Whats Happening?!

Chief Information Officers (CIOs) expect IT budgets to increase by 2.5 percent in 2005, and believe their focus will be on supporting business growth and results, according to a survey by Gartner Inc. In the past few years, CIOs have had to focus on internal efficiency and cost control, while preparing their organization for an economic upswing. CIOs voiced concerns about their relationship with the CEO and whether they have the right people to meet current and future business needs. Ted Kennedy says that the solution for run-away costs with Medicare is Information Technology.

ATP Clinic
Tomorrow, Wednesday at 4 to 5 PM Baskin Engineering, room 318. Leslie Clark will run the session.

ISM Toastmasters

First session on Thursday at noon.

Engineering II building room 280.

Chapter 3
The Porter Competitive Model for Industry Structure Analysis

Agenda

Porter Competitive Model

Objectives Generic Example Specific Example

Value Chain Model

Generic Example Specific Example

Competitive Strategies

Porter Model Objectives

Build barriers to prevent a company from entering an industry Build in costs that would make it difficult for a customer to switch to another supplier

Change the basis for competition within the industry

Change the balance of power in the relationship that a company has with customers or suppliers Provide the basis for new products and services, new markets or other new business opportunities

Porter Competitive Model

Potential New Entrants

Bargaining Power of Suppliers

Intra-Industry Rivalry
Strategic Business Unit

Bargaining Power of Buyers

Substitute Products and Services

Source: Michael E. Porter Forces Governing Competition in Industry Harvard Business Review, Mar.-Apr. 1979

Figure 3-1

Generic Value Chain

SUPPORT ACTIVITIES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT

INBOUND LOGISTICS

OPERATIONS OUTBOUND LOGISTICS

MARKETING AND SALES

SERVICE

PRIMARY ACTIVITIES
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright 1985 by Michael E. Porter.

Figure 3-6

Value Chain Model US Department of Justice

Competitive Strategies
Primary Strategies

Supporting Strategies

Differentiation Strategy Low-Cost Strategy

Innovation Growth Alliance

Examples of Wal-Mart Strategies

Primary Strategy: Least Cost as evidenced by its every-day low prices sales strategy.
Supporting Strategies: Innovation: In both business processes and the use of information systems. Growth: Sales volume growth adds to their ability to leverage purchasing discounts from suppliers and gain operational productivity. Alliances: Joint efforts with suppliers to implement leading edge e-business processes.

Possible Exam Questions

1.

To date we have addressed three models developed by Michael Porter: Diamond of National Advantage, Competitive Model and Value Chain. Explain the objective to be gained from using each of these models. Identify three mistakes that are often made in using the Porter Competitive Model.

2.

Chapter 4 Introduction
Airline Industry Analysis

Objectives and Key Points

History and Deregulation in 1978 Recommendations to ensure strong competition Analysis of the Airline Industry using the Porter Competitive Model Airline Industry Business Strategy Model Two Successful Airlines Importance of IT in the Airline Industry

Industry History

Wright brothers first successful flight in Kitty Hawk in 1903. American Airlines in 1928 and United Airlines in 1931. Development of the mail system by the U.S. Postal Service helped create the airline industry. Increased R&D of aircraft after World War II. FAA created in 1958 to develop an air traffic control system. Deregulation in 1978.

Some Necessary Background

Deregulation Entry and exit of routes and the pricing of fares were deregulated. Benefits: 1. The creation of new jobs and lower fares. 2. More Americans were flying so airplane load factors were up. 3. There was increased competition and a wider choice for passengers.

Does the airline industry have basic structural problems or is it just a collection of poorly managed companies?

Question raised by Presidential Commission addressing the competitiveness of the industry

Presidential Commission Report Recommendations

Reducing the burden of regulation. Reducing the tax burden. Moving beyond nationalism in the air service. Modernizing the air traffic control system.

