The Competition within the Airline Industry - Case Study Example

? of the of the Number JetBlue Airways: Managing Growth Teaching Table of Contents Table of Contents 2 Study and Preparation Questions 3 Answer 1 3 Answer 2 4 Answer 3 5 Answer 4 5 Questions to Solve 6 Answer 1 6 Answer 2 7 Works Cited 9 Study and Preparation Questions Answer 1 With the development of aviation transportation, the global aviation industry has been able to cover almost every nation of the world. Today, the airline industry consists of 2000 operators 23,000 aircrafts and 3700 airports. The industry, on an average experiences 5% annual growth and this is largely due to the variation in economic scenario and national growth (“Global Airline Industry Overview”). The airline industry is judged to be an integral part of the national economy, as it is one of the prime economic forces of manufacturing, transportation, technology and several other sectors. However, the industry is experiencing a decline since the last couple of years in terms of profit generation. According to the reports of International Air Transport Association (IATA), the profit of global airline industry fell by $4 billion in the year 2011 (“Airline Industry 2011 Profit Outlook slashed to $4 Billion”). As a result of that the industry is witnessing a turbulent situation. The competition within the airline industry is stringent due to the presence of large numbers of established players. However, there are hardly any viable substitutes for this industry, when it comes to long route trips. Nevertheless, trains, long route busses and ships often serve as substitutes, but again the price/performance ratio is unappealing to a mass population. The buyers of this industry are extremely price sensitive and they are ready to renounce brand or amenities in lieu of low price. Hence, the bargaining power is high. The supplier issues in this industry encompass both equipments provider and labor. Reports have suggested that Southwest and legacy airlines have a unionized workforce. The labor cost of these airlines is significantly high in comparison with non-unionized airlines. Although, the equipment manufacturers are less in numbers, but their bargaining power is low as most of the airline companies have entered into agreements with suppliers. The threat of a new player is also low as the start-up cost is extremely high and there are several issues pertaining to license obtaining from the government. The analyses above clearly make it evident that the industry is moderately attractive for a new entrant, but for an existing player it is fairly attractive. Answer 2 JetBlue operates in a number of routes in the US. However, to compare the prices being offered by the company and its competitors, two routes have been chosen. The routes chosen for this purpose are New York (John F. Kennedy International Airport) to Washington (Washington DC Airport DCA) and Seattle (Tacoma International Airport) to Austin (Bergstrom International Airport). Fare Comparison of New York (John F. Kennedy International Airport) to Washington (Washington DC Airport DCA) Name of the Airline Price Offered (in $)( round trip per person) Delta Airlines $123.80 United Airlines $133.80 JetBlue Airways $149.80 American Airlines $155.81 (Source: “Select your departure to Washington DC”) Fare Comparison of Seattle (Tacoma International Airport) to Austin (Bergstrom International Airport) Name of the Airline Price Offered (in $) Delta Airlines $241.60 United Airlines $238.60 JetBlue Airways $296.60 American Airlines $241.60 (Source: “Select your departure to Austin”) The comparison of the prices offered by different players in the same routes provides insights into the severe price-war among the airline service providers. However, it has been discovered that despite positioning themselves as low-cost offering company, JetBlue actually charges a bit high from its counterparts. Answer 3 The consumers of the airline industry are highly price sensitive. The price sensitivity is not constrained only to the US market but also in the rest of the world. This is largely due to the economic crisis being faced by people around the world. In the meantime, the prices of manufacturing equipments and fuel price have gone up, which makes it difficult for the companies to offer low price to the customers. On the contrary, failing to offer low price will result in a loss of market share. The above findings clearly reveal that Delta Airlines is the low price offering airlines company in the domestic section of USA. However, despite position as a company offering better features at a low price than competitors, JetBlue is actually contradicting with its own statement. JetBlue provides high comfort to the passengers and offer them with leather seats and satellite TV thereby making the journey exciting. Hence, JetBlue compares its price with the competitors in terms of the value for money provided to the customers. Although other companies offer slightly less prices, they do not proffer several amenities. Due to fierce competition, less loyalty and presence of price sensitive customers within the industry, companies are compelled to offer “the best price”. In addition, the amenities offered and qualities of service are also the major driver of cost differences in the industry. Answer 4 The adoption of E190 was a tactical move of the company. The introduction of E190 was also as a result of the