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35). Many factors contribute to this environment; fuel costs, labor costs, government regulations, national disasters, economic uncertainty and changing customer travel preferences (KPMG, 2013, p. 11). Since low cost carrier airlines face few entry or exit barriers, the core challenge for this industry and the lesson for other businesses is how to compete successfully when all of the competitors do not face the same structural forces of competition.
Synopsis of the Case
Since the deregulation of 1978, the airline industry weathered wave after wave of major challenges; recessions, labor issues, terrorist attacks and fluctuating crude oil prices. Thirty-five years later, legacy carriers, those carriers in business prior to 1978 utilizing a hub and spoke business model (Grahm & Vowles, 2006, p. 105), face nimble low cost competitors unfettered by union contracts, pension plans, older fleets or an established hub and spoke business model (Grahm & Vowles, 2006, p. 106). To survive and drive an overall industry profit, the legacy carriers must re-evaluate and address the competitive factors of their industry. Relevant Factual Information about the Problem or Decision the Organization Faced Five major passenger airlines dominate their industry by size (Grant, 2013, p. 479). But their size, legacy costs and hub and spoke business model created significant exit barriers (Grahm & Vowles, 2006, p. 108). New competitors not only started with no entry barriers but also few if any exit barriers. Legacy carriers had to identify new innovative strategies to augment their core business models to profitably compete. Explanation of Relevant Concepts, Theories and Applications Derived from Course Materials Porter’s five forces are competition from substitutes, from new entrants, from established rivals, the bargaining power of suppliers and bargaining power of buyers (Porter, 2008, p. 2). By its nature, flying to a destination faces few substitute competitors. The bargaining power of suppliers such as labor unions and fuel run high within the legacy carriers (Whitelegg, 2003, p. 247). The bargaining power of buyers, the people who purchase airline tickets, drives all carriers in the industry (Mertens & Vowles, 2012, p. 67). Competition from established rivals diminishes as mergers and alliances form (Porter, 2008, p. 13). The competitive threat of new entrants rises with each new airline. These new entrants often start with non-union labor, smaller and more fuel efficient planes with business models to take advantage of innovative strategies (Rubin & Justin, 2005, p. 221). From these forces of competition and actual business results, the profit potential of the US passenger airline industry is questionable (Grahm & Vowles, 2006, p. 108). In this paradigm, the business lesson for other companies is to look beyond the core business model for non-core opportunities to create competitive advantage (Lewis & McKone, 2013, p. 1). It is not only about getting from point A to point B. It’s about identifying what the business’ customers really want and providing it better than the competition (Grant, 2013, p. 79). Recommendations For the legacy airlines to profitably compete in their industry, they adopted an edge strategy utilizing complementary products and services. An edge strategy focuses on the monetization of those items not from the core business model (McKone, 2013, para. 3). For the US airline industry, complimentary products and services to bundle together or unbundle from the core service to upsell separately are in flight wireless internet access, branded credit cards offering frequent flier miles or extra leg room. Other combinations include access to airport lounges, fast track boarding and …show more content…
(2013, August 28). Edge Strategy: Tapping the Enormous Potential at the Edge of Your Core Business. Retrieved November 2, 2013, from L.E.K. Consulting: http://www.lek.com/sites/default/files/LEK_Edge_Strategy.pdf
Mertens, D. P., & Vowles, T. M. (2012, September). "Southwest Effect" - Decisions and Effects of Low Cost Carriers. Journal of Behavioral & Applied Management, 14(1), 53-69. Retrieved from http://web.ebscohost.com.pegleg.park.edu/ehost/pdfviewer/pdfviewer?sid=3d583cfd-7524-4374-994f-6438a58202d8%40sessionmgr113&vid=60&hid=127
Porter, M. E. (2008, January). The Five Competitive Forces That Shape Strategy. Harvard Business Review, 1-19. Retrieved November 2, 2013, from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1
Rubin, R. M., & Justin, J. N. (2005, June). Where Are the Airlines Headed? Implications of Airline Industry Structure and Change for Consumers. Journal Of Consumer Affairs, 39(1), 215-228. Retrieved from http://web.ebscohost.com.pegleg.park.edu/ehost/pdfviewer/pdfviewer?sid=8daa2c00-cfe0-47d1-b1de-26e0cd430344%40sessionmgr11&vid=11&hid=127
Whitelegg, D. (2003). Touching Down: Labour, Globalisation and the Airline Industry. Antipode, 35(2), 244-263.
