1) What important trends have shaped airline industry ?

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Threats of the substitutes:

If we talk about long distance, there is no substitutes for the leisure travelers and only one for the business travelers which is the videoconference but it is not sufficient to build strong relationships between companies so if a company want to create new partnerships with foreign companies, they must us the plane.

If we talk about short distances, there are some substitutes like the car or the high-speed train which is the closest substitute of the aircraft. The advantage for the airline industry is that the high-speed train ticket is relatively high so they can compete against it.

Intensity of Rivalry Among Competitors:

The competition between the different companies is intense because the customers are not loyal and they are price sensitive. In fact, the first selection criterion is the price. The most part of the travelers do not care about the offered services, they just want to travel at the cheapest price.

The differentiation by the services is really hard because they can easily be copied so the competitive advantage no longer lasts.

Profit potential for the differentiators:

It is hard for this type of company to be really different than the other differentiators because, as outlined above, the in-flight services are easy to copy.

They have the advantage to be big companies know by everyone to be reliable and secure.

They also have the possibility to acquire a good low-cost carrier, then reach a different type of customers and make their airport facilities more profitable.

Another potential profit is to be specialized in some destination and offer a wide range of services on the spot.

To conclude, make long-term differences and large profits is really hard due to the market and all the history of the airline industry but if some companies completely reinvent the business it may lead to bigger margin profit.

Profit potential for the low-cost carriers:

The biggest potential of profit expansion is for the low-cost carriers which have less fixed costs because they exploit the same routes at a high frequency and because they use secondary airports. This operation mode provides an availability of flights which is optimum. For example, you can take a flight to a destination at three different times on the same day. The flexibility is a real advantage and is really appreciated by the customers.

- Evaluate and compare Porter’s generic strategies as applicable in the airline industry.

Cost leadership:The companies aim all the market segment that want to travel for a low price. They have standard airplane with the basic comfort, no free services like food or drink and only one class which is the economic class.

They maximize the use of their airplane by scheduling several flight per day and they organize that like shuttles between two destinations. This strategy allow them to offer several departures per week (and sometimes per day) for the same destination. They offer more flexibility to their customer and it is well appreciated.

Differentiator: This is the classic in airlines industry. The companies offer a wide range of services which are free or paid. There are before flight services like reception desks in their top destinations, paper tickets, airport reception attendant who help you to find the right gate, disabled facilities and so on.

They offer different classes in the airplane like first class, business class and economic class and they provide a range of services adapted to each class and to the needs of the customer. The economic class is usually more comfortable than the economic class offered by the low-cost carriers because the quality of the basic services is higher.

They are present in big airports but also in secondary ones and they offer a wide range of destinations (hub-and-spoke system). They operates on short and long-haul routes with different type of aircrafts adapted to the itinerary.

A network carrier can be different thanks to the schedule, the amenities, the services, etc but the differentiation brings a higher cost structure.

Stuck in the middle:The companies are, on average, above the cost offered by the low-cost carriers but the quality of service they offer is below the quality offered by the differentiators.

Sometimes the companies have a pretty good level of services but their costs are too high and vice versa.

Focus cost leadership:

The companies is focused on a particular market segment and offer a few services to suits the requirements of this particular market segment. There are basic but useful services and that’s it.

They can be focused on the business travelers who have to go to the same destination regularly and who want to travel at the best price so they can offer a Wifi connection or this kind of particular things that are high value added for the customer.

Focus differentiator:

They are specialized in a particular segment and are recognized for their expertise in this domain. It can be a geographical region, destinations which are not easily accessible, luxurious services, personalized travel, private jet, etc.

The fact is that the customers recognized them for their specialization and they are ready to pay the full price to profit of these services.

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