Porter Competitive Model

Airline Industry Analysis U.S. Market
Aircraft Manufacturers Aircraft Leasing Companies Labor Unions Food Service Companies Fuel Companies Airports Local Transportation Service FAA Hotels

Potential New Entrants

Foreign Carriers Regional Carrier Start ups Cargo Carrier Business Strategy Change

Intra-Industry Rivalry
SBU: American Airlines Network (traditional) Rivals: United, Delta, Northwest, US Air Low-cost Rivals: Southwest, JetBlue, ATA

Bargaining Power of Suppliers

Bargaining Power of Buyers

Travel Agents Business Travelers Pleasure Travelers Charter Service Federal Government U.S. Military Cargo and Mail
Figure 4-2

Alternate Travel Services Fast Trains Boats Private Transportation Videoconferencing Groupware

Substitute Products and Services

Airline Industry Strategies

Products/Services
Scheduled Flights Chartered Flights Customers Business Travelers Personal Travelers Seniors Families Government Air Freight Mail

Fare Strategy Low Fares Premium Fares Markets

North America

Europe

Asia

Latin America

Routes and Route Structure Short Haul Long Haul Hub and Spoke Point to Point Company Structure Independent Alliances Code Sharing Information Systems
Customer Systems Operational Systems Logistical Systems Business Systems

Two Successful Airlines

1.

Southwest Airlines Singapore Airlines

2.

Importance of IT
Convenience to Customers. Knowledge of Customers. Providing a Foundation of Other Systems. Building a Base for other Business.

Can be assessed through the use of the Value Chain.

Conclusions
A clearly structured industry. Vital role of Information Systems in the industry. The industry is greatly affected by many factors. Strategies dictated by the market are crucial. Still regulated.

Chapter 4
Porter Competitive Model and the Airline Industry

Key Points

Analysis of the Airline Industry using the Porter Competitive Model

Airline Industry Business Strategy Model

Lessons Learned from Profitable Airlines A Perspective of the Challenges of the Industry A Historical Perspective Importance of IT in the Industry

U.S. Airline Industry

Does the airline industry have basic structural problems or is it just a collection of poorly managed companies?

Question raised by 1993 Presidential Commission addressing the competitiveness of the industry

This industry is always in the grip of its dumbest competitors.

Robert Crandall Former CEO American Airlines

We must look at the world as it is versus how airlines would like it to be.
Robert L. Crandall

And as government officials, politicians and consumers would like it to be.

Airline Industry Goals

Public Service. (Service to Customers)

Return to Investors.
Country Strategic Resource.

Are these consistent or in frequent conflict?

Porter Competitive Model

Airline Industry Analysis U.S. Market
Aircraft Manufacturers Aircraft Leasing Companies Labor Unions Food Service Companies Fuel Companies Airports Local Transportation Service FAA Hotels

Potential New Entrants

Foreign Carriers Regional Carrier Start ups Cargo Carrier Business Strategy Change

Intra-Industry Rivalry
SBU: American Airlines Network Rivals: United, Delta, US Air, Northwest Low-cost Rivals: Southwest, JetBlue, ATA, etc.

Bargaining Power of Suppliers

Bargaining Power of Buyers

Travel Agents Business Travelers Leisure Travelers Charter Service Federal Government U.S. Military Cargo and Mail

Alternate Travel Services Fast Trains Boats Private Transportation Videoconferencing Groupware

Substitute Products and Services

Figure 4-2

Product/Service Strategy
Scheduled Passengers Business Travelers Charter Services

Cargo

Mail Air Express

Customer/Fare/Market Strategy
Leisure Senior Travelers Citizens Low Fare Super Saver Europe First Time Frequent Flyers Flyers Premium Fare Latin American

North American

Pacific Rim

Sales Strategy
Reservation Agents Travel Agents Web Page

Business Strategy Model Airline Industry

Routes and Route Structure Strategies Short Haul Hub and Spoke Long Haul Point to Point

