Competition can overall affect the airline company in a negative manner. It can be difficult for airline companies when they are compelled to reduce their ticket prices in order to continue to compete with other airline companies such as Spirit Airlines, Inc. When prices are reduced, there still needs to be money to cover the companies operating budget such as fuel, employees, etc. Cutbacks may result in laying off employees until the demand for that particular airline company increase. The airline company may also have to eliminate flights to specific locations due to a smaller volume of ticket purchases to save money unfortunately; this could push consumers to use other airlines.
Pricing
Spirit Airlines Inc., which is primarily a smaller airline company than its competition, it is still provides the same good(s), (flights) as the other airlines. Since 2007, the company has been able to reduce its “overall ticket prices by 40 percent” (Brooks, Cox, & White, 2012, p. 45). It can be difficult to comprehend how a smaller airline company such as Spirit Airlines, Inc. could be capable
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Unfortunately, there are several different factors that can generate a positive or negative affect on the airline industry. Airline companies such as Spirit Airlines, Inc., often have to price their tickets appropriately to correlate with the fuel inflation and deflation. One benefit for Spirit Airlines, Inc. is the usage of smaller airplanes that are used along with their implementation of an unbundling system, which discourages passengers from over packing and weighing the plane down which uses more fuel. Consumers want the most for their money and if the prices continue to decline with Spirit Airlines, Inc., it results in more flights being in demand, which typically results in more revenue for the
The following value chain, which focuses on Spirit Airlines, is representative of most of the firms in the Ultra Low-Cost Airline industry. Spirit is the industry leader in many areas such as operational efficiencies/cost structure, aircraft fleet management, brand/network and growth. The firm, however, trails industry foes in areas such as customer service and operational reliability and recoverability. While most in this segment pursue the cost-leader competitive strategy, Spirit has demonstrated the most effective model to date – whether the model is the most sustainable remains to be seen.
Southwest Airlines is operating in an industry that is struggling to make profits. The slowing economic growth and raising fuel costs are lowering earnings while revenues remain the same. The macroeconomic factors affecting the airline industry include unemployment, the economic growth in the United States, and inflation. With low economic growth, consumers are finding luxury items more difficult to purchase and airline tickets for vacations fall into that category. Unemployment contributes to a lack of vacation travelers since individuals who are not employed do not have extra money for vacation or airline tickets. Inflation also causes operating costs of the airlines to be higher cutting into profits.
Spirit makes our fares so low because they know that draws in the attention of the consumer. Once they have your attention you’re shocked at the price so you go for the deal, oblivious to the fact that you walked into their trap. Southwest’s symbol for shareholders is LUV while Spirit’s is SAVE. They are not the only companies to start to enter into these paths. Hotels, rental cars and cruises are all faced with the same choice to embrace the LUV or the thriftiness with SAVE (Elliot
of price versus service in the airline industry as a whole, as well as, the
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.
After September 11th, 2001, the airline industry experienced a significant drop in travel. The reasons for the airline industry downfalls also included a weak U.S and global economy, a tremendous increase in fuel costs, fears of terrorist's attacks, and a decrease in both business and vacation travel.
Having a low cost of operations is one of the contributing factors to Southwest Airlines’ financial success. Such low cost model of the corporation is brought about by an effective strategy. Southwest uses only one type of aircraft – the fuel-efficient Boeing 737. This tactic keeps training and maintenance costs down. Moreover, the no-frills approach to customer service contributed to the low cost of operations for Southwest.
The results of airline deregulation speak for themselves. Since the government got out of the airline business, not only has there been a drop in prices and an increase in routes, there has also been a remarkable increase in airline service and safety. Airline deregulation should be seen as the crowning jewel of a federal de-regulatory emphasis. Prices are down: Airline ticket prices have fallen 40% since 1978. Flights are up: The number of annual departures is up from 5 million in 1978 to 8.2 million in 1997. Flights are safer: Before deregulation, there was one fatal accident per 830,000 flights, now the rate is one per 1.4 million flights. So what's the problem?
When a business aims to be as successful as possible in selling its products and services, it must examine in detail whether or not the products will be attractive and necessary; if the price is optimal; if the product is being distributed in the best locations; and finally, how interest and awareness can be created for the products. In order for a business to target all of these elements to the right people at the right time, it must employ the right type of marketing mix: Product, Price, Place and Promotion. In a dysfunctional time for the airline industry, most airlines, especially major carriers, are adapting the concept of "doing less with more." One low-cost carrier, JetBlue, is changing the domestic aviation landscape in this regard and is defying the odds. Here is a company that has examined each marketing mix elements carefully, has adapted them to its customer’s needs, and is succeeding because of this approach.
Before to select the proper alternative, three alternatives were analysed and evaluated under four decisions criteria: customer experience, cost, growth rate / market penetration and ease to implementation (See Exhibit 2: Factor Analysis). Between all the alternatives, it was suggested that Southwest Airlines enters to New York City by bidding the slots and gates at the LGA (See Exhibit 3: Alternatives Analysis). This alternative sustains the challenge of changing the customer experience which means adding more flights from and to the East; furthermore, entering to new markets will reinforce “the power of the network” through LGA. At the same time, this decision will allow signing more code-sharing agreements with other airlines flying to international destinations and offer new products and services to LUV customers as loyalty rewards, in-flight internet, onboard duty-free purchases, etc.; as a result of this, it will increase passenger’s insights and experiences by flying with Southwest Airlines. Nevertheless, there is potential risk by selecting this alternative, in the recent years the energy prices has had a huge increase affecting costs, fares and even capacity needed, however Southwest Airlines has been able to hedge fuel for decad...
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
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
The company’s cost leadership strategy of keeping their fares low to ensure frequent and convenient travel along with its playful, fun poking advertising, exciting promotional ways, and various vibrant ways of operation enabled the company to expand exuded its effect on both customer and competitors, thus lowering the prices in the new market. This is the ‘Southwest
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 ...
to major airports but later it went down as PE try to grow faster and