Competitive Strategies and Government Policies

Competitive Strategies and Government Policies

In order for a company to become and remain successful, their competitive strategy must depend on how they relate to their environment. The main purpose of a competitive strategy for a business is to establish a position within the industry to better handle competitive forces or at least influence them in their favor. Competition in any industry depends on five basic competitive forces, which include supplier power, degree of rivalry, threat of substitutes, buyer power and the threat of new entry. These forces and how a company handles them, will ultimately determine the profit potential. This report will provide information about new companies entering the market, mergers, and globalization. It will discuss the effects on pricing and the sustainability of profits. Additionally, current and expected government policies and regulations can cause issues related to externalities will be examined. Furthermore, global competition and the effect from change in labor demand, supply, relations, unions, and rules and regulations within the airline industry. In conclusion, this report will recommend how the industry can respond to the specified issues.

Emerging Companies, Mergers and Globalization

The increase in competition within the airline industry is a result of new companies that enter into the market. With the largest number of destinations and fleets, Delta, United, Southwest and American Airlines are four of the major airlines in North America. There are not too many businesses that face as many challenges as the airlines. Despite intense rivalry, there are few newcomers into the industry, airline mergers are in full effect. Recent mergers in the airline market include a merger between Northwest and Delta Airlines in 2010 becoming the largest airline for passenger traffic. AirTran was acquired by Southwest Airlines acquired in 2010. In 2012 United merged with Continental Airlines, surpassing Delta as the world's largest carrier airlines. Currently, a merger is in discussion between American Airlines and US Airways. The mergers between airlines help create significant resources and stability for everyone. Airline services will continue to increase because globalization brings about a higher level of traveling. The main objective of a horizontal merger is to lock out other competitors, which is useful to limit competition in the airline industry (Colander, 2010).Within the airline industry, the type of merger activity that exists is a horizontal. These types of mergers are common in markets with few businesses.

Pricing and Sustainability of Profits

The level of competition in the airline industry determines how the different airlines will price their services to attract a higher number of consumers. Before deregulation, the airlines competed mostly on meals, in-flight movies and services because prices were delegated by the Civil Aeronautics Board. After the deregulation of airlines, prices and competition between airlines increased with one company undercutting prices of the other. With higher levels of competition, businesses in the industry will charge extremely low prices, which leads to no sustainability of profits. However, because of increase demand for the services the airline companies can charge higher prices that should increase their profitability.

Government Policies and Regulations

There are many government policies and regulations that directly affect the airline industry. As the single most important cost for airlines, regulations and policies that affect fuel supply and price greatly affects the viability of airlines. Global policies regarding deregulation and emissions can affect airlines operations, as well as taxes placed on airline tickets, which affects demand and increases prices. Government regulations regarding emissions, taxes and airport security has become some of top issues and could negatively impact the airline industry's revenues in the future. If there was an adjustment in the guidelines and code of practice that manage the airline commerce, directors would want to make sure it conforms to the original procedures. They would in any appropriate way try to make any choices that are as cost-efficient as possible. Nevertheless, trying to reduce this externality of pollution as soon as possible could give the management of an airline an advantage in global competition because this would display an image to consumers that the airline cares, which could mean increased flights and more profits. Additionally, it may cost to reduce the emissions of airplanes as soon as possible because if these regulations are not met when they are required, it could lead to more costs through fines and penalties imposed on the airline by government agencies (Colander, 2010).

Global Competition of Airlines

Over the years, the airline industry has experienced a rough spell, with excessive amounts of jobs and revenue lost. Now, with the rapid increase of fuel prices, many airlines struggle to keep up with costs and travelers. Mergers and acquisitions have been a means for pursuing operational efficiencies within the industry. Global competitors, like China, have started to design and develop their own airlines in an attempt to compete with the United States. According to Zack's Equity Research (2012), "The airline business is labor intensive. Most of the employees are unionized and depend on various U.S. labor organizations. Unions in the airline industry may affect mergers that would increase global competition. Management should offer better benefits to all employees to maintain a low turnover rate or strike keeping in mind that other airlines could counteroffer with better benefits.

Recommendations for Competitiveness of Emerging Airlines,