Opportunities and Threats facing the U.S Airline Industry Essay

Opportunities and Threats facing the U.S Airline Industry The health of the oerall U.S airway industry is still tenuous in-spite of the passenger traffic volumes returning to pre-9/11 levels. A survey estimated that from 2001 through 2003, the US airline industry reported to learn lost $23.2 billion dollars, compounded by an additional $1.6 billion in the first quarter of 2004. This $24.8 billion shortfall exceeds the total profits earned over the entire six-year period 1995-2000Drastic changes in the Economic, Political/legal and technological segment of airlines external environs contributed to some of the major looses seen by the industry. The key factors that heavily contributed to the loses includeEconomic slow down in the countryMassive decline in business travelSARS plagueyIncrease in competition Availability of substitutes for air travelsoaring fuel pricesWeak dollarIn response to the industrys fiscal crisis, Congress made available several forms of relief that amounted t o over $20billion. This relief includes the payment of upto $5billion in pretax cash assistance to reimburse air careers for losses incurred as a direct result of the 4-day government shut-down of air traffic after 9/11. However, relief measures were not enough to bring the airline industry erupt of hot water. Most of the airlines have accumulated vast amounts of debt which brought them on the verge of bankruptcy. The list includes Atlas/Polar Cargo, Midway, National, Sun Country, TWA, United and US Airways. American and Delta airlines narrowly avoided bankruptcy but have warned about such possibility. An average carrier is now well over 90% leveraged (net debt to equity ratio) compared to 60-70 percent historically. This means around airlines are now completely leveraged and unable to obtain capital. This has added to significant debt service costs and will make the industry even more vulnerable to both future economic downturns. With industry debt well over $100 billion, much o f it due in the next 24 month. 11 of 12 airlines are rated pan bonds by S&P. Only Southwest remains at an investment grade.Almost all airlines are faced with the same challenges and threats in the external environment like rising fuel cost, weak travel demand etc. Some airlines like Southwest, JetBlue and AirTran whi... ...work and take necessary action to adapt and sustain its warlike posture. Southwest employs integrated low-cost and identify strategy which enables the firm toAdapt quickly to environment changesLearns and implement new skills and technology quicklyEffectively give its core competency while competing against rivals.To sustain a competitive advantage and to seek above average returns, Southwest implements this strategy to produce relatively differentiated service at lower cost compared to its rivals. Yes this strategy is appropriate to offset the forces in the industry. Southwest should grow internationally as the demand for air-line travel has good declined d omestically in the last couple of years and will continue to decline further in some segments like business or bodily travel. The major reason I feel is the growth in communication technology enabling people to work remotely without the need to be inclose in the office. Voice and data over IP, Live meeting and communication services have substantially reduced the need for corporate executive and divisional managers to travel thus lowering the demand further.