American Airlines

In: Business and Management

Submitted By Pauleo1214
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Business Case Study: American Airlines

1. Perform a five-forces analysis of the US airline industry focusing on entry barriers and pricing rivalry

Threat of new entrants: Though it might appear to be hard to get into, entry into the airline industry depends on whether there are substantial costs to access banks and credit. If borrowing rates are cheap, then there is more of a likelihood that new competitors will enter and the more saturated it will become for all competitors. However, an airline with a strong name brand like US Airways, combined with the offer of incentives, can lure customers away from new entrants, even in prices are higher.
Power of Suppliers: In the airline supply industry, there is a duopoly between Boeing and Airbus. Because of this, there is not much cutthroat competition between the two. Moreover, suppliers will not likely vertically integrate in order to start offering flight service in addition to building planes.
Power of Buyers: The bargaining power of buyers in the airline industry is very low. There are high costs for the buyer if he wishes to switch airplanes. Secondly, the service between airlines is practically identical. The seats won’t be any more comfortable nor will the food be any better.
Threat of Substitutes: For those who need to travel internationally for business or leisure, the threat of substitution is low. For regional travel however, one might opt out to take a train or simply drive. For those that need to conduct business, Internet and communications technology is cutting down much of the travel industry,
The new technology facilitates the ability to communicate and transfer documents instantaneously at any time and place, eliminating the need to travel.
Rivalry: The airline industry is highly competitive and this leads to cutthroat competition. Because of this, airlines earn low returns, which spell…...

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