The Airline Industry Essay

1882 Words Dec 5th, 2016 8 Pages
4. Over the last several years, the airline industry has lost billions of dollars and individual firms (with the exception of a few discount carriers) have been unable to make a profit.
Assess aspects of the oligopoly market structure that may be relevant in explaining this outcome.
The airline industry operates within an oligopolistic market since the major airline carriers comprise more than 50% of the market. Airline carriers also consider the impact of their rivals’ actions on their own strategic decisions. Despite the major growth within the airline industry “has been driven by low-cost carriers (LCCs), which now control some 25 percent of the worldwide market and which have been expanding rapidly in emerging markets; growth also came from continued gains by carriers in developed markets” (Strategy and PWC, 2015), profit margins are lower than 3%.
Industry Cost Drivers: The main cost drivers for the industry include labor, oil/fuel prices, global GDP, passenger demand, and cargo sector. The transportation industry, as a whole, has benefited from cost-savings initiatives such as replacement of old airplanes with newer fuel-efficient airplanes. Airline carriers can reduce their operating costs by refining their organizational structure, revising their business model and utilizing more efficient work practices. Lower cost carriers have a cost advantage over higher cost carriers since their strategy is based on lower operating costs and lower ticket prices for the…

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