declining profit margin of the company. It is believed that this strategy was pursued for the principal purpose of targeting additional customer segments. With the existing A320 fleet, the company mainly caters to the low end market, but the new airbus will help the company to target high end customer segment. However, the introduction of E190 will also oblige the company to shift from its low-cost approach. This will also result in a high operating cost and that in turn will necessitate the company to increase prices of the fares. One of the biggest advantages of launching of E190 in the market is that it will greatly help the company to generate bulk profits. A new customer segment can also be tapped with this strategy. On the other hand, with the introduction of E190 there is a possibility of increased operating cost. The company in this context suggests that operating with limited number of airbuses, makes them more competent, efficient and allow cost saving. This is principally because of the fact that the maintenance issues will be highly simplified, scheduling will be simplified, requirements of spare parts inventory will be reduced and training costs will be lowered to a great extent (JetBlue 8). In addition, the softening demand, increasing fuel prices, maintaining the profit margin was becoming difficult for the company and introduction of a new flight to target new market was the only viable option for the company. Thus, the decision of adapting to E190 is truly justified for the company. Questions to Solve Answer 1 The addition of E190 flight to the existing A320 is expected to create favorable results for the company (Pride and Ferrell 318; Cawood and Bailey 58). This will allow the company to tap new customer segment as well as earn more profit. When it comes to the allocation of resources between the E190 and the A320, a balance between the two should be maintained. This is principally because of the fact that the existing also need to maintain the same level of excellence. However, at the same time the company is recommended to focus more on the new E190 in terms of marketing. The company is also recommended to make a balance between the purchases of A320 and E190 flights in different routes. In addition, the company is also recommended to intensify the operation of E190 in cities and close down the operation of A320 aircrafts at places, where the competition level is too stiff or is unprofitable. As a result of that the company can also sell A320 flights to earn revenue and revive its financial condition. With this revenue, new E190 flights can be obtained. The company is also recommended to make premium pricing for the E190 flight. This approach will greatly help the company to cover up the possible financial losses that may occur due to the reduced operation of A320 flights. Answer 2 Cost leadership strategy is one of the vital business level strategies developed by Michale E. Porter (Schermerhorn 170; Griffin 69). In the modern day business, this strategy has gained utmost importance and as it provides companies the opportunity to establish competitive advantage in the market place. Some o the renowned companies of the world such as Walmart, Rayner Airlines etc. among others were able to strengthen their position in the market. Similarly JetBlue also succeeded achieve a strong position in the US airline industry by pursuing cost leadership strategy. Moreover, on the basis of cost leadership, the company positions itself as a low cost carrier and offers numerous features that are not offered by the competitors. However, this causes several challenges for the firm. One of the biggest challenges faced by JetBlue for pursuing cost leadership strategy is to shift from a low cost provider. The company is best known for offering value for money to the customers, but the shift may seriously hamper their current positioning strategy and may impact negatively. Therefore, companies pursuing cost leadership strategy will come across market positioning issue, if they move away from cost leadership strategy. Companies also have to depend heavily on economies of scale so as to achieve efficiency. Furthermore, sometime it becomes challenging for the companies to remain profitable after offering low prices and satisfactory quality (“the Nature of the Cost Leadership Strategy”). Works Cited “Airline Industry 2011 Profit Outlook Slashed to $4 Billion.” IATA. International Air Transport Association (IATA), 2011. Web. 24 June 2013. Cawood, Scott. and Rita Vancil Bailey. Destination Profit: Creating People-Profit Opportunities in Your Organization. California: Davies-Black Publishing, 2006. Print. “Global Airline Industry Overview.” Businessvibes. Businessvibes Network International Inc., 2012. Web. 24 June 2013. Griffin, Ricky W. Fundamentals of Management. 5th ed. Connecticut: Cengage Learning, 2007. Print. JetBlue. “Jet Responsibly: Improving Our Communities and Our World.” 2007. PDF File. Pride, William M. and O. C. Ferrell. Foundations of Marketing. 3rd ed. Connecticut: Cengage Learning, 2008. Print. Schermerhorn, John R. Exploring Management. 3rd ed. New Jersey: John Wiley & Sons, 2011. Print. “Select your departure to Austin.” Expedia. Expedia, Inc., 2013. Web. 24 June 2013. “Select your departure to Washington DC.” Expedia. Expedia, Inc., 2013. Web. 24 June 2013. “The Nature of the Cost Leadership Strategy.” Lardbucket. n.p., n.d. Web. 24 June 2013. Read More