SkyWest and the US regional airline industry

Table of Contents

Executive Summary

Table of Contents

List of Abbreviations

List of Figures

List of Tables

1 Introduction/Problem Definition

2 Objectives

3 Methodology

4 Main Part
4.1 Dominant Characteristics of the US Airline Industry/Relationship Between National and Global Airline Industries
4.2 Application of Porter´s Five Forces Model
4.2.1 Rivalry Among Competing Sellers
4.2.2 Firms in Other Industries Offering Substitute Products
4.2.3 Buyers
4.2.4 Potential New Entrants
4.2.5 Suppliers
4.3 Factors causing change for the regional airline industry –impacts of change
4.4 Key Success Factors (KSF) Determining Success in the Regional Airline Industry
4.5 SkyWest Inc.: Strategy and competitive advantage
4.6 SkyWest Inc.: A SWOT-Analysis
4.6 SkyWest Inc.: Analysis of Financial Data

5 Recommendations and Conclusion

6 Appendix

7 ITM Checklist

7 Bibliography

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: The Five Forces Model. Own Depiction Adapted from Michael E. Porter (Thompson et al., 2008)

Figure 2: Strategic Group Map for SkyWest Inc. and Selected Competitors (Status: January 2007)

Figure 3: SWOT Analysis for SkyWest Inc

Figure 4: Development of Assets 2002-2005

Figure 5: Current Ratios 2002-2005

Figure 6: Development of Sales, Cost and Net Income 2002-2006

Figure 7: Development of Net Profit Margins 2002-2006

Figure 8: Debt Ratios 2002-2005

Figure 9: Income Statement (on a quarterly basis) for 2006

Figure 10: Net profit margin II 2006 (quarterly basis)

List of Tables

Table 1: Factors Causing Change / Potential Impacts of Changes

Table 2: Raw Data for the Strategic Group Map

1 Introduction/Problem Definition

The US global airline industry is a mature business with a strong tendency towards consolidation. The whole sector is struggling with fluctuations in demand and increasing operating costs. For the US regional airline industry the situation looks slightly better. As feeders for major airlines the consolidation of national and global airlines created both threats and opportunities. The following text will provide a strategic analysis of the U.S. airline industry respectively the situation of one of the leading players in the US regional airline industry: SkyWest Inc.

2 Objectives

The main part of the text should give answers to elementary strategic questions like:

1. What are the dominant characteristics of the U.S. regional airline industry? What is the relationship of the industry to the national and global airline industry?
2. Which insights does Porter’s five forces analysis deliver about the competition?
3. Which factors may cause major changes? What will be the impacts of these changes?
4. Which factors determine success in the regional airline industry?
5. What is SkyWest Inc.’s strategy and competitive advantage?
6. Which insights are delivered by a SWOT-Analysis of SkyWest?
7. What insights does the analysis of financial data reveal about SkyWest Inc.?
8. Which conclusions can be drawn? Which recommendations could be made?

3 Methodology

The following text is mainly based on the content of a business case (Thompson et al., 2008, pp.C-183). Some external sources and prospects were included in order to back up certain conclusions.

4 Main Part

4.1 Dominant Characteristics of the US Airline Industry/Relationship Between National and Global Airline Industries

After a freefall following the terrorist attacks on 09/11 most airlines started 2006 with serious financial problems. Within six years from 2000 to 2006 cost drivers like fuel, wages, services and landing fees caused an increase in cost of roughly 100%. During the same period a capacity of roughly 120.000 FTE was “downsized” (ATA, 2011). Governmental regulation such as increased security standards led to additional costs for the airlines. An increasing number of business customers which formerly had been known as less cost sensitive had begun to travel on low-cost carriers. At the end of Quarter 3 in 2005, six out of ten selected airlines were facing net losses at a total amount of more than 3 B$ (Lohmann, 2008). From 2001-2009 US passenger airlines realized a massive deficit of 65 B$ net losses (ATA, 2011). Major airlines such as United Airlines, US Airways, ATA, Northwest and Delta had filed for bankruptcy. A few airlines (United, Northwest, Continental, Delta) dominated the market with a share of more than 80%. The whole industry offered significant overcapacities (ATA, 2011) laying the basis for a hard fought price war. Major airlines were forced to establish low-cost airlines to respond to the loss of revenues caused by low-cost competitors. Mergers between airlines became a normal routine offering the chance of reducing cost and excess capacities. On the other hand the M&A activities led to higher debt increasing the risk of further destabilization (Lohmann, 2008).

The primary role of the regional airline industry is to connect small and medium communities with economic and transportation centers (RAA, 2011). Therefore in approximately 95% of the cases they serve as so called feeder airlines. Most of the money earned by Regional Airlines (RA) is covered by partnerships with national and global airlines on basis of individual regulations of cost reimbursement and fixed fees respectively incentives. Either they operate independently such as SkyWest Inc. or they operate as wholly owned subsidiaries of major airlines. From 2000 to 2005 the average passenger trip length significantly increased. The number of passengers increased by roughly 85% showing the trend to smaller growth rates in the future (RAA, 2011). Concerning the overall aircraft fleet there was a trend for turboprops being replaced by regional jets offering more comfort and security.

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