Competitive Industry Analysis on The Airline Industry – Alaskan Airlines

Competitive Industry Analysis on The Airline Industry – Alaskan Airlines

Threat of New Entrants (Medium-High)

The airline industry has relatively high barriers to entry, including the significant capital requirements for aircraft, infrastructure, and operations. The case also reveals that deregulation in 1979 allowed Alaska Airlines to grow beyond its region after having flown only in Alaskan territories, implying that while the entry of new players has happened in the past, it is not irreversible (Bruce et al., 2015). The threats of new entrants moderate in this context. Low-cost or regional airlines could pose a threat to the airline’s key areas in the Pacific Northwest of America. The case also indicates that some of the competitors were able to restructure and reduce their costs because of the bankruptcy, so the threat of new entrants might be relatively high.

Bargaining Power of Suppliers (High)

The airline industry has relatively high supplier power, particularly regarding fuel and aircraft manufacturers. The case reveals that the increase in the price of oil sourced from OPEC affected the airline’s fuel cost, which varied between 15% and 35% of the operating expense. Certain of these risks have been alleviated thanks to the shift of an all-Boeing 737 aircraft fleet, but still, the airline is captive to Boeing, in a way, to its aircraft and parts. Also, the airline employees’ susceptibility results from a highly unionized workforce of pilots, mechanics, and ground crews owing to the criticality of their work and a history of contentious labour relations. The case demonstrates how this power dynamic affects Alaskan Airlines’ cost and operational line.

Bargaining Power of Buyers (Medium-High)

Passengers in the airline industry generally have moderate to high bargaining power. Alaskan Airlines enjoys consumer goodwill, which gives them a certain amount of protection from the impact of this threat, as noted in the case. However, the general competitiveness of the industry and the use of Internet solutions, particularly booking services, facilitated the customer’s comparison of prices. The management failure in the case added to the airline’s operational woes in the mid-2000s, resulting in customer distrust and loss of goodwill. The airline should explore strategies to enhance customer switching costs, such as through loyalty programs.

Threat of Substitute Products (Medium-High)

The primary substitute for airline travel is other modes of transportation, such as cars, trains, and buses. The threat paints a moderately high picture, especially should the substitutes closely involve short-haul routes or routes with accessible and reliable ground transport arrangements. However, the case discusses how this threat may not be very prominent since Alaska Airlines is geographically positioned in markets heavily dependent on travel, primarily through the air. Alaska Airlines operates mostly in the Pacific Northwest and Alaska. The airline may explore opportunities to partner with complementary ground transportation providers to offer seamless multi-modal travel solutions.

Intensity of Rivalry (High)

The airline industry is highly competitive, with legacy carriers and low-cost airlines vying for market share. The case points out that other players, including Alaska’s rivals that declared bankruptcy, effectively managed to reorganize and work at a lower cost. Notably, this could pose a serious threat to Alaska’s competitive position. Thus, the company needs to consider high fixed costs, low product differentiation, and relatively high exit barriers as the most important factors that intensify rivalry in the industry. Some protection may come from Alaska Airlines’ regional monopoly in the Pacific Northwest and Alaska. Therefore, the airline should constantly monitor operational efficiency, cost, and customer service standards.

Reference

Bruce J. A, Chelley P., and Bradford B. (2015). Alaska Airlines: Navigating change. Ivey Publishing. Richard Ivey School of Business Foundation.

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Competitive Industry Analysis

Using the Porter’s Five Forces Model, complete a thorough analysis of the industry’s competitive environment for Alaskan Airlines. Identify and thoroughly discuss the key points that will need to be addressed in the Strategic Plan.