Skywest Inc. And Regional Airline Industry

University Degree Business and Administrative studies

MGMT 314: Skywest Inc. and the Regional Airline Industry

THE REGIONAL AIRLINE INDUSTRY:

The regional carriers provide transportation to and from small communities to large airports and usually, these regional airlines form partnerships with major airlines to perform their services together. The efficient work of the regional airlines helps maintain a strong hub-and-spoke system. The aircrafts used by the regional airlines are the turboprops and the regional jets. Due to contracts they make, faults and financial troubles made by major airlines affect the regional airlines. Regardless, there are many competitors among the regional airlines for partnerships with the major airlines.

PORTER’S FIVE FORCES ANALYSIS:

Porters Five forces analysis has been carried out to understand and analyze the competitive environment of the regional airline industry. The conclusion reached is as follows:

Rivalry among Competitors: Fierce competition exists in the regional airline industry. Factors such as the high number of competitors, the slow buyer demand and low switching costs have all contributed towards an intense rivalry among competitors.
Threat of New Entrants: The regional airline industry has a quite low threat of entry. The barriers to entry make it quite difficult for a candidate to enter the market. The large capital investment in the form of planes and hangars makes entry quite difficult. Moreover, government intervention and regulations after the 9/11 attack pose additional costs for airlines which make entry much more harder.
Bargaining Power of Suppliers: The major suppliers of an airline industry are the airplane manufacturers. Only a few suppliers for the regional airplanes exist (in this case Brasil’s Empresa Brasileira de Aeronautica SA and Bombardier). This gives the suppliers quite a leverage over the regional airline companies and gives them an opportunity to charge high prices without losing the customer base.
Bargaining Power of Buyers: The buyers in this case are not only the customers of regional airlines but also the major airlines. There is a fierce competition between the regional airlines for contracts with major airlines and the major airlines can thus, be assumed as buyers of the services offered by the regional airlines. The limited number, the identity and the size of the major airlines all led to the bargaining power of buyers being high.
Threats of Substitutes: The regional airline industry can be considered to have substitutes such as low-cost carriers, cars, buses and trains. This threat can be considered to be of medium strength currently.

The strongest force existing in the environment would be the rivalry among competitors and the weakest would be the threat of new entrants.

SKYWEST INCORPORATED:

This is a preview of the whole essay

The strongest force existing in the environment would be the rivalry among competitors and the weakest would be the threat of new entrants.

SKYWEST INCORPORATED:

Skywest Inc. is the parent holding company of Skywest Airlines and Atlantic Southeast Airlines (ASA). It is the largest independently owned regional airline company. It operates primarily through partnership contracts with United, Delta and Midwest Airlines. The company is trying to achieve a competitive advantage through the low cost provider strategy. Skywest has partnership contracts with 3 major airline companies: United, Delta and Midwest. These contracts are extended provided that Skywest continues to be the lowest bidder amongst its competitors. Partnership opportunities with only a few major airlines exist and therefore, the competition is fierce. However, Skywest has managed to be the lowest cost provider of regional air service and it strives to retain that position in the future by adopting more cost efficient operations.

Moreover, Skywest is also attempting to achieve a competitive advantage through the differentiation strategy. It emphasized heavily on the safety of its passengers and voluntarily participated in Aviation Safety Action Programs. In addition, it also focused on fleet and safety equipment upgrades. This not only appeals to the customers of Skywest, who are concerned about their safety, but also helped Skywest to secure its partnership contracts, since the legacy airlines required high safety standards from regional airlines they partnered with. Further, Skywest is also aiming for an “on - time arrival” differentiation. It endeavors to maintain its record for punctuality to better serve the customers and also to ensure that its partnership contracts are renewed.

SWOT ANALYSIS:

The current competitive position of Skywest can be evaluated using the SWOT analysis. This helps identify the internal as well as the external environment of Skywest Inc..

RESOURCE STRENGTHS:

Ownership of Valuable Physical Assets – Skywest owns several passenger jets which amount up to 410 in total. This includes 336 regional aircrafts and 74 others.
An achievement or attribute that puts the company in a position of market advantage – Skywest emphasized on the safety of its passengers and crew and regularly upgraded its fleet and safety equipment. Also Skywest possessed an excellent record for on-time arrivals (84.5%) and very low cancellation rates (1%).
Competitively valuable alliances or co-operative ventures - Skywest is in partnerships with major airlines ,namely United, Delta and Midwest, to which it offers feeder services.

WEAKNESSES:

Over-reliance: Relying extensively on United and Delta airlines for its operations lead to Skywest’s revenue becoming unpredictable and riskier.
Poor Customer Service: Skywest is at the bottom of the list in the Airline quality rating study for its lower than average overall customer service.
Unionzed workforce of ASA: ASA’s employees are represented by labor unions which usually have high demands for the workforce.

OPPORTUNITIES

Major airlines were set to outsource an increasing number of routes to regional airlines as they faced both financial and internal problems.
Diversification – By partnering with airlines which operate in routes or locations not yet covered by Sky West airlines, it could attempt to diversify the risk of running the airlines operations.
Industry Growth – According to the International Air Transport Association, worldwide passenger revenues were to rise significantly, leading to the implication that passenger levels were set to rise significantly in the near future.

THREATS:

Intense competition in the market as several regional airlines compete for new routes on offer by the few major airlines in the airline industry.
Increased fear of terrorist attacks lead to the government tightening security regulations over the airline industry leading to increased costs for Skywest airlines.
The increasing trend in the fuel prices contributes significantly to the costs for the airlines.
Increased competition from low cost carriers started by the major airlines themselves such as United’s Ted and Delta’s song.
Atlantic Southeast Airlines: ASA significantly raised the risk of the employees of SkyWest Airlines also becoming part of union. This would reduce the flexibility that Sky West had in making decisions and increase its costs.

CONCLUSION AND RECOMMENDATIONS:

In conclusion, several steps need to be taken by Skywest to improve its current position in the industry and to strengthen its competitive advantage. It should work on improving the customer service it provides to have an enhanced advantage over its competitors and also to ensure greater loyalty from its customers. Moreover, Skywest Inc. needs to ensure that the non-unionized workforce system at Skywest Airlines is not disrupted and disturbed by the acquisition of Atlantic Southeast Airlines if it intends to streamline its costs. Further, the company should also focus on diversifying its operations in order to minimize the risks.

Page of