Question

73 CHAPTER 2 Fatalie The Identification of Opportunities and Theats Fiect the fer any re sich im es Closing Case Plane Wreck: The Airline Industry in 2001-2004 Between 2001 and 2003 players in the global line indos iets at the gate. As a result of such flexible work rules, try lost some $30 billion, more money than the industry Southwest needs only 80 employees to support and fly an had made since its inception. The losses were particularly aircraft, compared to 115 at the big six airlines. The severe among the big sis airlines in the United States budget airlines also favor tying point to point" rather ican Airlines United, Delta, Continental US Airways, and than through hubs, and they often use cheap secondary Northwest). In 2002 the major airlines lost 574 bilo airports rather than major hubs. They focus on large and another $5.3 billion in 2003. Both US Airways and markets with large traffic volume (such as up and down United were forced to seek Chapter 11 bankruptcy pro the East Coast). To cut costs further, they offer no frills on tections. Although forecastsugest the six major airlines the flight to in-flight food or complementary drinks will break even in 2004, a return to the boom years of Finally, prices are set low to fill up the seats 1995-2000, when the airlines posted record profits, seems In contrast, the business model of the six major air- unlikely anytime soon lines is based on the network or hub-and-spoke system The dramatic slump in airline profits began in early Under this system. the network airlines route their flights 2001 when business travel started to fall off in the wake of through major hubs. Often a single airline will dominate the rapidly deflating technology and dot-com bubble of hub (thus United dominates Chicago O'Hare airport) the 1990s. Then, in the aftermath of the terrorist attais This item was developed because it was a way of effi- of September 11, demand dropped through the floor. The ciently using airline capacity when there wasn't enough airlines began cutting prices to try to maintain their demand to fill a plane flying point to point. By using a senger loads in the face of declining demand. However, hub-and-spoke system, the major network airlines have the tactic didn't work. When one airline serving a partic been able to serve some 38.000 city pairs, some of which ular route cut its prices, its competitors, desperate to generate for than fifty passengers per day. But the cover their fined costs, quidiy followed. The result was a budget airlines seem to have found a way around this downward price spiral. In the fourth quarter of 2001, constraint by focusing on a few hundred city pairs where prices fell by 15 percentas itines tried to induce people to there is sufficient demand to fill their planes and flying fly. Despite this effort, passenger traffic fell by 19 percent directly between them (point to point). The network car and revenue a major airlines fiell by over 30 percent riers also suffer from a higher cost structure because of Even though demand and profits plumme at the their legacy of a unionined workforce. In addition, their big six airlines, some carriers continued to make profits costs are pushed higher by their superior in-flight service. during 2001-2003, notably the budget airline In good times, the network carriers can recoup their costs Southwest. In addition, other sewer budget airlines, is by charging higher prices than the discount airlines, par- cluding Air Tran and JetBlue (which was started in 2000 ticularly for business travelers, who pay more to book late gained market share during this period. Indeed between and to fly business or first dass. In the weak demand en- 2000 and 2003 the budget airlines in the United States vironment of the early 2000s, however, this was no longer panded capacity by 44 percent even as the moslashed their carrying capacity and parked med plans in the To make matters wone for the network airlines, the desert. In 1998 the budget airlines held a 16 percent share budget airlines have started to enter the lucrative coast- of the U.S. market, and by mid 2004 their share hade to-cost markets. The major airlines long dominated to 29 percent these markets and kept fares high. However, by taking ad- The key to the success of the budget airlines is their vantage of new long-range versions of their favorite aircraft, business model, which gives them a 30 to 50 percent cost such as the Boeing 737-800, to fly these routes nonstop, advantage over traditional airlines. The budgetirlines all budget airlines have been able to directly compete with the follow the same basic script They purchase justotype etwork airlines. JetBlue for example, has over 50 percent of aircraft (some standardise on Boeing 737 others on of its capacity on cut-to-cost routes. To protect their Airbus 320s). They also hire nonunion labor and cross turf, the network airlines have responded by adding more train employees to perform multiple jobs (for example, to fights in an attempt to squeeze the budget carriers out. help met turnaround times, the pilots might help check As a result, between June 2003 and June 2004, capacity on the the of be the sed

I would like an executive summary on this case study.

Thank you!

Answer 1

The questions clearly asks about the executive summary. Keeping it short including the important details

<Summary starts>

The case talks about the airline industry, particularly in the US and the different flying stories of budget airlines(like SouthWest, JetBlue) and premium airlines(like United, Delta, etc), during 2001-2004

Big airlines saw a decrease in their demand after the deflating technology and dot com bubble. Additionally, the terrorist attack on September 11 further lowered down their profits, with many airlines cutting prices to increase the demand. The result is a downward price spiral.

On the other hand, budget carriers were still making profits during this time. Some airlines like Southwest, AirTran, and JetBlue started gaining a better market share during this period to 29% by mid-2004. The reason for their success was their strategy to keep price low, by having cross-trained employees, reduced workforce, flying "point to point", offering no-frills and in-flight food and setting a price, in high demand places, low to fill up the seats.

With budget airlines expanding on their routes and regions, their flight only soared upwards while a few big airlines like United had to file for bankruptcy.

Thus, this case gives an analytical view of the two types of the airline industry.