I. EXECUTIVE SUMMARY
The airline industry is one of the vital industries in the world as well as in the United States. It has been defined by the market as the business that comprising passenger air transportation, including both scheduled and chartered, but excluding air freight transportation. To have a much better understanding about U.S. airline industry, certain model and approach should be utilized. I use Porter’s Five Forces Model to take a deeper look at the airline industry. Porter’s Five Forces Model is a framework for the industry analysis and business strategy development that identifies five competitive forces.
THREAT OF ENTRY
New competitors may need to make great efforts before they can be competitive or profitable. In fact, many existing air companies take advantages of economies of scale to combat the new competitors. New entrants can either come into the industry on a large scale, or accept the weakness of cost structure. In addition, a new competitor is barely possible to enjoy the benefits of network effects unless it could enter the market with a completely new concept and/or innovative technology.
The airline industry in the United States is highly concentrated. The 50 largest companies have already accounted for more than 80 percent of revenue of the industry. Therefore, there is scarcely detectable space for a new entrant to come into. As a result, new entrants have to face fierce competition within the industry. At the same time, price competition caused by low level of customer switching costs and other critical factors has made the competition in the industry much fiercer.
Airline industry is one of the most expensive industries in the world that requires a huge amount of capital to access. This means one of the biggest entry barriers for new comers is the costs of entry. These include the cost of purchasing airplanes, operational facilities, security equipment, labor forces, and so on. In these days, financial...