Question #3 Compare and contrast the different strategic approaches of the network and budget airlines. What are the strengths and weaknesses of each approach?
Netork airlines direct their flights through significantly larger cities where the hubs are more dominating. This strategic approach is called the "hub and spoke system". High gas prices have resulted in the customers paying alot more money to fly. There are also alot of in flight services that have made flying more costly. Buget airliners are fly out of secondary hubs rather than the more dominating hubs. This is alot cheaper. They also hire nonunion workers who learn and multi task different jobs. They don't have any complementry foods or drinks and this results in cheaper tickets. People might be more comfortable and satisfied if they were able to grab a bite to eat or a drink when they're thursty and not having in house services could turn the customer away. They also only offer one type of plane which i think isn't a bad idea because the workers can develope some sort of consistency as far maintaning these planes.
Monday, October 8, 2007
Plane Wreck # 1 by Jenn Omasta
1. Use the competitive forces model to analyze the structure of the airline industry during 2001-2004. How well does this analysis explain the low profitability of the industry?
The competitive forces model focuses on five forces that shape competition within an industry. These five forces are: the risk of entry by potential competitors, the intensity of rivalry among established companies within an industry, the bargaining power of buyers, the bargaining power of suppliers, and the closeness of substitutes to an industry’s products.
The first factor, risk of entry by potential competitors, was a major factor for airlines during 2001-2004. The airline industry took a big hit when oil prices went up and the want to fly due to 9/11 had gone down severely. Airlines needed to stay ahead of their competition to survive and several companies found themselves filing for chapter 11 bankruptcy protection, etc. to keep themselves established. If new competitors were to come in at this time the main airline companies could go out of business since the demand to fly was down and prices were skyrocketing for oil. This explains the low profitability of the industry by showing how h0w potential competitors would bring down the profits of the other companies in the industry since the demand for flying was low at the time.
The second factor, the intensity of rivalry among established companies within an industry, was also key during this time. Companies were challenging each other by price instead of quality. Consumers were now more concerned with lower price tickets then the quality of their seat due to the fact that oil prices went up therefore ticket prices went up. This affected the companies whose main focus was quality because they had to change into the market of price and started to become competitive with the airlines that were already focused on price. This explains the low profitability of the industry because it shows how each company was fighting over price so they were all lowering their prices and trying to stay equal with each other and not a lot of the companies were gaining a profit.
The third factor, the bargaining power of buyers, is shown through the budget airlines. They were a target for consumers because they were cost driven and focused on getting the consumers the flight they want at a good price. This is also shown by network carriers who were more for business travelers who paid for tickets at last minute and were more concerned for the quality of their flight not the price. This shows low profitability because they were trying to bargain with the buyer and give them the cheapest deal possible which was lowering the profits.
The fourth factor, the bargaining power of suppliers, is also shown through the budget airlines when they moved into the coast-to-coast markets, which were high fare prices. The budget airlines were able to control the consumers because they knew that they were going to get consumers so they directed them towards buying higher priced tickets to make money. This affected low profitability because when they went for coast-to-coast markets the tickets were higher but the cost of oil was higher so they were still not making much of a profit due to the fact of their cost v. demand to travel the long distances went down.
The fifth factor the closeness of substitutes to an industry’s product, this was shown by the budget airlines coming in and taking the consumers away from the network airlines by lowering the price of their tickets. Which shows low profitability because the tickets where cheaper and they were also taking consumers away from other companies which were putting them into debt.
The competitive forces model focuses on five forces that shape competition within an industry. These five forces are: the risk of entry by potential competitors, the intensity of rivalry among established companies within an industry, the bargaining power of buyers, the bargaining power of suppliers, and the closeness of substitutes to an industry’s products.
The first factor, risk of entry by potential competitors, was a major factor for airlines during 2001-2004. The airline industry took a big hit when oil prices went up and the want to fly due to 9/11 had gone down severely. Airlines needed to stay ahead of their competition to survive and several companies found themselves filing for chapter 11 bankruptcy protection, etc. to keep themselves established. If new competitors were to come in at this time the main airline companies could go out of business since the demand to fly was down and prices were skyrocketing for oil. This explains the low profitability of the industry by showing how h0w potential competitors would bring down the profits of the other companies in the industry since the demand for flying was low at the time.
