Characteristics of the U.S. regional airline industry
SkyWest Incorporation is a regional airline firm with operations in the USA, Caribbean and Canada. Regional airlines consist of airlines which provide air transport services to a target market whose demand for air transport cannot attract mainline service. Thus they operate from small cities (Lohman, 2007, p. 183). The dominant characteristic of the US regional airline industry is the mode with which they operate. The industry functions as a feeder airline. To attain this, firms in the US regional airline industry enter into contract with major companies enabling them to transport passengers to the main hubs. In times of low demand for air transport, regional airline firms increase frequency of operating within the mainline market.
Despite entering into contract with major airline companies, US regional airline firms have the capacity to operate under their respective brands. This enables them to provide air transport to selected markets such as the isolated communities.
A direct relationship exists between regional, national and global airlines. This arises from the operation of regional airlines as feeders to hub and spoke airline systems which are made national and regional airlines. As a result, regional airlines support these network carriers (Lohman, 2007, p.183).
Five Forces analysis
Threat of entry
The airline industry is characterized by a low degree of entry. This results from the fact that a substantial amount of capital is required for new entrants to access entry. This has the effect of limiting the survival rate of firms venturing into the industry. As a result, the degree of competition is reduced.
Threat of substitutes
Regional airlines are characterized by a relatively high threat of substitutes compared to international airlines. This results from the fact that there are various modes of transport available to customers such as use of buses, trains and cars. This makes switching costs relatively low. Considering the fact that regional airlines serve within limited geographical areas, threat of substitute is increased. The resultant effect is an increment in the intensity of competition amongst various travel modes. In addition, the threat of substitutes is dependent on the customers’ preference, motive for traveling and distance. For example, leisure travelers will mainly prefer driving to air transport. This increases the number of substitutes available.
Supplier bargaining power
The airline industry is dominated by major firms which include Boeing and Airbus. This limits the degree of competition amongst the suppliers. In addition, there is minimal probability of vertical integration occurring. This arises from the fact that suppliers cannot offer transport services. They mainly concentrate on building airlines.
Buyer bargaining power
Buyer bargaining power for the airline industry is relatively low. This arises from the fact that it is not possible for customers to coordinate. Buyer bargaining power is dependent on the type of customer and the distance travelled. This means that buyer bargaining power for regional airlines such as Skywest Incorporation is low compared to global airlines. In order to attract a large number of customers, regional airlines have to be competitive in terms of price (Lohman, 2007, p.183).
Rivalry
The United States has a relatively high number of firms operating within the regional airline industry. An industry with a large number of firms is characterized by a high degree of rivalry. This arises from the fact that each of the firms are aimed at attaining a high market share and to increase their profit level. As a result, the degree of competition within the regional airline industry is high.
Factors causing change in regional airline industry
Changes in aircraft technology
The 21st century is characterized by a high rate of technological innovation. The regional airline industry has not been spared. The technological innovations have resulted in customers becoming more conscious with regard to safety. It is therefore essential for regional airline pilots to upgrade their piloting skills. This means that there is a need for regional airlines such as SkyWest to incorporate effective training programs (Regional Airline Association, 2007, p.1).
Economic pressures
The recent economic recession has resulted in a reduction in consumers’ disposable income. As a result, their purchasing power has been reduced. In order to attract and retain customers during economic recessions, regional airline companies are increasingly reviewing their pricing strategy (Regional Airline Association, 2007, p.1).
Factors determining success of regional airline industry
The success of the regional airline industry is dependent on a number of factors which include.
Quality of travel package
The quality of the travel package plays a significant role in enhancing repeat purchase of the product. High quality products mean that firm’s are able to develop customer loyalty.
Revenue and cost control
Regional airlines must be able to offer competitive prices to the customers in order to attract and retain a large number of customers.
Route system
In developing its route system, management teams of regional airlines must consider customer demand. The route system should be consistent. In addition, it should be developed in such a way that it maximizes aircraft utilization.
SkyWest, Inc.’s strategy
In its operation, SkyWest Incorporation has integrated the concept of partnership. The firm’s management team is implementing this by identifying potential major airline partners. For example, the firm has formed partnerships with 3 major carriers which include Midwest Airlines, Delta and United (Lohman, 2007, p. 183). The core objective of this strategy is to enable the airline attain competitive advantage. This results from the fact that the industry will be able to serve a wide regional market thus attaining a high geographical growth. In addition; the firm has also integrated the concept of acquisition. This is evident in its recent acquisition of Atlantic Southeast Airline.
SkyWest Incorporation SWOT analysis
Analysis of SkyWest, Inc.’s financial statements
In its operation, the firm has managed to attain substantial financial performance. However, the occurrence of the 2007 financial crisis had a negative effect in its performance. For example, there was a reduction in its annual profit from $ 9,197,472 in 2008 to $ 3, 179,441 in 2009. In addition, the firms’ assets reduced from $ 108,945,080 to $97, 469,539 during the same period. The firm’s cash flow was also affected. This is evident in that its cash flow reduced from $ 11, 016, 867 during 2008 to $6, 733,800 (SkyWest, 2009, pp. 30-34).
Recommendations
In order for SkyWest Incorporation to attain a high competitive advantage in its operation, there are a number of issues that the firm’s management team should consider as outlined below.
- The firm’s management team should develop effective financial and cost management strategies. One of the issues that it should focus on is fuel procurement. In addition, the management team should formulate effective strategies on how to hedge prices during economic downturns.
- In order to ensure customer satisfaction, SkyWest Incorporation should formulate an employee training program so as to ensure that all their operations are customer focused. For example, management teams of regional airline companies should train employees on how to train and utilize emerging aviation technology.
Reference List
- Lehman, A. (2007). SkyWest Incorporation and regional airline industry. Long Beach: California State University.
- SkyWest. (2009). Annual report 2009.
- Regional Airline Association. (2007). Regional airline industry white paper RAA recommends operational testing of training effectiveness without the use of full simulator motion.