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Please demonstrate critical thinking abilities. No fewer than 200 words for post. Do not summarize the post and/or course concept(s), but perhaps comment on concepts directly applicable to your workplace.
For this response, should outside sources be used to support the content within the postings, proper in-text citations and correctly formatted references should be prepared consistent with the APA (6th edition). The list of references should be physically positioned at the end of the postings.
- Airline Industry
Rivalry among existing competitors
In the airline industry, firms have the tendency to compete aggressively. This has proven particularly true with the introduction of budget airlines – although their objectives, costs, and strategies differ vastly from larger global airlines – their overall product offering is virtually indistinguishable.
Bargaining power of suppliers
The bargaining power of suppliers in the Airline Industry is quite extensive, given the amount of external resources that affect them such as the cost of crude oil, labor unions, and airplane manufacturers.
Bargaining power of buyers
In addition to price sensitivity, buyers hold a greater bargaining power relative to that of the carriers. With various networks in which to purchase tickets, buyers remain better-informed about their options.
Threat of New Entrants
New entrants will be unable to enter on equal terms with those of established airlines. The capital requirements alone are extremely high and will likely deter the entry of new competitors.
Threat of substitute products or services
Consumers are comparatively insensitive to airline ticket prices given that demand is inelastic with respect to price.
Of the eight general environment trends, the three that have a significant impact on United Airlines include ecological/natural environment, social/cultural forces, and general economic conditions.
As the cost of oil is in constant flux, the ecological/natural environment trend can have a negative impact on United’s overall operating costs resulting in increased consumer costs. Fuel is one of the largest expenditures of an airline’s operating cost components, and in 2016 alone, United Airlines fuel expenses accounted for $5.8 billion (United Airlines, 2017). United Airlines raises fares to cover any increase in fuel costs, just as any other airline would, which can negatively impact their overall sales.
These increased costs are one factor that can affect the social/cultural forces that United faces. If a competing airline can lock in lower crude oil rates based on the extent to which they are hedged (Bloomberg News, 2016), they could offer lower fares than United. An additional factor is that of displeased customers. Given technological advances and social media becoming a social/political platform, public outrage can ensue following a customer complaint/video – given the tendency for these things to go viral. This was particularly true following a passenger being forcibly dragged off an overbooked United flight earlier this year. This single incident resulted in a stock decrease of 4%, a $770 million loss (Wile, 2017).
Finally, regarding general economic conditions, travel expenditures are up in the United States given strong economic growth. Air travel is expected to double worldwide in the next two decades, with most of growth coming from emerging economies such as Brazil, China, and India (Great Speculations, 2016). This is an opportunity that United can take exploit.
Bloomberg News. (2016, June 17). Biggest U.S. airlines missed cheapest jet fuel prices in 12 years. The Denver Post. Retrieved from http://www.denverpost.com/2016/06/17/airlines-fuel… to an external site.
Great Speculations. (2016, August 30). What are the factors behind soaring air travel growth? Forbes. Retrieved from https://www.forbes.com/sites/greatspeculations/201… to an external site.
United Airlines. (2017, January 17). United Airlines reports full-year and fourth-quarter 2016 performance. United. Retrieved fromhttp://newsroom.united.com/2017-01-17-United-Airli… to an external site.
Wile, R. (2017, April 14). Here’s how much United Airlines stock tanked this week. Time. Retrieved from http://time.com/money/4739880/united-airlines-fias… to an external site.