Continental Airlines
Scan the key segments of the general, industry, and competitor levels of Continental’s external environment and identify two key trends in each segment that may present challenges to the firm in the future. Indicate whether each trend is an opportunity or a threat to Continental and briefly explain your reasoning.
The two main trends in the general external environment of Continental Airlines include the rising oil prices and economic recession in the US. In the last two years, the prices of crude oil have more than tripled from $40 per barrel. This has a direct impact on airlines’ bottom-line since the cost of fuel is one of the major costs of any airline. Although in the last few days the prices have fallen to below $100 per barrel, it is still more than double what it was two years. The oil prices are unlikely to fall back to what they were two years ago. This is a major challenge for the airlines’ industry all over the world and could be a major threat to the growth of Continental Airlines. The US economic recession is also another major threat to Continental Airlines as people are now less willing to pay a premium price for travel.
At the industry level, the two key trends are that rising fuel costs mean that low-cost carriers are no longer expanding at the pace at which they were expanding a few years ago. This could prove to be a great opportunity for a legacy carrier like Continental Airlines. While maintaining their standards, Continental Airlines could further expand their services to smaller airports where low-cost carriers rule at present. The other industry trend is that in view of the rising fuel cost and low seat occupancy, profits are plummeting. However, this could prove to be an opportunity for Continental since they are known as the high-cost airline and as such, they can continue to ask for a premium price for their tickets.
At the competitor level, the trend is for the premium passengers to use business jets instead of regular airlines (Karp, 2008). This could potentially hurt Continental since historically the airlines gas been catering to premium and business class passengers. On the other hand, the low-cost carriers are facing a squeeze in their margins due to the increased fuel price. This could potentially benefit Continental since as the low-cost carriers begin increasing their prices, the price difference between Continental and its low-cost carriers will decrease and people may switch to the better services offered by Continental for a slightly higher cost.
Define Continental’s most important resources, capabilities, and core competencies.
Continental’s most important resource is their big route network. Their core competency is in being able to demand higher prices for the fixed number of seats.
Identify the key types of competitors in the airline industry and assess the intensity of rivalry. Briefly explain the basis of competition in the industry.
There are three main types of competitors in the airline industry. They are low-cost carriers, legacy carriers, and business jets. Low-cost carriers cater to leisure travelers and those looking for bargain deals. Legacy carriers cater to business travelers and those who must travel irrespective of the cost. And finally, there are business jets that cater to the high-end business travelers who traditionally traveled business class in legacy airlines. The competition between these three is extremely intense. With the low-cost airlines looking to woo the bargain hunters and the business jets taking away the high-paying customers, legacy carriers are facing a squeeze at both ends.
Assess the threat of new entrants to the airline industry. Briefly explain the barriers to entry and possible competitive responses from incumbent firms like Continental.
The threat of new entrants in the airline industry is extremely slim in the present circumstances. The rising fuel costs mean that the airlines’ industry is no longer as lucrative as it once was. In fact, many airlines are facing the threat of bankruptcy. The only section where there could be a possibility of new entrants is in the field of business jets.
In case of any new entrants, the incumbent airlines such as Continental may respond by stepping up their advertising and directly contacting the corporate. However, in the present scenario, they are unlikely to lower the cost.
Does it make sense for Continental to systematically cut its ticket prices, to gain an advantage over its competitors? Why do you think so?
In view of the increasing competition, one option available to Continental is to cut its ticket prices. However, this is not a very viable option at present due to rising fuel costs. If they try to cut ticket prices, they may gain more passengers however, will lose revenue. Considering that they are already operating at 85% seat occupancy, there is no scope for a lot of improvement. Hence, cutting ticket prices is not a viable option for Continental.
Asda and Britain’s Retail Industry
What type of business-level strategy does Asda appear to follow? What are the salient competitive risks Asda faces with this strategy?
Asda has positioned itself as a low-cost retailer catering to the young and poor. The main risk with this strategy is that people who are looking for quality products do not shop at Asda as they perceive Asda as a low price, low-quality retailer. The people who do patronize Asda do not buy high-margin products such as organic food. As a result, Asda’s profits are going down.
What evidence or indicators do you have that the retail industry in Britain operates in a slow-, fast- or standard-cycle market? How might this influence the overall competitive environment in the industry?
The British retail industry is a standard-cycle market. The industry is huge and oriented towards economies of scale. These economies of scale have resulted in all the retailers offering low competitive prices to the consumers. As a result, it is no longer possible for the retailers to compete based on price and the retailers are looking to compete on other factors such as the range and quality of products offered on its shelf.
Analyze market commonality and resource similarities across the major competitors within the British retail industry.
The major competitors within the British retail industry seem to cater to different consumers and different market segments. While Asda caters to the young and poor, Tesco and Sainsbury’s cater to the middle class. Waitrose on the other hand caters to the high-end customers, who are too refined to shop at Sainsbury’s.
The resources on the other hand are similar across the retail industry. The same manufacturers are providing the products to all the retailers at more or less similar prices. As a result, the price difference between stores is negligible.
Assess the intensity of Asda’s rivalry with existing competitors and the strength of the bargaining power of its buyers and suppliers. What can the firm do to hinder the effects of these competitive forces?
Asda has positioned itself as a low-cost retailer. In the initial years, this aggressive marketing led to Asda becoming the second-largest retailer in Britain. However, since then Asda’s market share has slipped to 16.7%. As a result, it no longer poses as a great competition to other retailers as it did in the initial years of its takeover by Walmart. Asda’s suppliers do not have much of a bargaining power since they provide the same products to all the retailers at about the same prices. Asda’s buyers constitute mainly the young and poor who will not be willing to pay higher costs for Asda’s products. On the other hand, the prices of the same goods are more-or-less uniform across the various retailers. This does not give even the buyers much bargaining power either.
In order to overcome these competitive forces, Asda must increase the stock of the “value branded” products in its store and aggressively advertise them in order to attract more customers.
Will the competitive positioning of major industry rivals significantly change in the next five years? Why or why not? Overall, what are the drivers of competitive dynamics within the British retail industry?
The competitive positioning of the major market rivals of Asda is unlikely to change in the next five years. This is because it is not easy to change consumer perceptions.
The British retail industry is competing mainly on the basis of the quality of products available on its shelf. The relative importance of cost is decreasing among the consumers. Besides, there is not much difference between the prices of the major retailers within the US.
Reference
Karp, Aaron. “Airlines’ Private Problem.” Air Transport World 45.9 (2008): 64-67. Business Source Premier. EBSCO. Web.