Company Structure Strategy

Independent
Passengers

Alliances
Operations Logistics

Code Sharing
Business Figure 4-1

Information Systems Strategy

Airline Industry Value Chain

FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT

-Financial Policy - Accounting -Regulatory Compliance - Legal - Community Affairs Flight, route and yield analyst training Pilot Training Safety Training Baggage Handling Training Agent Training Product Development Market Research In-flight Training Baggage Tracking System

Computer Reservation System, In-flight System Flight Scheduling System, Yield Management System

PROCUREMENT
Route Selection Passenger Service System Yield Management System (Pricing) Fuel Flight Scheduling Crew Scheduling Facilities Planning Aircraft Acquisition

Information Technology Communications

Ticket Counter Operations Gate Operations Aircraft Operations On-board Service Baggage Handling Ticket Offices Baggage System Flight Connections Rental Car and Hotel Reservation System Promotion Advertising Advantage Program Travel Agent Programs Group Sales Lost Baggage Service Complaint Follow-up

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISTICS

MARKETING AND SALES

SERVICE

Adapted with the permission of Michael E. Porter from Competitive Advantage: Creating and Sustaining Superior Performance, copyright 1985 by Michael E. Porter.

Figure 4-3

Impacts of a Weakened Airline Industry Airline Industry

Carriers, General Aviation, Airports

Suppliers
Aircraft Engines

Services
Insurance Financing Distribution Telecom Maintenance Fuel

Passengers
Business Travelers Leisure Travelers

Travel & Tourism

Travel Agents Tourist Attractions Conferences and Conventions Hotels Restaurants Retailers

Electronics
Computers Chemicals

Induced Costs Lower Sales Lower Sales

Decreased Productivity & Weaker Relationships

Lost Revenue

Airline Related Statistics

The total economic impact of the airline industry is approximately $900 billion or 9% of the U.S. GDP.

Ten million people owe their jobs directly or indirectly to the airline industry.
U. S. leisure travelers spent $187 billion in 2000. This was 7% less in 2001.

A financially viable airline industry is necessary for a healthy U.S. economy.

Operating
YEAR 1940 1950 1960 1970 1980 1990 1991 1992 1993

ANNUAL PROFIT/(LOSS) Operating

7,224 75,986 77,591 43,031 -221,615 -1,912,335 -1,784,741 -2,444,460 1,438,172

CUMULATIVE PROFIT/(LOSS)

Revenues ($000)
N/A 839,920 2,884,779 9,289,658 33,727,806 76,141,739 75,234,234 78,357,040 85,298,379

Net
N/A 42,678 9,140 -200,503 17,414 -3,921,002 -1,940,157 -4,791,284 -2,135,626

Operating
13,064 270,281 1,383,754 5,439,165 10,763,271 20,590,676 18,805,935 16,361,475 17,799,647

Net
N/A 60,211 638,095 2,226,533 5,810,207 4,343,887 2,403,730 -2,387,554

-4,523,180
-4,867,295 -2,553,704 250,211 5,417,868 10,321,071 15,681,323

1994 1995 1996 1997 1998 1999 2000

89,036,582 95,117,473 102,443,738 109,917,304 113,810,206 119,455,126 130,838,619

2,713,455 5,859,518 6,209,069 8,586,794 9,327,810 8,403,305 6,998,931

-344,115 2,313,591 2,803,915 5,167,657 4,903,203 5,360,252 2,486,298

20,513,102 26,372,620 32,581,689 41,168,483 50,496,293 58,899,598 65,898,529

18,167,621
9,892,755 -1,419,660

2001 2002 2003

115,526,896 106,985,463 115,906,315

-10,325,852 -8,566,412 -2,200,450

-8,274,866 -11,312,415 -3,624,682

55,572,677 47,006,265 44,807,448

-5,042,710

2004

2004 results expected from U.S. DOT in June 2005

Aviation Week Contentions

U.S. major hub-and-spoke carriers are being forced to restructure their operations or face the prospect of eventually going out of business. The crux of the problem is a combination of excessive costs in relation to carriers' current and projected revenues, an imbalance between the supply and demand for available airline seats, and an inability to boost air fares.

