¶ … Continental
When we are discussing the airline industry and the companies involved here, we need to differentiate between two periods: before the attacks of 11th of September 2001 and after the attacks, because the changes in the economic, social and political environment were so tremendous that they have changed everything radically, both in perceptions and in actions.
Before September 2001, Continental had had a troubled period during the 80s and at the beginning of the 90s, characterized by heavy losses, periods of economic default and bankruptcy. The coming of Gordon Bethune, president and COO, later elected CEO, changes began to take place within the company. These changes generally acted on four different plans: financial, marketing, product and people/employees. The success was almost immediate, with increasing value added for the customer, a better atmosphere in the work place and a different attitude from the employees, stimulated by subsequent bonuses and prizes.
The attacks in September 2001 brought a period of regression for almost everybody operating in the airline industry. This came from different sources. First of all, there was a general fear that terrorism naturally brought about, not only the fear of flying itself, but also the fear of leaving one's home and premises. Second of all, the costs that the new security systems and necessity brought about took their toll on the industry. Continental was no exception in this case and it needed to adjust some of its strategies to be able to face the new market challenges.
2) Five Forces Analysis
As we know, Porter's Five Force model is one of the main tools used to assess the profitability of an industry and is one of the key issues in our analysis. We will be analyzing each of the components of the model: threat of substitutes, barriers to entry, supplier power, buyer power and rivalry.
The Threat of Substitutes "comes from products outside the industry"
, in this case, we are referring to alternative forms of transportation. If we consider the airline industry, the threat of substitutes may come from land travel or sea travel, for example. However, in order to evaluate the threat of substitutes, we need to briefly compare some of the main transport industry.
The greatest advantage for the airline industry is that it is fast. Indeed, if we consider a trip from Budapest to Paris, for example, this will take less than two hours by plane. If we add the additional time one may spend in the airport, the total travel time may go up to four or five hours. On the other hand, a trip by car or rail will take approximately two whole days. So, the airline industry is addressing at least two categories of consumers. The first one are people who want to save time when traveling (businessmen), the second are people who want to travel comfortably and safely (it is a known fact that plane crashes are much rarer than car accidents).
The attacks in September 2001 are not likely to affect the first category of consumers, but will probably affect the number of the second category. In this sense, the threat of substitute is much more likely to reach the second category, as these are more likely to prefer other forms of alternative transportation.
Indeed, if we consider the characteristics of each consumer group, it is more likely that the terrorist threat will not reach the business executives who travel, because for them the airplane represents the fastest way to travel. It is more than doubtful that you will be able to convince a CEO who needs to travel from New York to Los Angeles and attend a meeting there in due time to take the car. He needs to be on the West coast in less than ten hours. On the other hand, people who want to travel safe and are willing to spend more hours on the road may turn to other ways of traveling, because the airline industry will be associated with the terrorist attacks.
The barriers of entry are quite elevated, if we consider the specificity of the airline industry. Indeed, efficiently running an airline company, considering all the costs, operations and mechanisms involved, is likely to turn away the new companies who may want to enter the market. Here I should point out a single exception. Companies like EasyJet or BlueJet who have been able to save enormously on costs and present a cheap package to the consumer. These companies have successfully entered the market and are a potential threat in the future for Continental and other airline industries, mainly because of their incredible adaptability to the market conditions.
The buyer power is strictly determined by such elements as buyer volume, buyer information, substitutes availability (not necessarily from other industries, but other companies as well) or price sensitivity
. In this particular case, the airline industry provides a rather high level of buyer power. The reasons for this are quite simple: the companies are competing in an ever more challenging business environment, an environment, where the customer decides. The fact that the terrorist attacks required increasing safety and security demands, which in turn increased...
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