The airline industry is one of the largest industries in American and the whole world. The US airline industry, in particular, has really evolved over time. For example, the annual passenger size has increased significantly over the last decade. However, the airline industry still experiences serious challenges. Among them include low profitability, high fuel costs, barriers to entry, difficulties in convincing investors, among others (Flightfox.com, 2018). This paper seeks to present the fundamental changes and issues affecting the American airline industry.
Circumstances Change Since 2008
In general, there have been some changes in the US airline industry since the year 2008, when Porter commented about the same. However, some of the aspects still prevail in the industry. Among the aspects that have changed include the fact that today unlike in 2008, the process for joining the US Airline industry is very strict. In the 2008 interview, Porter argued that it is not easy for new airlines to join the US airline industry. The best a new company can do is to start with one plane operating between two cities and then advance gradually. The strict rules are mentioned by the 2012 article by nytimes.com, which argued that the modern American airline industry is faced with a lot of barriers to entry.
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Meanwhile, the following are some of the aspects in the American airline industry that have prevailed since the year 2008. Today like in 2008, the profitability of the airline industry is still very low. In the 2008 interview, Porter said that the airline industry is among the least profitable industry in the US. The same sentiment was echoed by the 1992-2006 research which found the airline industry’s profitability to be as low as 5.9%. In fact, the 2012 article by the nytimes.com painted a grim picture by stating that the largest airlines had recorded a profit margin of 0.8 percent in the 2011 financial year. The other fact that still prevails in the airline industry is stiff competition. Today like back in 2008, the US airline industry still faces stiff competition, which makes it hard to survive in the industry.
Technology Issues
There are multiple technological advancement that has supported or contributed to the decline of the industry. For example, the discovery of the internet was a blow to the industry because customers would take advantage of the ease in information access to bargain down the fare prices. The players in the airline industry responded by using a sophisticated software that determines the prices. The software determines air fair price in real-time, depending on the season, the type of client, among other factors. However, while the sophisticated software enabled the airlines to overcome the undesirable effects of the internet, it made it hard for them to plan. That is, it is difficult for an airline to determine the approximate revenues/profits it will make over a given period due to unsteady prices.
Meanwhile, much improvement has to be done in the airline industry to make it sustainable and profitable. For example, plane manufacturers and designers of the plane engines, such as Boeing and Airbus, should produce more fuel-efficient engines to enable the airlines to cut down the fuel cost ( Holloway, 2017) . This move is really necessary especially if you acknowledge the fact that high fuel cost is a major challenge in the airline industry.
References
Holloway, S. (2017). Straight and Level: Practical Airline Economics: Practical Airline Economics . Routledge.
Nytimes.com. (2012). The Challenge of Starting an Airline. Retrieved from https://www.nytimes.com/2012/05/26/business/start-up-airlines-face-big-obstacles.html
Youtube.com. (2008). The Five Competitive Forces That Shape Strategy. Retrieved from http://www.youtube.com/watch?v=mYF2_FBCvXw
