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Strategic management jetblue case
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Industry Profile: Market Size: Approximately $95 billion Market growth rate: Domestic 2.9%, International 5.0% (forecasted to 2017) Stage in life cycle: mature for domestic, growth for international Number of companies in industry: 43 mainline carriers and 79 regional airlines Scope of competitive rivalry: primarily major carriers (revenue more than $1 billion). Legacy carriers developing low-cost offshoots Customers: 661 million domestic passengers. Expected growth in business customers Degree of vertical integration: mixed; some have low cost reservation systems, alliances with regional and international airlines as well as hotels. Hedged fuel costs. Sabre Holdings and Galileo International connect airlines with travel agents. No mention of airlines employing in-house catering. Learning curve effects: not a factor in this industry Ease of exit/entry: aircraft, terminals, infrastructure and staffing are expensive Technology/Innovation: R & D essential in creating efficiencies and reducing expenses with turn-around times, fuel costs, reservations etc Product Characteristics: diverse; customers can receive top end service through to low cost travel and ongoing international hook-ups. Scale Economies: the industry contains several very large players and multiple medium to small players Capacity utilisation: high rates required to achieve suitable profitability Industry profitability: subpar to above average; fuel and maintenance costs, a growing senior staff division, unionisation of employees and competitive price wars are margins concerns. Porter’s 5 forces Threat of New Entrants - Moderate – Deregulated industry. Threat of new entrants higher during downturns in industry (e.g. JetBlue’s entry point). Existing airlines may encroach on an opponent’s major or regional market-share. High cost of entry into industry Bargaining Power of Buyers – High – No or very low cost in switching airlines Bargaining Power of Suppliers – High – two key supplies needed are planes and fuel. Fuel prices are negotiable on quantity. There are only two airplane suppliers, Airbus and Boeing. Threat of Substitutes - Low – Buses, boats, trains and cars are substitutes but usually not cost or time effective substitutes for most consumers Degree of Rivalry - Very High to Intense – Multiple competitors, high strategic stakes, innovation often easily imitated, and low switching costs for consumers Value Chain Support Activities Infrastructure – Flat organisational hierarchy – Terminal at JFK airport HRM – Staff have access to executives and CEO – a culture/ philosophy of treating employees well and a reputation as a great place to work. Company profit sharing, high productivity of people and rapid advancements Technology – Paperless cockpits, VoIP customer service, innovative culture Procurement – 9 new Embraer E190 planes. Fuel. Personnel. Primary Activities Inbound logistics – Low cost, simple to use cost effective reservations system, ticketless travel, pre-assigned seating, paperless cockpits, search engine optimisation and BlueTurn; for minimising ground time.
The new trend in airline industry to use fuel efficient, high -tech aircraft is of a major concern for Air Canada. It has been under immense pressure to replace its fleet aircraft with more efficient Boeing 777 aircraft. However, the airline has purchased some Boeing777 aircraft, but these new purchases are used only for more profitable international routes depriving Air Canada’s domestic consumers of the facility. Furthermore, the varied fuel price has affected pricing policy significantly as its promotional policies are more price point based as compare to consumer based.
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
Discuss nature of competition in industry in terms of pricing, production, strategic positioning of product/service offerings, etc.
The Five forces in the airline industry can be easily broken down, firstly the threat of new entrants. Over the last 10 years there has been a huge influx of new low cost companies in Europe such as “Easyjet”, or “Ryan Air” as the low cost niche slowly becomes more full we are seeing less and less entrants since the market has become saturated. The better an airlines brand image, such as British Airways being a recognised name and the use of frequent flier or airmiles schemes the less likely a new entrant with lower prices will be able to break into the market. Next we have Supplier and buyer power in the industry. In terms of the suppliers of aircraft the main two are Airbus and Boeing and so it may seem that this few suppliers would have a lot of power over the airlines, but intact it tends to just increase the competition between the suppliers as they fight for major contracts with the big airlines. The bargaining power of customers in the
Operating an air - express transportation industry requires large capital investments, and therefore it can impede the entry of new firms into the industry. For one, Airborne has already its own set of aircrafts and even operate its own airport, and it would be hard for a new firm to compete with this.
High degree of interdependence: the behaviour of firms are affected by what they believe other rivalry firms might do
In my discussion I will use the Australian airline industry to present how oligopolies operate, and to show the different behaviours and strategies that arise from the interdependence of firms. I will mainly concentrate on the domestic airline market in Australia. The domestic airline market consists of a duopoly of two firms, Qantas and Virgin Blue. Since Qantas and Virgin are the only two Airlines supplying domestically in Australia, they account for all of the profits in the market and consequently they are in direct competition with each other. Because only two firms are competing, each firm must carefully consider how its actions will affect the other, and how its rival is likely to react. Thus, strategic considerations regarding the behaviour of competitors in this duopoly are essential in order for Qantas and Virgin to set prices.
C. Task Environment The US Airline industry is one of the most dynamic and varied in the world. It is noted to be very rapidly growing and exceptionally competitive too. The following is based on Porter’s Five Force Model: • Threat of New Entrants – entry of new players is consider low, as the entry obstructions are high and needs high capitals to enter the business. (O) • Bargaining powers of buyers – Bargaining powers of buyers is considered to be greater, as most passengers would consider price over experience, thus might lead to shift to other carriers.
Bargaining power of suppliers analyzes how much power a business 's supplier has and how much control it has over the potential to raise its prices, which, in turn, would lower a business 's profitability. (Arline, 2015).
Airplane – With the only two main airplane suppliers in the industry, Boeing and Airbus, gives EasyJet a low bargaining power making the suppliers to have a high power at determining what price to sell its airplanes, however, EasyJet can increase its bargaining power if it looks to buy in bulk due to the fact that it is internationalizing into Nigeria so the demand for airplanes would be high.
Dixit, A. (2000). Growth of discounting in the airline industry: Theory, practice, and problems. (Order No. 9978379, Georgia Institute of Technology). ProQuest Dissertations and Theses, , 330-330 p. Retrieved from http://search.proquest.com/docview/304592352?accountid=8364. (304592352).
Large industries allow multiple firms and produces to prosper without having to steal market share from each other. This increases rivalry because more firm must compete for the same customers and resources.
Gaining a substantial market power in the commercial aviation industry allows for significant impact on technological development, economic growth, employment, and national prestige (Carbaugh & Olienyk 2004). In 2010, more than any manufacturer sector, the value of aerospace industry shipment in the US accounted for more than $171 billion of civil aircraft and a trade surplus of more than $43 billion (Harrison 2011). Like any other industry, large commercial airplane industry gets affected by macro, endogenous, and exogenous factors. Several factors may influence the industry i...
When an airline does not have a sustainable competitive advantage, it does not have any properties of differences from there competitor and turns to a dangerous price war. The sustainable ...
The threat of new entrants is moderately strong. Incumbents do not strongly contest entry of newcomers, but existing industry members are consistently looking to expand their geographic reach and offer a broad product assortment. Brand awareness and customer loyalty are high and greatly important i this industry.