United Flight 815

Chicago to LAX, October 31, 2003 204 tickets were sold and 186 people showed up.

68 passengers originated in Chicago and 118 were from connecting flights.

97 passengers terminated at LAX, 89 continued on another flight. Of the 33 passengers that were only Chicago-LAX there were 27 different fares: A frequent flyer passenger paid nothing. A 1st class passenger paid $1,248.51 on the day of the flight. A coach passenger paid $102.26 on the day of the flight. A cash fare passenger paid $87.21 twenty-nine days in advance .

Airline Profitability
Profitability = [yield X load factor] - cost In order to survive and profit in this tough environment, airlines attempt to manipulate three main variables: Cost, calculated as total operating expenses divided by available seat miles (ASM) Yield, calculated as total operating revenues divided by the number of revenue passenger miles (RPM) Load Factor, calculated as the ratio between RPMs and ASMs, which measures capacity utilization.

Always Profitable Airlines

Southwest Airlines
Aircraft Utilization, focus on city pairs, corporate culture, cost savings in reservations

Singapore Airlines
Geographic Locations, National Strategies, Shrewd Management and Leadership in IT, Competitive Strategies

Southwest Airlines

A U.S. carrier success story. Commuter airline that concentrates on city pairs. (Average flight is 541 miles and takes about one hour) CEO Herb Kelleher, a Connecticut attorney turned Texan, had the best labor relations in the industry and an excellent company culture. Lowest cost structure in the industry. 31 years of consecutive profitability

Why Southwest is Successful

1. The success of Southwest starts with the following three important factors: 1) Focus, 2) focus and 3) focus. 2. Standardizing their fleet on the Boeing 727 provides major operational and financial benefits. 3. Herb Kelleher as one of the founders and the long time CEO should probably be cited as the number one reason for the success of this airline. 4. Focus on high volume city to city routes.

Southwest Success
5. Southwest came into the deregulated era of the industry as a small, intra-state airline that had always been able to compete on the terms that they chose since they were not subject to federal regulation. 6. The financial success of Southwest has received a large amount of free publicity that has certainly helped to create an image of an airline to be trusted and used by many passengers.

Best Airlines for Business Travelers

1. 2. 3. 4. 5.

6.
7. 8. 9.

10.

Singapore Airlines Swiss Air Cathay Pacific Midwest Express ** Japan Airlines Quantas ANA Virgin Atlantic Lufthansa KLM-Royal Dutch

11. Finnair 12. British Airways 13. Alaska 14. Air France 15. Varig 16. Aer Lingus 17. Kiwi 18. Air Canada 19. American ** 20. Delta**
Source: Zagat Survey of Frequent Flyers

Singapore Airlines

Winner of multiple awards for airline excellence. Leader of the Orient Airlines Association (OAA) Abacus reservation system. Price collusion on major routes.

Outsourced IS application development.

Nervous regarding U.S. carrier price competition.

Why SIA is Successful

1.

Singapore has always been only an international carrier and focused accordingly on global competitiveness through quality customer service.

2. The airline is an integral part of the country strategy to be the center for commerce and travel within Southeast Asia. 3. The success of the country strategies promotes travel demands.

4. SIA has been blessed with excellent senior management.

SIA Success Factors

5. While suggested above, the point needs to be made that excellent management is capable and willing to do aggressive things and take chances when it feels that it is prudent to do so. 6. Prudent financial management has been a major strength of the airline. 7. SIA had a labor cost advantage during its early years. 8. There were no comparable competitors in Southeast Asia.

Major Airline Issues

1.

