Harvard Case - U.S. Airline Industry--1978-88 (A)
"U.S. Airline Industry--1978-88 (A)" Harvard business case study is written by Pankaj Ghemawat, Nancy Donohue. It deals with the challenges in the field of Strategy. The case study is 19 page(s) long and it was first published on : Aug 31, 1989
At Fern Fort University, we recommend a multifaceted approach for airlines operating in the turbulent U.S. airline industry of the late 1970s and early 1980s. This approach emphasizes strategic planning, innovation, and adaptability to navigate the evolving competitive landscape and capitalize on emerging opportunities.
2. Background
The case study focuses on the U.S. airline industry from 1978 to 1988, a period marked by significant deregulation, increased competition, and technological advancements. The industry witnessed a surge in new entrants, mergers, and acquisitions, as well as the rise of low-cost carriers. This period posed significant challenges and opportunities for established airlines like American Airlines, United Airlines, and Delta Air Lines.
The main protagonists of the case study are the major airlines struggling to adapt to the new competitive environment. They face challenges like falling profit margins, increased competition, and the emergence of new business models.
3. Analysis of the Case Study
Porter's Five Forces Analysis:
- Threat of New Entrants: High - Deregulation lowered barriers to entry, allowing new airlines to easily enter the market.
- Bargaining Power of Buyers: Moderate - Passengers had limited options in some markets, but the rise of discount carriers gave them more choices.
- Bargaining Power of Suppliers: Moderate - Airlines were reliant on fuel and aircraft manufacturers, but competition among suppliers kept pricing in check.
- Threat of Substitute Products: Low - Air travel was the primary mode of long-distance transportation, with limited substitutes.
- Rivalry Among Existing Competitors: High - Deregulation led to intense price wars and competition for market share.
SWOT Analysis (for a hypothetical major airline):
Strengths:
- Established brand recognition and customer loyalty
- Extensive route network and infrastructure
- Experienced workforce and management team
Weaknesses:
- High operating costs and labor expenses
- Inflexible business model and legacy systems
- Lack of agility in responding to market changes
Opportunities:
- Expanding into new markets and underserved routes
- Leveraging technology for cost reduction and customer service
- Developing innovative pricing strategies and loyalty programs
Threats:
- Rise of low-cost carriers and new entrants
- Economic downturns and fluctuations in fuel prices
- Increased regulatory scrutiny and environmental concerns
Value Chain Analysis:
- Inbound Logistics: Procurement of fuel, aircraft, and other supplies
- Operations: Flight operations, maintenance, and customer service
- Outbound Logistics: Baggage handling, ground transportation, and ticketing
- Marketing and Sales: Advertising, promotions, and distribution channels
- Service: In-flight experience, customer support, and baggage handling
- Support Activities: Human resources, finance, and IT
Business Model Innovation:
- Low-cost carriers: Introduced a new business model focused on cost efficiency and price competition.
- Hub-and-spoke system: Enabled airlines to optimize route networks and maximize capacity utilization.
- Frequent flyer programs: Built customer loyalty and generated revenue through ancillary services.
Strategic Groups:
- Full-service carriers: Offered a premium experience with extensive amenities and services.
- Low-cost carriers: Focused on providing basic air transportation at low fares.
- Regional airlines: Operated smaller aircraft and served regional markets.
4. Recommendations
1. Strategic Planning:
- Develop a comprehensive strategic plan: Define the airline's vision, mission, and long-term goals.
- Conduct thorough market research: Analyze industry trends, competitor activities, and customer preferences.
- Identify core competencies: Focus on developing and leveraging strengths to create a sustainable competitive advantage.
- Implement a balanced scorecard: Track performance across financial, customer, internal processes, and learning and growth perspectives.
2. Innovation and Adaptability:
- Embrace technology: Invest in digital transformation, data analytics, and automation to improve efficiency and customer experience.
- Develop innovative pricing strategies: Offer flexible fares, dynamic pricing models, and value-added services.
- Explore new business models: Consider partnerships, joint ventures, and strategic alliances to expand reach and capabilities.
- Foster a culture of innovation: Encourage experimentation, creativity, and continuous improvement.
3. Mergers and Acquisitions:
- Evaluate potential acquisitions: Consider strategic partnerships or mergers with other airlines to gain access to new markets, resources, or technologies.
- Develop a clear integration strategy: Ensure smooth integration of acquired businesses and minimize disruption.
- Focus on synergies: Identify opportunities to leverage combined strengths and create value for stakeholders.
4. Cost Management:
- Optimize route networks: Analyze demand patterns and adjust routes to maximize profitability.
- Negotiate favorable fuel contracts: Secure stable fuel supplies at competitive prices.
- Streamline operations: Implement lean management principles and reduce waste in all areas.
- Control labor costs: Negotiate fair wages and benefits while maintaining a motivated workforce.
5. Customer Experience:
- Enhance in-flight services: Offer comfortable seating, entertainment options, and improved amenities.
- Improve customer service: Provide responsive and efficient support channels, including online and mobile platforms.
- Personalize the customer journey: Utilize data analytics to tailor services and communications to individual preferences.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of the industry landscape, the airline's strengths and weaknesses, and the evolving customer expectations. They aim to:
- Leverage core competencies: Focus on the airline's strengths in brand recognition, route network, and customer loyalty.
- Address external customer needs: Provide a competitive and enjoyable travel experience while offering value for money.
- Respond to competitor actions: Adapt to the changing competitive environment and maintain a competitive edge.
- Maximize profitability: Implement cost-saving measures and revenue-generating initiatives.
6. Conclusion
The U.S. airline industry in the 1970s and 1980s was a period of significant change and disruption. Airlines that successfully navigated this period embraced innovation, adapted their business models, and focused on customer needs. By implementing the recommended strategies, airlines can position themselves for long-term success in this dynamic and competitive industry.
7. Discussion
Alternatives:
- Ignoring the changing market: This would likely lead to declining market share and profitability.
- Focusing solely on cost reduction: While cost management is important, it should not come at the expense of customer service or innovation.
- Merging with a competitor: This can be a risky strategy, and requires careful planning and execution.
Risks:
- Economic downturn: A recession could significantly impact demand for air travel.
- Fuel price volatility: Fluctuations in fuel prices can impact profitability.
- Increased competition: New entrants and existing competitors could continue to pressure margins.
Key Assumptions:
- The airline industry will continue to grow in the long term.
- Technological advancements will continue to improve efficiency and customer experience.
- Customers will value a combination of price, convenience, and service.
8. Next Steps
- Develop a detailed strategic plan: Outline specific goals, timelines, and resource allocation.
- Implement key initiatives: Prioritize and execute recommendations based on urgency and impact.
- Monitor progress and make adjustments: Regularly track performance against key metrics and adapt strategies as needed.
- Foster a culture of continuous improvement: Encourage innovation, collaboration, and learning throughout the organization.
By taking these steps, airlines can position themselves for success in the evolving U.S. airline industry.
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Case Description
Describes the evolution of the airline industry in the first decade after deregulation (1978-88). Looks at the primary areas of operation in which managers can effect change (planes, people, routes, marketing). The basic teaching objective is to cover industry structure with emphasis on competitive advantage, commitment, and sustainability. May be used with U.S. Airline Industry--1978-88 (B).
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