Airline Industry

The absorbtion of a company is often a difficult task. Critical issues to consider, include organizational culture, technology, socio-culture, brand equity, and profitability of the firm. Organizational culture is the most important issue to consider when acquiring another company. While some cultures differ from others, that doesn’t necessarily make them weak cultures. Key questions to ask are; how well will the companies cultures mix with each other? If changes to either culture occur, what implications does this have on productivity and efficiency?Technology is and has been a key part of business and will continue to be. Technology increases productivity, efficiency, and in many times lowers the cost of making products. When looking to acquire another company one must compare the technology of that company to its industry. How much will a company have to invest in a company to get the technology updated and personnel trained on those machines? How much would the company gai n by implementing this new technology? Socio-cultural factors are a mindset of customers and they play a major role in whether or not a customer purchases a product and how much of it they will purchase.Grapefruit, for example, was a very popular item during the craze of the Hollywood Diet. Carbohydrates were in low demand when the Adkins Diet was trendy, and now it’s no transaturated fats that are becoming the next style of diet. Fast food companies had to change their menus to fit some of these trends due to their popularity! The lesson to take away from this is that a company needs to look into current as well as future trends that occur before making the decision to make an investment into an absorption.Brand equity is an essential part of acquiring a company. For example, a customer enters a pharmacy and sees both Tylenol and the generic brand of acetaminophen at the same price; the customer will most likely pick the Tylenol because it has proven itself to be a strong br and. The same can be said with companies in other industries. A company must research the customer’s perception of the products and service that the potentially acquired company offers in order to insure that they are making a good investment.Since the nature of business is to make profit, a shrewd to examination into the current profitability of the company being acquired as well as speculate future profitability is required. It’s also essential for a company to forecast the impacts that this merger will cause for their own company and determine if the results are desirable before the merger takes place. Part II. Barriers to entry—moderate: Sometimes a company will be able to enter the market but only for a short time; however this still causes competition and causes a reduction in fares.Part of what keeps barriers high are that airlines that are already in business there have planes already purchased as well as partnerships with other companies established. Th is leads to a potential entrant having diseconomies of scale. The two major things that deter customers from choosing a competitor are cost and past experience. These don’t contribute much to switching costs so when a new competitor enters the industry margins decrease even more. Since startup costs are so huge in the commercial airline industry, the threat of potential entrants is rather low.Rivalry among existing firms—high: Since JetBlue has entered the global market there are several more airlines worldwide that JetBlue has to compete with, as well as domestic and startup airlines to compete with. They must keep their prices/margins low not only to deter customers from other competitors but also to compete with close substitutes. There isn’t a firm that controls a large portion of the market so in turn companies receive low return due to competitive pricing structures. Finally there is very little differentiation in the airline industry.Services that JetBlue offers like free WiFi and XM radio are small things that help them differentiate their service for customers to buy. Threat of close substitutes—high: There are several substitutes to air travel, these being things like a car or a train. When going overseas there really isn’t a good substitute unless you are going on a cruise which in my opinion is an entirely different plan for travel. Sometimes if a group of people want to travel to the same place they will carpool for a cheaper rate, but this is getting less popular than it once was.In summary the shorter the distance, the more likely an airline is going to lose to close substitutes like a car or train. Bargaining power of suppliers—high: This is due to the fact that the suppliers are in an oligopoly. There isn’t much competition in the supplier market so those companies can keep their margins rather high. If a company decides to purchase a different brand of airliner then they would need to face trai ning and maintenance costs associated with buying that new brand. Now there are things like beer and peanuts, uniforms and the like.The airline industry has potentially high bargaining power against these suppliers but those items don’t affect the profit margin like equipment does. Bargaining power of buyers—low/moderate: The price of an airline ticket is set and doesn’t really change except over time through competition. Buyers get to use technology like the internet to compare prices of different competitors which lowers prices; however that only affects prices over time. Since there are many airlines to choose from as well as low switching costs buyers enjoy a moderate amount of bargaining power.However, with few exceptions like companies that use economies of scale to negotiate rates for you there is very little a buyer can do to bargain with an airline immediately. Overall competition in airline industry is very intense. There are several competitors in the airline industry, and since the industry is low growth competitors try to differentiate their service to get people to switch to them. In poor economic times people look for lower cost alternatives and airfare is no different—people will look for lower cost means of transportation. Airliners also face an overall moderate bargaining power which limits their profit margins. Airline industry This is considerably larger than some 620 countries, estimated similarly to the same size as Switzerland. (ATAG, 2012). It is orecast that by 2026, the industry will contribute $1 trillion to world GDP (ATAG, 2012). Despite the fact there is over 2000 airlines, each airline generally relies upon either one of the two-airline manufactures. These are Boeing or Airbus, both that are extremely wealthy companies. Boeing & Airbus are extremely competitive against each other and often have court disputes against each other.The most recent dispute was dated in May 2011, where both companies claimed victory after the World Trade Organisation overturned the ruling in which saw Airbus receive billions of Euros in illegal subsidies. BBC News, 2011). The US complained to the WTO as they thought the $18 billion subsidiary was deemed to 'cause serious prejudice' to US interests (BBC News, 2011). Growth Rate The Airline Industry woes are expected to continue, with humble profits produced mainly by l imiting capacity.Both Boeing & Airbus already have a backlog of orders due to carriers deferring their orders due to the poor growth in clientele and falling flight prices. (The Economist, 2012). Other factors that are damaging the threat of growth in the Airline industry are the threat of terrorism & increase in fuel prices. Are these factors putting people off? In 2009, there was an immediate decline in air travel by 30% (ehow) after the attack on the twin towers. The drastic decline maybe explained by the fact many feared there could be another terrorist attack in the nearby future.Rising fuel prices in 2012 are set to have an enormous impact on the industry and set to shrink profit margins awfully tight. The industrys global trade body nas warned that annual profits nave been cut by $500m (Financial Times). Due to the Increase in fuel prices, many airlines have decided to provide the A380 aircraft, hich carries roughly 500 people depending on the configuration. This has helped a chieve economies of scale for many companies. Market Share The Airline Industry is incredibly competitive and diverse globally so it is difficult to summarise market share of companies.However, because of this reason returns are usually lower than expected. This can result in difficultly at times of economic recession. The supply in airline industry is very limited and dominated by Boeing & Airbus, which means there is very little aggressive competition. It is very unlikely to ee a supplier vertically integrated. This means it is highly unlikely that Boeing or Airbus would start offering flight services. The bargaining power of airline companies is surprisingly very low.