Dysfunctional labor situation. High taxes, fees and other government-mandated costs. Inadequate long-term plans for air and ground infrastructure. Restrictions on airline consolidation and foreign investment.

2.

3.

4.

Earnings for Paid Hours

Based on a U.S. survey of 437 professions in 2001.

Pilots includes regional, commuters and general aviation. Transportation attendants includes airline flight attendants.

Rank

Occupation

Hourly

Weekly

Earnings

Hours

1 Pilots

$107.22

21.9

2 21 33 37 45 56 58 100 120 130 141

Lawyers Math Teachers Electrical Engineers Financial Managers Transportation Attendants Computer Scientists High School Teachers Architects Aircraft Mechanics, Engine Police Aircraft Mechanics, Non-engine National Average

$59.78 $37.51 $34.56 $34.29 $32.73 $30.52 $30.23 $24.08 $22.04 $21.50 $20.64 $17.13

41.4 38.9 41.0 40.4 20.7 40.1 37.1 39.7 40.0 40.0 40.0 39.6

Airline Labor Costs

Labor negotiations in the airline industry are governed by the Railway Labor Act (RLA) of 1926. The negotiation process is very complex and drawn out. It can take multiple years to work through the approximately fifteen stages. A key distinction between the application of the RLA is that the railroad unions bargain on a national basis while airlines bargain as individual companies. Within the airline industry there is incredible sensitivity to contract changes at other carriers that results in continuously spiraling labor costs.

Union Power
The highly unionized airline industry is unable to respond in a timely manner to changing markets and unable to prevent labor led service disruptions.

American Airlines
Has historically been the largest airline in the world in terms of revenue and number one in the U.S. A premium service carrier. Hub and Spoke System SABRE System Strongly opposed industry deregulation. Financial losses same as most other carriers

CEO Revolving Door

AMR United
Delta

Donald Carty to Gerald Arpey, May 2004 James Goodwin to John Creighton, Oct. 2001 John Creighton to Glenn Tilton, Sept. 2002 Leo Mullin to Gerald Grinstein, Jan. 2004

Northwest Richard Anderson to Douglas Steenland, Oct. 2004 US Airways Rakesh Gangwal to Dave Siegel, May 2002

Airline Industry Time Line

12/17/03 First flight in Kitty Hawk, North Carolina 1927 Lindbergh Trans-Atlantic Flight to Paris 1931 United Airlines was created from earlier multiple companies 1934 American Airlines was created from earlier multiple companies. 1941-1945 World War II 1949 First flight of Pacific Southwest Airlines (PSA) 1971 First flight of Southwest Airlines 1972 Singapore Airlines is created in split from Malaysian Airways 1978 US airline industry was deregulated 1987 Pacific Southwest bought by USAir 1/16/91-2/27/01 Gulf WarDesert Storm 10/22/01 US invasion of Afghanistan 2/11/03 Iraq War starts On-going Many problems for most US airlines

A Glamour Industry
The place for the rich and famous: Barney Oldfield, Amelia Earhart, Howard Hughes, Bill Boeing, Manfred von Richthofen aka The Red Baron, Eddie Rickenbacker, Billy Mitchell, Jimmie Doolittle, Saburo Sakai, Curtis LeMay, Frank Borman, Sir Freddie Laker, Frank Lorenzo, Richard Ferris, Robert Six, Richard Branson, Jan Carlzon, Herb Kelleher, Bob Crandall, Stephen Wolf, Sam Walton, Larry Ellison Conquistadores del Cielo, crop duster, jet-setter, Concorde, SABRE, CRS, frequent flyer, Admirals Club.

Orville Wright

Wilbur Wright

First flight by Orville Wright, December 17, 1903

Airline Industry Financial Viability?

If I had been at Kitty Hawk when Orville Wright took off, I would have shot him down as a public spirited act for the benefit of future capitalists.

