us airline industry by: rachel andersen, joe bossert, jarvez hall, jeff hensley, brandon kirkbride...
TRANSCRIPT
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US Airline Industry
By: Rachel Andersen, Joe Bossert, Jarvez Hall, Jeff Hensley, Brandon Kirkbride and Adam Tolman
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Sector Information
The United States Airline industry is comprised of US based firms that transport people via air originating or concluding within its borders.
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Major Competitors
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Choice of Competitors
Largest 3 in America*
Largest (non American company)*
The up and comer
* in terms of passengers
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Delta Air Lines Inc
Headquartered in Atlanta, Georgia
Second Largest in the world (AA) Largest Domestically Fourth Largest in Revenues
Operations in North America, South America, Europe and Asia
Bankruptcy?
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AMR Corp (American Airlines)
Largest in the worldSecond in revenues
Headquartered in Fort Worth, Texas
Operations in North America, South America, Central and Latin America, Europe and Asia
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Southwest Airlines Co.
Operates In Unites States only
Headquartered in Dallas, Texas
Bring a Scale
“The Unknown Flyer”
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Air France - KLM
Largest in total revenues Part French, Part Dutch Operate with a Profit
Air France KLM
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Jet Blue Airways
Headquartered in New York City Founded in 2000 DirectTV at every seat
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Cost Structures
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Macroeconomic Impacts
Minimal substitutes Ex. Car, train, boat Rivalry among competitors due to barriers to exit Price wars
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Market size and growth
Expected growth rate according to the FAA is 4.2% each year for the next 12 years
Market capitalization of 34 Billion-South west leading with 11.2 billion
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Scope of Competitive Rivalry Competition (ADD pictures of rivals) Indirect competition
Business JetsSmall commercial airlinesCar, Train, Bus, Boat
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Issues
Sept 11th Internet helping to cut the costs Fuel prices Number of seats
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Macroeconomy
Passengers Per Year
600,000,000
620,000,000
640,000,000
660,000,000
680,000,000
700,000,000
720,000,000
2000 2001 2002 2003
Year
Nu
mb
er o
f P
asse
ng
ers
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Sector Health
Not attractive to new entrants Capital needed Oil prices
Very attractive to new investors Major players control the market share
Delta, AA, Southwest Jet Blue, NWA, United
Cost StructureLay offs
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Sector Success Factors
Major Hubs Carriers can offer travelers more choices while tying up less capital
through their hubs.
Customer Loyalty Frequent flyer miles
Established industry
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Winners
Southwest
Jet Blue
$-
$50,000,000.00
$100,000,000.00
$150,000,000.00
$200,000,000.00
$250,000,000.00
$300,000,000.00
$350,000,000.00
$400,000,000.00
$450,000,000.00
$500,000,000.00
2002 2003 2004
$-
$20,000,000.00
$40,000,000.00
$60,000,000.00
$80,000,000.00
$100,000,000.00
$120,000,000.00
2002 2003 2004
Net Income
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Losers
Delta
Northwest Airlines
$(6,000,000,000.00)
$(5,000,000,000.00)
$(4,000,000,000.00)
$(3,000,000,000.00)
$(2,000,000,000.00)
$(1,000,000,000.00)
$-
2002 2003 2004
$(1,000,000,000.00)
$(800,000,000.00)
$(600,000,000.00)
$(400,000,000.00)
$(200,000,000.00)
$-
$200,000,000.00
$400,000,000.00
2002 2003 2004
Net Income
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Fuel: Travelers are back from 9/11 but surging jet fuel costs are forcing
many airlines to seek bankruptcy protection. Every penny increase in the price of jet fuel adds $186 million in
additional annual expenses for the industry,
Federal taxes and fees: According to the Air Transport Association, the industry will pay $15
billion in federal taxes and fees this year. Air traffic control, security, and other government services to name a
few.
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Pension obligations: 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.
The airline industry is currently seeking pension reform to avoid the risk of bankruptcy.
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Competitor Actions and Reactions
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. JetBlue: Cheap flights and airplanes equipped with
leather seating and DIRECTV. Southwest: Cost leader on routes and great customer
service.
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Impact of Change
Working together, airlines are pushing Congress to change legislation to relieve some of the taxes, fees and pension obligations.
Reducing some of these high fixed costs will contribute significantly to increased profits.
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Porter’s 5 Threat of New Entrants - strong brand name and incentives
Power of Suppliers - dominated by Boeing and Airbus.
Power of Buyers - high costs of switching airplanes,
Availability of Substitutes - What is the likelihood that someone will drive or take a train to their destination?
Competitive Rivalry - highly competitive industries generally earn low returns because the cost of competition is high.
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Questions?
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Bibliography
Bureau of Transportation Statistics Federal Aviation Administration Yahoo Finance (Reuters) The Dallas Morning News Air Transport Association