Answer To: MA722AssgntThree(3) MNG93002 Strategy and Case Analysis Assessment 2 – Background Information US...
Ram Mohan answered on May 17 2020
MNG93210 Strategy and Case Analysis
Introduction
The Airline Industry in the United States faces several challenges to its strategic direction. The cyclical nature of the industry makes it vulnerable to economic recessions and the vagaries of the boom and bust market movements. In addition, hitherto dominant airlines find their position upended by upstarts and what are known as LCCs or Low Cost Carriers. Further, the uber competitive market leaves all players susceptible to price wars and a race to the bottom (Fattedad, 2015).
Given these considerations, this report examines the main challenges being faced by the Airlines in the United States by a careful analysis of the market forces that determine the external environment. Using the PESTEL and the Porter’s Five Forces Model, this report identifies the challenges and outlines some strategic choices that airlines can implement. In addition, this report also considers the reasons for cyclicality of the industry and evaluates the loss of profitability in recent years (Sismanidou, et al., 2009). Last, this report offers some recommendations that Airlines can adopt to improve their bottom lines.
The key themes in this report are the analysis of the external environment, the strategic purpose that can help the airlines, the necessary strategic choices that they need to make, and the capabilities or constraints that they have in doing so.
Overview of the US Airline Industry
Historical Overview and Economic Performance
Historically, the Airline Industry in the United States has seen an ebb and flow of its fortunes cyclically according to the changes in the external environment. Indeed, successive waves of regulation and deregulation ensured that the airline industry was subject to both stresses and growth incentives with each administration taking a different approach. Having said that, traditionally, a Republican Administration was more amenable to the industry thereby allowing consolidation and acquisitions and mergers taking place frequently (Bradshaw & Smith, 2000).
Indeed, the history of the airline industry in the United States has been characterized by highly publicized bankruptcies as well as equally feted mergers and acquisitions. This has led to periodic churn in the industry thereby allowing it to align itself to the changing economic and political environment (Alamdari & Mason, 2006).
Having said that, the 911 attacks were a major turning point in the history of the Airline Industry in the United States wherein it has not fully recovered from the descents into the depths of economic abyss that it found itself in. This was followed by the Great Recession of 2008 when major airlines went bankrupt and the situation was saved only because of bailouts by the Federal Government (Grabell, 2012).
All in all, the chequered history of the industry has now reached an inflection point wherein disruptive players such as LCCs or Low Cost Carriers threaten to upend the very business models of the dominant players in the same manner in which upstarts such as Uber and AirBnB have disrupted what it means to be a corporate entity (Hull, et al., 2007).
Thus, it remains to be seen if the airline industry weathers the present Prefect Storm of disruption, low profitability, unviable business models, and the very real threat of falling passenger revenues coupled with decreasing safety standards. Indeed, the industry is at a crossroads in terms of strategies.
PESTEL Analysis
Political
The Airline Industry in the United States is lightly regulated and hence, the political environment and political interference are limited as compared to other countries. Having said that, in recent years, the Airline Industry has been the subject of much attention from regulators as far as passenger safety and customer service are concerned (Kotler, 2014).
Economic
The Airline Industry in the United States is impacted by the economic boom and bust cycles, and the cyclical nature of the business means that the broader macroeconomic environment plays an outsized role in determining the profitability of the airlines. Having said that, it is also the case that airlines in the United States are impacted by sudden shifts in economic conditions without any major recession happening as well (Kotler, 2015).
Social
Flying in the United States is as American as Coke and hence, the impact of the social environment is limited. Having said that, trends in societal aspects such as changing attitudes of Americans towards travel, leisure, and suburban living all are beginning to impact the industry (Alam & Perry, 2002).
Technological
The Airline Industry in the United States is ahead of the technological curve, though, it can catch up with other airlines such as Singapore Airlines. Further, changes in cutting edge technologies often impact the industry as the basic business model is heavily driven by technology (Kemp, 2014).
Environmental
The growing tribe of environmental activists and regulators concerned over increasing carbon footprints impact the workings of the US Airline Industry. Further, there has been more attention than usual and earlier about the environmentally damaging business practices of the airlines (Fattedad, 2015).
Legal
With much bad press and negative coverage about passenger offloading and rudeness towards them, the legal troubles seem to mount for the US Airline Industry in recent years. Moreover, its business practices are also coming under the scanner of regulators and activists’ alike (Copeland & McKenney, 1988).
Porter’s Five Forces Analysis
Components
Entry/Exit Barriers
With the new entrants needing high capital investment, and even exits from the industry needing huge write-offs, it is unlikely that newer players would pose significant challenges to the existing firms. Having said that, there is the possibility of LCCs or Low Cost Carriers with minimal upfront investment eating into the market share of established players. On the other hand, the airline industry depends on economies of scale and hence, newer players need time and money to ramp up. Thus, the impact of this dimension is low (Porter, 2008).
Bargaining Power of Suppliers
Though the Airline Industry depends on suppliers for the three inputs of fuel, labour, and aircraft, the concentrated nature of the players means that suppliers cannot take the airlines for granted beyond a point. Having said that, the relatively fewer suppliers in the market means that Airlines too cannot get their way without causing disruptions in their supply chains. Thus, there is a state of creative tension between the firms and the suppliers as far the impact of this dimension or force is concerned and hence, the impact of this dimension is moderate...