Warren Buffett

Charles Lindbergh's Transatlantic Flight

New York to Paris Timeline, May 20-21, 1927 33 hours, 30 minutes, 29.8 seconds Lindbergh had not slept in 55 hours

Pacific Southwest Airlines

In the Beginning
Pacific Southwest Airlines began initial operations on May 6, 1949, flying a leased DC-3 aircraft with a seating capacity of 31 passengers once a week between San Diego and Oakland via Hollywood/Burbank. Original fares for the three-city route structure were: SAN-OAK $15.60, SAN-BUR $5.65, and BUR-OAK $9.95. By the end of 1949, PSA was operating two DC-3s and had carried 15,011 revenue passengers over 321,112 plane miles. The airline posted operating revenues of $172,796 against operating expenses of $160,902 for a net profit of $11,984.

PSA's 1969 fleet consisted of one DC-9, one Boeing 727-100, 14 Boeing 727-200s, and nine Boeing 737-200s. The airline's fare structure included the following: SAN-LAX, SAN-BUR, SAN-ONT, SFO-SMF $7.14; SAN-SFO, SANOAK, SAN-SJC $20.95; LAX-SFO, LAX-OAK, LAX-SJC, BUR-SFO, BUR-OAK, BUR-SJC $14.52. PSA entered the seventies with an all Boeing-equipped fleet that included one 727-100, 16 727-200s, and nine 737-200s.

With Growth Came Financial Problems

One million passengers flew PSA in the month of August, 1986 marking the first time in the carrier's history that it boarded that many passengers in a single month. PSA carried a record 10.7 million travelers in 1986, but posted a year end net loss of $3 million.

The End of PSA

On May 29, 1987 Pacific Southwest Airlines became a division of USAir.

The last PSA departure left San Diego, California as flight 1486 bound for Las Vegas, Nevada on April 8, 1988.

The National Commission to Ensure a Strong Competitive Airline Industry

Change, Challenge and Competition

A Report to the President and Congress August 1993

Commission Findings
The Airline Industry is more competitive than before deregulation in 1978. Travelers and shippers are charged less than in 1978. The Airline Industry has never made a sustained, substantial return on investment. It lost huge amounts of money from 1990 to 1993. It canceled many aircraft orders shortly after an unprecedented buying binge. Its freedom to compete in international markets is uncertain because of government restrictions.

Commission Conclusions
For the U.S. to prosper in a global marketplace the airline industry must:
Be efficient and technologically superior. Have the financial strength to respond to rapid change and opportunity.

Efficiently move people, products and services to markets, wherever they exist.

Recommendations
Efficiency: Reinvent the FAA. Financial Health: Deal with factors that impact the financial health of the industry. Access to Foreign Markets: Replace the current bilateral system with a multi-national regime.

To return their balance sheets to respectability, most airlines would have to achieve profit margins that are almost unprecedented in their history, and sustain those margins for years.

September 11 Impact
An absolute disaster for the industry.

A Sobering Fact
Before September 11, 2001, the global industry was showing a net loss on international services of around $3 billion.

US Airline Industry Must Restructure or Die

Aviation Week & Space Technology November 2002
Low-Cost Airlines, Not September 11, Have Transformed Industry Fundamentals "When people say the traditional industry model is broken, they are moving their jaw without putting their brain in gear," responds former American Airlines CEO Robert Crandall. He added that he is skeptical that the industry will ever be competitive as long as there are so many carriers selling what has evolved into a commodity product.

Corrective Actions
It will take much more than concessions by labor for major U.S. airlines to solve their financial problems.

Airline Industry US Market Share

Based on current trends, the domestic market share held by the six major US airlines (American, Continental, Delta, Northwest, United and US Airways) plus Alaska Airlines will drop from 75% in 2002 to 62% in 2010and 45% by 2020, according to an industry projection.

Southwest could pass American to become the largest U.S. airline by 2013, and JetBlue could pass Delta to become the third largest by 2020.

