Value Chains In American Airlines And Southwest Airlines

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Question 1: What is the value chain?
It is beneficial for organizations to strategically analyze costs to determine whether or not its costs are competitive with other companies in the same market. This comparison is done through what is known as a value chain, which analyzes the cost of internal activities and how they compare with competitors to determine which are sources of cost advantage or disadvantage.
A value chain serves the purpose of examining the operating activities that businesses perform during the process of adding value to raw materials to convert into finished products sold to customers. “The goal is to deliver maximum value for the least possible total cost [thereby achieving a cost advantage] (Investopedia).” The more value
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As operations or the scale of the business expands, the cost of operations per unit is reduced. It has been found that the larger airline companies such as American Airlines and Southwest airlines have taken advantage of economies of scale resulting from their ability to use their size to negotiate better/cheaper deals spread out over a large sales base. For example, the number of airplanes and flight schedules, purchasing fuel in bulk etc. As the number of airplanes (units) owned by an airline company increases, the per airplane costs decreases (Quora). It is important to note that economies of scale benefit an airline up to an extent, after which it becomes …show more content…
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Value Chain Definition. Investopedia. First accessed on March 8, 2016. Retrieved from

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