US Airline Industry

1
US Airline Industry

• By Rachel Andersen, Joe Bossert, Jarvez Hall,
  Jeff Hensley, Brandon Kirkbride and
  Adam Tolman

2
Sector Information

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

3
Major Competitors
4
Choice of Competitors

• Largest 3 in America
• Largest (non American company)
• The up and comer
• in terms of passengers

5
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?

6
AMR Corp (American Airlines)

• Largest in the world
• Second in revenues
• Headquartered in Fort Worth, Texas
• Operations in North America, South America,
  Central and Latin America, Europe and Asia

7
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
9
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 Jets
• Small commercial airlines
• Car, 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
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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 Structure
• Lay 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

18
Winners
Net Income

• Southwest
• Jet Blue

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Losers
Net Income

• Delta
• Northwest Airlines

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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.

22
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.

23
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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Porters 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.

25
Questions?
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Bibliography

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