The second factor, the intensity of rivalry among established companies within an industry, was also key during this time. Companies were challenging each other by price instead of quality. Consumers were now more concerned with lower price tickets then the quality of their seat due to the fact that oil prices went up therefore ticket prices went up. This affected the companies whose main focus was quality because they had to change into the market of price and started to become competitive with the airlines that were already focused on price. This explains the low profitability of the industry because it shows how each company was fighting over price so they were all lowering their prices and trying to stay equal with each other and not a lot of the companies were gaining a profit.
The third factor, the bargaining power of buyers, is shown through the budget airlines. They were a target for consumers because they were cost driven and focused on getting the consumers the flight they want at a good price. This is also shown by network carriers who were more for business travelers who paid for tickets at last minute and were more concerned for the quality of their flight not the price. This shows low profitability because they were trying to bargain with the buyer and give them the cheapest deal possible which was lowering the profits.
The fourth factor, the bargaining power of suppliers, is also shown through the budget airlines when they moved into the coast-to-coast markets, which were high fare prices. The budget airlines were able to control the consumers because they knew that they were going to get consumers so they directed them towards buying higher priced tickets to make money. This affected low profitability because when they went for coast-to-coast markets the tickets were higher but the cost of oil was higher so they were still not making much of a profit due to the fact of their cost v. demand to travel the long distances went down.
The fifth factor the closeness of substitutes to an industry’s product, this was shown by the budget airlines coming in and taking the consumers away from the network airlines by lowering the price of their tickets. Which shows low profitability because the tickets where cheaper and they were also taking consumers away from other companies which were putting them into debt.
Plane Wreck # 2 and 4 by Adam McClellan
# 2 Yes there are different strategies between budget airlines and the major network airlines. The six major airlines are based on a “hub and spoke” system, while the budget airlines are on a point to point system. Also most budget airlines don’t serve food and also have employees use multiple roles in the airports.
# 4 For the industry to return to profit they need to be bale to manage how far they fly compared to prices on barrels of gasoline. Also they need to keep operating prices down to allow for tickets prices to be able to be set at a high price. Also maybe to find a way to change laws for major airlines to allow them not to slip into bankruptcy so easily.
# 4 For the industry to return to profit they need to be bale to manage how far they fly compared to prices on barrels of gasoline. Also they need to keep operating prices down to allow for tickets prices to be able to be set at a high price. Also maybe to find a way to change laws for major airlines to allow them not to slip into bankruptcy so easily.
Plane wreck question #2 charles handy
Are the budget airlines in a different strategic group then the major airlines?
I would have to say that they do have different strategies, the major airlines works on a hub and spoke strategy which means they network there routes through major hubs. They do this so they can serve more cities then they would flying point to point. This helps them also fill the seats on the planes. they also have unions for their employees so this means they pay higher salaries.
The budget airlines strategy is to save the customers money by cutting cost. They train their employees to be able to do multiple task instead of one job. Also they offer no frills on their flights meaning no food or drinks. This helps keep their cost low. Also they only fly in the large market routes such as the east coast. One way that they make sure they keep there cost low is they buy a mass amount at once of the same type of plane so they get a discount.
So to over view the differences in strategies the budget airline offers a low cost flight with no frills through a high traffic routes. They do this with a small crew and less employees. The major airlines work on a hub and spoke strategy and offer comfort and frills. They also work with a large amount employees and crew who have unions.
I would have to say that they do have different strategies, the major airlines works on a hub and spoke strategy which means they network there routes through major hubs. They do this so they can serve more cities then they would flying point to point. This helps them also fill the seats on the planes. they also have unions for their employees so this means they pay higher salaries.
The budget airlines strategy is to save the customers money by cutting cost. They train their employees to be able to do multiple task instead of one job. Also they offer no frills on their flights meaning no food or drinks. This helps keep their cost low. Also they only fly in the large market routes such as the east coast. One way that they make sure they keep there cost low is they buy a mass amount at once of the same type of plane so they get a discount.
So to over view the differences in strategies the budget airline offers a low cost flight with no frills through a high traffic routes. They do this with a small crew and less employees. The major airlines work on a hub and spoke strategy and offer comfort and frills. They also work with a large amount employees and crew who have unions.
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