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The Airline Industry:

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The Airline Industry: Success and Failures THE INDUSTRY The Airline Industry is a highly competitive industry with companies operating in domestic and/or international markets. Many airlines are stilled owned by their respective countries and have treaties between countries to allow airlines to land there. The industry has been taking a relatively shaky course as costs are rising and profits have been decreasing. This was further intensified with the recent terrorist attacks on US soil, which lead to higher costs as the need for more security arose. Recent financial statements of major airlines showing major losses reflect the problems that the industry is having. Yet amidst the storm, some regional airlines such as Jet Blue Airlines have managed to focus on specific markets and maintained or increased their profits. It is no doubt that Porter's 5 forces of competition are at play in this industry. These forces are the Threat of Substitutes, Threat of New Entrants, Competitive Rivalry, Bargaining Power of Buyers and Bargaining Power of Suppliers. Threat of Substitutes The airline industry has been plagued by rising costs resulting in poor profits. The recession adversely affected the industry during the first half of 2001. This was intensified by the September 11th attacks, when two airlines were crashed into the Twin Towers in New York City by terrorists killing everyone on board and demolishing the buildings. This lead to an immediate reduction in air travel as customers did not feel safe about flying and an increase in the use of other forms of transportation. Amtrak, a railway company, reported an increase in passenger volume in the days following the attacks. Though this has leveled off as things returned to normal, rail travel is a substitute for air travel that will be utilized by customers if they are looking for cheaper travel and if they are looking for a leisure trip that would not be too time consuming. ...read more.


Due to the large number of lessors, financiers, and vendors, only large accounts have been approached as time constrains US Airways efforts. Southwest Airlines Strategies Southwest first starts off with a powerful mission statement "dedicated to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. Southwest has four main strategies to success, concentrating on high frequent, short stops, low fare strategy, commitment to employees and customers, and lastly aggressive marketing. Southwest's first main strategy concentrates on flying large passenger planes on short hops. Dallas for example, a low fare carrier offers over 2700 flights to 55 cities and 29 states. Southwest usually lands at small airports to avoid congestion and competitors' at larger hubs. As for being a western company they are gradually expanding to eastern cities. Most of their flights are about an hour, which makes it hard to believe that they are among the top 10 US airlines. Southwest has made it a point to focus on point-to-point systems for more direct routes, which reduce connections and delays, in order to arrive on time. As everyone knows that Southwest is the low fare way to travel. Large airline companies tried to match Southwest's fares, but only incurred a substantial loss. Southwest is a "simple" airline company. To show the simplicity of the company starts with open seating with a single class. To keep these fares low they do several key things. Only on Southwest you do not get meals other than a beverage and a pack of peanuts. They also only fly one type of plane a Boeing 737. This is so training is easier and maintenance is reduced. Employees become masters at their job because the planes never change. Southwest also offers a ticket-less travel system. This greatly reduces the need for travel agents and their commission. You never touch a ticket with this system. ...read more.


In attempt to stay competitive, US Airways has bought and begun operations of 5 profitable regional carriers. All three airlines examined have attempted to maintain good labor relations. Labor Friendly Restructuring is a main part of US Airways. American merger resulted in labor conflicts, which has adversely effected the operations of the airline and customer service. Southwest Airlines' good labor relations are proven by the fact that Southwest has never experienced a labor work stoppage. Lastly, there is a trend in the industry to increase communications and networking among airlines. Orbitz.com has been launched by the big six airlines and is expected to generate an increase in profits for each airline involved. US Airways has entered into agreements with airlines to code share which is expected to increase revenues by $200 million. The airline industry has begun a revitalization process. New procedures will and are be implemented by airlines to return to profitability and success. The airline industry witness many of its large firms began a path of self-destruction in the late 1990s. The violence of September 11, 2001 only enhanced the negative pattern by shutting the industry down for a week producing huge losses and the need for a government bailout program. Airline Statistics (taken from Hoovers Online) Revenues (in Millions) Sept 2002 Sept 2001 US Airways 1903.0 2493.0 American 4494.0 4816.0 Southwest 1391.2 1335.1 Net Income (in Millions) Sept 2002 Sept 2001 US Airways (248.0) (24.0) American (924.0) (414.0) Southwest 74.9 151.0 Total Assets (in Millions) Sept 2002 Sept 2001 US Airways 7705.0 9564.0 American 31502.0 31840.0 Southwest 8954.3 7994.9 Total Debt (in Millions) Sept 2002 Sept 2001 US Airways 10808.0 10106.0 American 28991.0 25609.0 Southwest 4631.6 4045.3 EPS (in dollars) Sept 2002 Sept 2001 US Airways (3.64) (.36) American (5.93) (2.68) Southwest .09 .19 Revenue Passenger Miles Oct 2002 Oct 2001 US Airways 2,965,753 2,802,967 American 3,048,000 2,851,000 Southwest 3,258,017 2,590,610 Load Factor (%) Oct 2002 Oct 2001 US Airways 66.9 61.7 American 63.2 57.8 Southwest 56.8 53.4 ...read more.

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