US Airline Industry
By: Rachel Andersen, Joe Bossert,
Jarvez Hall, Jeff Hensley,
Brandon Kirkbride and Adam Tolman
Sector Information
The United States Airline industry is
comprised of US based firms that transport
people via air originating or concluding
within its borders.
Major Competitors
Choice of Competitors

Largest 3 in America*

Largest (non American company)*

The up and comer
* in terms of passengers
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?
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
Southwest Airlines Co.

Operates In Unites States only

Headquartered in Dallas, Texas

Bring a Scale

“The Unknown Flyer”
Air France - KLM
Largest in total revenues
 Part French, Part Dutch
 Operate with a Profit

Air France
KLM
Jet Blue Airways
Headquartered in New York City
 Founded in 2000
 DirectTV at every seat

Cost Structures
Macroeconomic Impacts



Minimal substitutes Ex. Car, train, boat
Rivalry among competitors due to barriers to exit
Price wars
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
Scope of Competitive Rivalry
Competition (ADD pictures of rivals)
 Indirect competition

 Business
Jets
 Small commercial airlines
 Car, Train, Bus, Boat
Issues
Sept 11th
 Internet helping to cut the costs
 Fuel prices
 Number of seats

Macroeconomy
Passengers Per Year
720,000,000
Number of Passengers
700,000,000
680,000,000
660,000,000
640,000,000
620,000,000
600,000,000
2000
2001
2002
Year
2003
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
Sector Success Factors

Major Hubs


Customer Loyalty


Carriers can offer travelers more choices while tying up less capital
through their hubs.
Frequent flyer miles
Established industry
Net Income
$500,000,000.00
Winners
$450,000,000.00
$400,000,000.00
$350,000,000.00
$300,000,000.00
$250,000,000.00

Southwest
$200,000,000.00
$150,000,000.00
$100,000,000.00
$50,000,000.00
$2002
2003
2004
$120,000,000.00
$100,000,000.00
$80,000,000.00

Jet Blue
$60,000,000.00
$40,000,000.00
$20,000,000.00
$2002
2003
2004
Net Income
$-
Losers
2002
2003
2004
2002
2003
2004
$(1,000,000,000.00)
$(2,000,000,000.00)
$(3,000,000,000.00)

Delta
$(4,000,000,000.00)
$(5,000,000,000.00)
$(6,000,000,000.00)
$400,000,000.00
$200,000,000.00
$-
$(200,000,000.00)
$(400,000,000.00)

Northwest Airlines
$(600,000,000.00)
$(800,000,000.00)
$(1,000,000,000.00)
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.
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.
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.
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.

Porter’s 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.
Questions?
Bibliography
Bureau of Transportation Statistics
 Federal Aviation Administration
 Yahoo Finance (Reuters)
 The Dallas Morning News
 Air Transport Association
