Negotiations with airports under the current regulatory regime 5.1 5.2 5.3 Overview Examples of Virgin Blue’s current experience in negotiating with airports Commercially negotiated outcomes will only be possible if airports have the incentive to negotiate and airlines have recourse to arbitration 16 17 6 Analysis of pricing and services at major Australian airports 6.1 6.2 6.3 6.4 6.5 6.6 6.7 7 Aeronautical Pricing Principles Overview of pricing since 2007 Airport aeronautical charges and agreements Evidence of increasing monopoly rents by the major airports Recent experiences of airport pricing Limitations of the Building Block Model Weighted Average Cost
A business problem that has risen is the majority of customers wanting pickups as late as possible around 5pm, and not enough drivers to satisfy the need. It appears that Frank Smith and his field service supervisor Martha Lewis have looked at the budget considerations. Many customers needs have not been met meaning the drivers were unable to meet the scheduled pickups requested. Overall there has not been an increase in the number of pickups, and they do not feel it is financially responsible for another truck and driver to be hired which would be at a cost of $1200 a week. From what was discussed in the case study, it does not appear that any action has been taken thus far to resolve the customer dis-satisfaction regarding pickups.
Competitive Advantage in the US Airline Industry The GREENair Strategy Executive MBA in Business & IT Class of 2014 Module 4 - Strategy & Organization - Assignment Author: Luís Faria Reviewer: Prof. Dr. Isabell Welpe Competitive Advantage in the US Airline Industry The GREENair Strategy Subject Page Module 4 - Strategy & Organization - Assignment 2/17 Abstract The US airline industry experienced many years of difficult and had consistently failed to earn returns that covered its cost of capital. Several changes such as regulation, deregulation and consolidation have affected the structure of the industry. The new conditions of competition led to changes on the strategy of airlines as they struggle for a competitive advantage. This document describes the current situation of the US airline industry and shape the strategic position of a medium-sized airline in the US market. Table of Content Abstract ..................................................................................................................................... 2 1 Introduction........................................................................................................................ 3 2 The US Airline Industry ................................................................................................... 4 2.1 Industry competitors ................................................................................................ 4 2.1.1 Major legacy carriers (United, American , Delta, US Airways) .................. 4 2.1.2 Low cost carriers (Southwest) ......................................................................... 4 2.2 Competitor analysis ................................................................................................. 5 2.2.1 Rivalry between
This diversification added to the bottom line in the short run but it destroyed shareholders value eventually. There was no particular synergy between the core business and the healthcare M&As. Apparently Avon’s management lacked the expertise and skills to evaluate and run health business appropriately and in a combination with the negative for Avon change in Medicare the health division was no longer seen as a growing and profitable business. Financial outcome of this policy was a modest 1% CAGR in total revenue in the period 1980-1987; EBT margin in 1987 was 6% lower than in it was in 1979 and earnings per share were down by ~50%. The restructuring plan makes sense because Avon’s management demonstrates that it accepts the mistake of its healthcare diversification strategy, and now it concentrates back on the core business initiating a transformation from the direct sales model towards beauty business.