Industry Structure Problems

The fact that low-cost carriers have been able to mature this far says as much about what's wrong with the majors as it does about what's right with their low-cost counterparts, and begs the question: does the underlying strategy or business model employed by the large hub-and-spoke airlines still work?
Analysts and other industry observers believe it does, but to function properly carriers must reduce their costs and restore the balance between supply and demand.

Benefits of Information Systems to an Airline

1. Convenience to Customers. 2. Knowledge of Customers. 3. Providing a foundation for other systems. 4. Building a base for other businesses.

Computer Reservation System:

Business Traveler Choice? Personal Traveler Choice?

Ticket-less Versus No Reservation?

Airline Alliances
The Star Alliance is the largest of the major groupings. Consisting of 15 airlines led by United Air Lines and Lufthansa. Star serves about 815 destinations in more than 130 countries.
Oneworld, which is eclipsed by only Star among the major airline alliances, is led by British and American Airlines. Eight airlines offer service to 550 destinations in more than 130 countries. SkyTeam is quickly becoming a major alliance player by serving more than 450 destinations in nearly 100 countries. Led by Air France and Delta, SkyTeam has also consolidated cargo services.

Code Sharing Agreements

The US Transportation and Justice Departments approved a pact that will let Delta Air Lines, Continental Airlines and Northwest Airlines share access to each other's routes. The code-share agreement allows each carrier to market the others' routes as its own. One Northwest flight, for instance, might also have a Continental flight number and a Delta flight number.

The agreement is the biggest in the industry. US Airways and United Airlines have a similar agreement.

Code Sharing Agreements

It's an especially appealing arrangement to frequent fliers who prefer to build up miles on one airline while flying all three.
The government placed several conditions on the deal. Specifically, the DOT said 60 percent of any new code-sharing routes must serve those areas of the country that are considered under-served. It also bans anti-competitive practices like coordinated pricing or shared decisions about route planning and capacity.

Barriers to Entry
Access to airports continues to be impeded by: (1) Federal limits on takeoff and landing slots at the major airports in Chicago, New York, and Washington (2) Long-term, exclusive-use gate leases (3) Perimeter Rules prohibiting flights at New Yorks LaGuardia and Washingtons National airports that exceed a certain distance.

US Industry Strength
Fifteen major US carriers represent the following significance in the world-wide airline industry: 29% of the aircraft

46% of the employees

32.5% of the the 2000 passenger miles Based on a number of years of operating in a deregulated environment within the US that forced them to compete in a very tough market.

International Airline Industry

Between 1982 and 2002 the IATA airlines had revenues of $2 trillion and cumulative losses of $5 billion.

Does a business model exist that is more susceptible to things going wrong?

Deregulated But Very Regulated

Safety factors.
Air traffic controllers. Impact on constituents.

International routes.

Continuing Concerns
1. Fuel costs
2. Decisions regarding passenger services like whether to charge for food, the need for more electronic capabilities. 3. Upgrading aircraft. 4. Route strategies. 5. Union relations. 6. Relations with travel agents.

Needed for the Industry

1. Changes in tax laws as they relate to airlines. 2. Encourage foreign investment in U.S. carriers. 3. Changes to bankruptcy laws to eliminate the ability for airlines to hide from their creditors under court protection.

4. Improve the capacity and capabilities of airports. Airports belong to cities and counties so there is no national-wide plan.

Needed for the Industry

5. Provide a better air traffic control system to minimize flight delays. 6. Continue to negotiate better international rights for U.S. carriers. 7. Gain equalization of the regulatory requirements on U.S. and foreign carriers worldwide. 8. Further eliminate unnecessary and costly regulatory requirements on airlines within the United States.

Airline Industry Conclusions

It is a vivid example of the dynamics of the markets that it serves. Establishing strategies dictated by the market is critical. Once the right strategies have been identified, information systems can play an important supporting role.