THREAT OF NEW ENTRANTS AND MERGERS IN THE AIRLINE INDUSTRY
In the reading “The Five Competitive Forces That Shape Strategy” by Michael E. Porter, rivalries are part of an industry and shape an industry structure. The pressure of new pricing in an industry can limit an industry’s profit potential. For years, the airline industry has had price wars on fares and continued competition.
The Wall Street Journal article “Southwest, United Locked in Dogfight” goes into detail of the battle between United and Southwest. United has a higher market power in international flights, which charges a higher fare to the customer than Southwest. Southwest plans to enter the international market by constructing a new international airport near the Houston Hub, which United says will decrease flights and eliminate positions, posing a threat to one of the major market holder’s in the airline industry.
Does the entrance of Southwest into the international market pose a threat to all airlines? One of the forces in an industry structure is the power of buyers. If customers are willing to forego some services for a cheaper price, this gives the customer better buying power. Southwest’s leverage in the airline industry allows it to continue to reinforce its unique position by entering in the international market, while other airlines need to forge new strategic decisions to keep up with the market change and customer needs.
While other airline carriers have formed partnerships, will the merger of the airline industry strengthen its relationship? In the Wall Street Journal article “United’s Merger Turbulence Hits Elite Frequent Fliers”, United’s merger with Continental proved to be disastrous. The reservation system broke down causing many frequent flier customer complaints and airline disruptions. The United customer services, such as complimentary seat upgrades, phone wait times, and reward mile program, has dramatically encountered problems causing many frequent fliers to use other airlines for friendlier customer service and better service overall. According to the article, mergers reduced the normal day-to-day operations. Any change to a company’s operation must be made consistently at all levels. In United’s example, there was poor strategic planning on the airlines’ behalf in making sure computer systems and customer service was in order before implementing the new process.
In both examples above, industries need to be vicissitudinous to current competitive forces and adjust to any changes created in its new industry structure.
The Wall Street Journal. Southwest, United Locked in Dogfight. 24 May 2012.
The Wall Street Journal. United’s Merger Turbulence Hits Elite Frequent Fliers