US Airline Industry By Rachel Andersen Joe Bossert

US Airline Industry By: Rachel Andersen, Joe Bossert, Jarvez Hall, Jeff Hensley, Brandon Kirkbride and Adam Tolman

Sector Information The United States Airline industry is comprised of US based firms that transport people via air originating or concluding within its borders.

Major Competitors

Choice of Competitors n Largest 3 in America* n Largest (non American company)* n The up and comer * in terms of passengers

Delta Air Lines Inc n Headquartered in Atlanta, Georgia n Second Largest in the world (AA) ¨ Largest Domestically ¨ Fourth Largest in Revenues n Operations in North America, South America, Europe and Asia n Bankruptcy?

AMR Corp (American Airlines) n Largest in the world ¨ Second in revenues n Headquartered in Fort Worth, Texas n Operations in North America, South America, Central and Latin America, Europe and Asia

Southwest Airlines Co. n Operates In Unites States only n Headquartered in Dallas, Texas n Bring a Scale n “The Unknown Flyer”

Air France - KLM Largest in total revenues n Part French, Part Dutch n Operate with a Profit n Air France KLM

Jet Blue Airways Headquartered in New York City n Founded in 2000 n Direct. TV at every seat n

Cost Structures

Macroeconomic Impacts n n n Minimal substitutes Ex. Car, train, boat Rivalry among competitors due to barriers to exit Price wars

Market size and growth Expected growth rate according to the FAA is 4. 2% each year for the next 12 years n Market capitalization of 34 Billion n -South west leading with 11. 2 billion

Scope of Competitive Rivalry Competition (ADD pictures of rivals) n Indirect competition n ¨ Business Jets ¨ Small commercial airlines ¨ Car, Train, Bus, Boat

Issues Sept 11 th n Internet helping to cut the costs n Fuel prices n Number of seats n

Macroeconomy

Sector Health n Not attractive to new entrants Capital needed ¨ Oil prices ¨ Very attractive to new investors n Major players control the market share n ¨ n Delta, AA, Southwest Jet Blue, NWA, United Cost Structure ¨ Lay offs

Sector Success Factors n Major Hubs ¨ n Customer Loyalty ¨ n Carriers can offer travelers more choices while tying up less capital through their hubs. Frequent flyer miles Established industry

Net Income Winners n Southwest n Jet Blue

Net Income Losers n Delta n Northwest Airlines

Fuel: n Travelers are back from 9/11 but surging jet fuel costs are forcing many airlines to seek bankruptcy protection. n Every penny increase in the price of jet fuel adds $186 million in additional annual expenses for the industry, Federal taxes and fees: n According to the Air Transport Association, the industry will pay $15 billion in federal taxes and fees this year. n Air traffic control, security, and other government services to name a few.

Pension obligations: n During the next four years, the Government Accountability Office (GAO) said the carriers face $60 billion in fixed obligations, $10. 4 billion of which are for pensions. n The airline industry is currently seeking pension reform to avoid the risk of bankruptcy.

Competitor Actions and Reactions n n Airlines have already been reducing rates competitively but others quickly follow suit. To the average customer, most airlines seem the same. Brand differentiation might be the key to success. Customers may be more loyal or willing to pay a premium for an airline that sets them apart. ¨ Jet. Blue: Cheap flights and airplanes equipped with leather seating and DIRECTV. ¨ Southwest: Cost leader on routes and great customer service.

Impact of Change Working together, airlines are pushing Congress to change legislation to relieve some of the taxes, fees and pension obligations. n Reducing some of these high fixed costs will contribute significantly to increased profits. n

Porter’s 5 n Threat of New Entrants - strong brand name and incentives n Power of Suppliers - dominated by Boeing and Airbus. n Power of Buyers - high costs of switching airplanes, n Availability of Substitutes - What is the likelihood that someone will drive or take a train to their destination? n Competitive Rivalry - highly competitive industries generally earn low returns because the cost of competition is high.

Questions?

Bibliography Bureau of Transportation Statistics n Federal Aviation Administration n Yahoo Finance (Reuters) n The Dallas Morning News n Air Transport Association n