Synopsis of the Case
Since the deregulation of 1978, the airline industry weathered wave after wave of major challenges; recessions, labor issues, terrorist attacks and fluctuating crude oil prices. Thirty-five years later, legacy carriers, those carriers in business prior to 1978 utilizing a hub and spoke business model (Grahm & Vowles, 2006, p. 105), face nimble low cost competitors unfettered by union contracts, pension plans, older fleets or an established hub and spoke business model (Grahm & Vowles, 2006, p. 106). To survive and drive an overall industry profit, the legacy carriers must re-evaluate and address the competitive factors of their industry. Relevant Factual Information about the Problem or Decision the Organization Faced Five major passenger airlines dominate their industry by size (Grant, 2013, p. 479). But their size, legacy costs and hub and spoke business model created significant exit barriers (Grahm & Vowles, 2006, p. 108). New competitors not only started with no entry barriers but also few if any exit barriers. Legacy carriers had to identify new innovative strategies to augment their core business models to profitably compete. Explanation of Relevant Concepts, Theories and Applications Derived from Course Materials Porter’s five forces are competition from substitutes, from new entrants, from established rivals, the bargaining power of suppliers and bargaining power of buyers (Porter, 2008, p. 2). By its nature, flying to a destination faces few substitute competitors. The bargaining power of suppliers such as labor unions and fuel run high within the legacy carriers (Whitelegg, 2003, p. 247). The bargaining power of buyers, the people who purchase airline tickets, drives all carriers in the industry (Mertens & Vowles, 2012, p. 67). Competition from established rivals diminishes as mergers and alliances form (Porter, 2008, p. 13). The competitive threat of new entrants rises with each new airline. These new entrants often start with non-union labor, smaller and more fuel efficient planes with business models to take advantage of innovative strategies (Rubin & Justin, 2005, p. 221). From these forces of competition and actual business results, the profit potential of the US passenger airline industry is questionable (Grahm & Vowles, 2006, p. 108). In this paradigm, the business lesson for other companies is to look beyond the core business model for non-core opportunities to create competitive advantage (Lewis & McKone, 2013, p. 1). It is not only about getting from point A to point B. It’s about identifying what the business’ customers really want and providing it better than the competition (Grant, 2013, p. 79). Recommendations For the legacy airlines to profitably compete in their industry, they adopted an edge strategy utilizing complementary products and services. An edge strategy focuses on the monetization of those items not from the core business model (McKone, 2013, para. 3). For the US airline industry, complimentary products and services to bundle together or unbundle from the core service to upsell separately are in flight wireless internet access, branded credit cards offering frequent flier miles or extra leg room. Other combinations include access to airport lounges, fast track boarding and …show more content…
(2013, August 28). Edge Strategy: Tapping the Enormous Potential at the Edge of Your Core Business. Retrieved November 2, 2013, from L.E.K. Consulting: http://www.lek.com/sites/default/files/LEK_Edge_Strategy.pdf
Mertens, D. P., & Vowles, T. M. (2012, September). "Southwest Effect" - Decisions and Effects of Low Cost Carriers. Journal of Behavioral & Applied Management, 14(1), 53-69. Retrieved from http://web.ebscohost.com.pegleg.park.edu/ehost/pdfviewer/pdfviewer?sid=3d583cfd-7524-4374-994f-6438a58202d8%40sessionmgr113&vid=60&hid=127
Porter, M. E. (2008, January). The Five Competitive Forces That Shape Strategy. Harvard Business Review, 1-19. Retrieved November 2, 2013, from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1
Rubin, R. M., & Justin, J. N. (2005, June). Where Are the Airlines Headed? Implications of Airline Industry Structure and Change for Consumers. Journal Of Consumer Affairs, 39(1), 215-228. Retrieved from http://web.ebscohost.com.pegleg.park.edu/ehost/pdfviewer/pdfviewer?sid=8daa2c00-cfe0-47d1-b1de-26e0cd430344%40sessionmgr11&vid=11&hid=127
Whitelegg, D. (2003). Touching Down: Labour, Globalisation and the Airline Industry. Antipode, 35(2), 244-263.