Essay about The Threat Of New Entrants

774 Words Jul 20th, 2016 4 Pages
The Threat of New Entrants

The airline industry landscape changed dramatically after the U.S. Airline Deregulation Act in 1978. The legal deregulation of 1978 created more opportunity for low-cost carriers to enter the market operating using point-to-point systems with the same aircraft model as traditional airlines (Dess, Lumpkin, Eisner, & McNamara, 2014). Airlines have more flexibility in routing structures and the ability to implement new affordable pricing strategies, resulting in a more competitive market. From 1993 to 2009, low-cost carriers gained competitive advantage increasing their market share in the airline industry. According to Tan (2016), “low-cost carriers increased to over 119 million passengers in 2007 resulting in a 38.6% market share of all domestic travel.” The growth of low-cost airline carriers in the market enabled Southwest Airlines to obtain 1286 routes from 1993 to 2009 (Tan, 2016). Despite the influx of low-cost carriers in the airline industry, there is a reduced threat of new entrants into the market due to the large start up capital investment and high fixed costs to acquire an airline. Additionally, there is a limited availability of landing slots and gate spaces in the United States Airports and product and service differentiation is considerably difficult. Furthermore, the government’s strict regulations regarding emissions, security procedures, and taxes often deter new airlines from entering this competitive and saturated…

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