The American Airline Industry Essay -- Business Management Studies Air

The American Airline Industry The Airline Industry is a highly competitive industry with companies operating in domestic and/or international markets. Many airlines are stilled owned by their respective countries and have treaties between countries to allow airlines to land there. The industry has been taking a relatively shaky course as costs are rising and profits have been decreasing. This was further intensified with the recent terrorist attacks on US soil, which lead to higher costs as the need for more security arose. Recent financial statements of major airlines showing major losses reflect the problems that the industry is having. Yet amidst the storm, some regional airlines such as Jet Blue Airlines have managed to focus on specific markets and maintained or increased their profits. It is no doubt that Porter’s 5 forces of competition are at play in this industry. These forces are the Threat of Substitutes, Threat of New Entrants, Competitive Rivalry, Bargaining Power of Buyers and Bargaining Power of Suppliers. Threat of Substitutes The airline industry has been plagued by rising costs resulting in poor profits. The recession adversely affected the industry during the first half of 2001. This was intensified by the September 11th attacks, when two airlines were crashed into the Twin Towers in New York City by terrorists killing everyone on board and demolishing the buildings. This lead to an immediate reduction in air travel as customers did not feel safe about flying and an increase in the use of other forms of transportation. Amtrak, a railway company, reported an increase in passenger volume in the days following the attacks. Though this has leveled off as things returned to normal, rail travel is a substitute for air travel that will be utilized by customers if they are looking for cheaper travel and if they are looking for a leisure trip that would not be too time consuming. Automobiles are also a form of travel that is a substitute for air travel. This is especially the case when a family is traveling as the costs are minimized and schedules coordinated on the travelers’ timetable. Threat of New Entrants Historically, entry into the market has been relatively easy for airline companies. When the economy was booming, people traveled more for leisure and companies used this opportunity to enter th... ...aken from Hoovers Online) Revenues (in Millions) Sept 2002 Sept 2001 US Airways 1903.0 2493.0 American 4494.0 4816.0 Southwest 1391.2 1335.1 Net Income (in Millions) Sept 2002 Sept 2001 US Airways (248.0) (24.0) American (924.0) (414.0) Southwest 74.9 151.0 Total Assets (in Millions) Sept 2002 Sept 2001 US Airways 7705.0 9564.0 American 31502.0 31840.0 Southwest 8954.3 7994.9 Total Debt (in Millions) Sept 2002 Sept 2001 US Airways 10808.0 10106.0 American 28991.0 25609.0 Southwest 4631.6 4045.3 EPS (in dollars) Sept 2002 Sept 2001 US Airways (3.64) (.36) American (5.93) (2.68) Southwest .09 .19 Revenue Passenger Miles Oct 2002 Oct 2001 US Airways 2,965,753 2,802,967 American 3,048,000 2,851,000 Southwest 3,258,017 2,590,610 Load Factor (%) Oct 2002 Oct 2001 US Airways 66.9 61.7 American 63.2 57.8 Southwest 56.8 53.4