Natural Environment: Natural environment plays a role in the airline industry as certain times of the year and particular days in specific areas aircraft are unable to fly. A regional airline in the Northeast will face problems in the winter months that those in the Midwest will not meet. Different climates and weather patterns of regions will be a situation for all regional airline companies to face. The airline industry is affected by fluctuation that included increased travel during the summer months and flight cancelations and delays owing to implement weather primarily during the winter.
Global Forces: Global forces do not play much of a role in the regional airline industry. Although SkyWest attempted to expand their geographic presence to Europe the majority of business is located in the United States and other countries in North America.
Political Legal and Regulatory Factors: Of the remaining forces, arguably the most significant forces are the political, legal, and regulatory factors. Post- 9/11 fears of terrorist attacks have led to stepped-up government intervention in the industry through increased security regulations, leading to additional costs for the airlines. Each new governmental regulation creates a new cost for the airlines. For example the Department of Transportation considered a regulation to require the airlines to provided oxygen or passengers who needed oxygen. This proposal would have increased regional airlines’ costs by $ 262 million and $577 million over ten years.
Demographics: The demographic component of the macro-environment has been quite influential in the airline industry. This goes hand-in-hand with the social forces component. There are two main types of passengers in the airline industry: business and leisure travelers. Business travelers tend to be more profitable for the airline industry since they travel more frequently. Also, business travel is not always planned out in advanced, forcing the business travelers to buy tickets at a premium price. Leisure passengers travel less and are more price conscious than business passengers.
Although, the regional airlines, through their contracts with the major carriers, serviced both market segments, their passenger base has historically been made up of more business travelers. Business travelers use regional airlines to commute to and from locations that are considered too far to drive. Traditionally, the major airlines, through their partnerships with regional airlines serviced almost the entire business market. However, an increasing number of business travelers had begun to travel on low-cost carriers. The major airlines’ share of the business market dropped to 60 percent, while the low-cost carriers picked up to 20 percent. The major airlines responded to this drop by offering their own low-cost carrier lines.
General Economic Conditions: The airline industry is highly sensitive to fluctuations in the economy because a significant amount of travel for both business and leisure travelers is discretionary. The increasing price of jet fuel created financial problems for the airline industry, especially for the regional airline companies as their major airline partners pressured them for lower fees.
The recession in the early 2000s lowered the overall demand for airline services in the United States. In December 2008, the International Air Transport Association (IATA) predicted that markets would only last three years and by 2011 the travel market would grow 4 percent. The economic turbulence of major carriers creates both opportunities and threats for their regional partners. The majors rolled back operations and outsourced more of their routes to the regional airlines. Increased pressure on the major carriers to cut costs also forced their regional partners to accept lower fees.
Furthermore, the bankruptcy filing of major carriers increased the risk of regionals whose partners were in reorganization. Some regionals found it necessary to expand their base of partnership contracts and develop more revenue sources.
Technological Factors: Technology plays an important role in regional airline companies. Not only is keeping up with technological advances in aircraft, the airline companies are competing with technology in other arenas. Live-feed programs on the computer that make business meetings possible without employees having to travel to other destinations reduce the number of business travelers that use regional airlines. The introduction of jets that were quitter, faster, could go longer distances, safer allowed the regional carriers to operate longer routes and run shorter routes more efficiently. Exhibit 2: Analysis of Porter’s Five-Force Model Using Porter’s Five-Force model, we will be examining SkyWest’s standing relative to its fellow competitors in the market.
One problem with this comparison is that most regional airlines are subsidiaries. SkyWest’s biggest independent competitors are Pinnacle Airlines Corp. , Republic Airways Holdings, Inc. , and Mesa Air Group, Inc. SkyWest views their main rivals to be Air Wisconsin Airlines Corporation, American Eagle Airlines (owned by American), Horizon Air Industries, Inc. (owned by Alaska Air Group, Inc. ), in addition to the other four largest competitors. Of the five forces, I estimate the rivalry among competing airlines is the strongest.
I assess this dynamic as strong to fierce. Rivals are competing not only for customers but also contracts from major airline carriers. Few regional airlines could come close to the statistics of traveling with SkyWest in 2004,2005,2007,2008, and 2009 they had the highest percentage of scheduled flights arriving on time. Comair (before it went out of business in September 2012), beat SkyWest in 2006 by . 6 percent. As for mishandled baggage reports SkyWest has reported behind ExpressJet, before SkyWest acquired them, and Pinnacle between the years of 2004 and 2009.
SkyWest is also competitive in not overselling their flights; they are amongst the top three between 2004 and 2009 for not denying boarding. SkyWest’s competitors tend to have fewer complaints in the years between 2004 and 2009. The edge SkyWest had on the market in customer satisfaction is quickly slipping as competitors in the regional airline industry step up and provide better quality customer service. Buyer demand has typically shrunk in this industry due to increasing prices to travel and the declining economy.
A small force is the threat of new entrants to the regional airline industry. With the cost of jets and the competitive nature of contracting with the major carriers make this industry difficult to break into. The competitive pressures stemming from supplier power are strong. With situations such as “scope clauses” that limit the size of aircraft that an outside partner can operate and the difficulty in acquiring new aircraft through capital and financing the supplier power is strong. Another key supplier to the regional airline industry is the fuel suppliers.
As the supply of fuel becomes more costly so did traveling via aircraft, deterring many travelers from traveling. A relatively neutral competitive force is the bargaining power of buyers. Regional airline industries’ product lines are well differentiated along the lines of destination, type of aircraft, departure times, and arrival times, to name a few. Most providers are competitive in price, the buyer can search for a better cost, but many times it is relative the same airline to airline. Customer service in the field is rapidly improving for all carriers as well as safety standards.
