Jet Blue Vs Delta

Analysis of the Force

Overall, the five forces model suggests that the overall intensity of competition in the airline industry is likely to be severe. Back in the early 1980's competition was very intense. During the late 1980's the monopolization of major routes by a few major carriers, the limited availability of free landing spots at major hubs and the emergence of limited brand loyalty and tacit price agreements have all helped reduce the intensity of competition. However, as already mentioned, slumping demand in the early 1990's plunged the industry once more into a severe price war. Airline travel is a commodity-type product, with limited potential for differentiation.

Rivalry among Firms: High

Rivalry among firms within the airline industry is high because low cost airlines have entered the market forcing existing competitors to control costs. Intensely competitive industries generally earn low returns because the cost of competition is high or buyers are receiving the benefits of lower prices. Factors that affect competitive rivalry include industry growth, fixed cost, brand identity, and barriers to exit. The airline industry is fiercely competitive. Industry growth is moderate, and carriers are struggling to take away share from each other. Barriers to exit are substantial in the airline industry. Grounded planes do not earn any returns and disposing of these assets is difficult. Often, because of bankruptcy laws, companies in financial distress such as Delta or TWA can remain competitors for a very long time. The additional capacity of low cost airlines in the airline industry has held consumer costs down resulting in less revenue and lower returns for competing airlines.

Bargaining Power of Supplier: Moderate

Factors relating to the bargaining power of suppliers include the threat of forward integration and the concentration of suppliers in the industry. Suppliers are concentrated within the airline industry. Boeing and Airbus supply most commercial fixed-wing air carriers. Supplier concentration makes it difficult for competitors to exercise leverage over the supplier and obtain lower prices or play one supplier against another. The threat of forward integration is low. It is unlikely that Boeing, for instance, would staff flight attendants, commercial pilots, and a maintenance crew, and operate flights all across the country. While the airlines suffer from a brutal form of pure competition, many of their key suppliers enjoy oligopoly, monopoly, or regulatory power. Fuel, labor, airports, and security services are all suppliers with great power to increase prices. Supplier power further diminishes the ability of competitors to earn high profits.

Bargaining Power of Customers: High

The over capacitated airline market competes to lower prices for customers, giving customers a high bargaining power in relation to cost. Consumers incur no significant costs in switching from one airline to another except for frequent flyer loyalty programs.

Air travel represents the only viable option for international flights. While this would seem to cause bargaining power to be low, customer choices for these flights are not only cost-associated, but also the availability and quality of services. As globalization of economics and international businesses continues to increase, the need for worldwide meetings among corporations is increasing. Corporations have options such as video-conferencing that forces airlines to provide upgraded services to accommodate the market of travelers (i.e., executive suites at airports, airplane comfort, etc).

Threat of New Entry: Moderate

The threat of new entrants presents the possibility that new firms will enter the industry and diminish industry returns by passing along value to buyers in the form of lower prices and raising the cost of competition. Factors that determine the threat of entry include capital requirements, economies of scale, switching costs, and brand value. In the airline industry, access to capital is plentiful. Banks extend credit to airline carriers, and the debt and equity markets provide alternatives for raising funds. Because it's relatively easy for weaker airlines to obtain credit, the industry has become saturated.

Brand identity is important in the airline industry, and benefits larger airlines. Major carriers allocate considerable resources to marketing efforts. Frequent flier programs and other incentives have been successful in enticing travelers to fly with certain carriers. The frequent flyer incentive can often be strong enough to cause a customer to choose one carrier over another -- even when the other carrier offers a lower fare.

Barriers to entry are also heightened by the hub system in the airline industry. Carriers can offer travelers more choices while tying up less capital through their hubs. As a result, the hub system creates market power for large carriers.

Threat of Substitutes: Low

There are several substitutes to air travel, but over long distances and flying between continents, there are no real substitutes that can bring humans face to face with speed. The decision to use automobiles or trains is influenced by time, money, personal preference and convenience. Video conferencing takes away the one on one human contact and socialization that air travel allows you to reach.

JetBlue - Discount Carrier

In the six years since its launch, JetBlue Airways has focused on creating a new airline category -- an airline that offers value, service and style. Based out of New York City, the low-cost carrier currently serves 41 destinations with more than 440 flights daily. JetBlue is a low-fare, low-cost passenger airline, which provides high-quality customer service. Since launching operations in February 2000, the airline has carried more than 13 million passengers. JetBlue operates a fleet of 42 new Airbus A320 aircraft and is scheduled to place into service another 11 A320s by the end of 2003. All JetBlue aircraft feature roomy all-leather seats each equipped with free live satellite television, offering up to 24 channels of DIRECTV Programming at every seat. Shut-Eye Service, with a Shut-Eye Kit designed exclusively for JetBlue by Bliss Spa and other special amenities including a "good morning" hot towel service. With JetBlue, all seats are assigned, all travel is ticketless, all fares are one-way, and an overnight stay is never required.

Rivalry among Firms

Jet Blue addresses rivalry among firms