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MNG93002 Strategy and Case Analysis
Assessment 2 – Background Information
US airlines – Case Study
The United States Airline Industry
The U.S. airline industry has long struggled to make a profit. Analysts point to several
factors that have made the industry a difficult place in which to do business. Over the years,
larger carriers such as United, Delta, and American have been hurt by low-cost budget
carriers entering the industry, including Southwest Airlines, Jet Blue, AirTran Airways, and
Virgin America. These new entrants have used non-union labor, often fly just one type of
aircraft (which reduces maintenance costs), have focused on the most lucrative routes,
typically fly point-to-point (unlike the incumbents, which have historically routed passengers
through hubs), and compete by offering very low fares. New entrants have helped to create a
situation of excess capacity in the industry and have taken share from the incumbent airlines, which often have a much higher cost structure (primarily due to higher labor costs).
The incumbents have had little choice but to respond to fare cuts, and the result has been a
protracted industry price war. To complicate matters, the rise of Internet travel sites such as
Expedia, Travelocity, and Orbitz have made it much easier for consumers to comparison
shop, and has helped to keep fares low.

Beginning in 2001, higher oil prices also complicated matters. Fuel costs accounted for 32%
of total revenues in 2011 (labor costs accounted for 26%; together they are the two biggest
variable expense items). Many airlines went bankrupt in the 2000s, including Delta,
Northwest, United, and US Airways. The larger airlines continued to fly, however, as they
reorganized under Chapter 11 bankruptcy laws, and excess capacity persisted in the industry.
The late 2000s and early 2010s were characterized by a wave of mergers in the industry. In
2008, Delta and Northwest merged. In 2010, United and Continental merged, and Southwest
Airlines announced plans to acquire AirTran. In late 2012, American Airlines put itself under
Chapter 11 bankruptcy protection. US Airways subsequently pushed for a merger agreement
with American Airlines, which was under negotiation in early 2013.

MNG93002 Strategy and Case Analysis
Assessment 2

Due Date: 9:00 am (AEST), Monday, April 15, 2019
Value: 40% (marked out of 40)
Instructions:
This assessment focuses on the student’s understanding and application of strategic concepts associated with Strategic Position and
Strategic Choice; outlined in Parts I and II the textbook.
Read the short account of the US airlines industry provided in the Task 2 folder (Assessment 2 – Background Information) and
prepare a 2500-word report that addresses the following:

• Conduct a PESTEL and competitive forces analysis of the U.S. airline industry. What does this analysis tell you about key
drivers for change, industry attractiveness, potential opportunities and possible threats?
• Given your analysis if the Strategic Position of the US airlines industry, what Strategic Choices do you think an airline
should adopt to improve its chances of being persistently profitable?

Report Structure:
Note: Executive Summary, Table of Contents and Reference List do not contribute to the word count.
Section Content
Assignment Cover Sheet Assignment/student information
Title Page This is developed by the individual student. Identify the unit name & code, assignment title,
student name & ID, and the word count.
The title should provide insight into the focus of the report.
The Title Page is not numbered.
Executive Summary A brief overview of the importance of the topic and the aim and findings of the report. Must be on
a page by itself that is numbered in roman numerals.
Table of Contents Professional presentation using MSWord Insert Table of Contents function.
On a page by itself and numbered in roman numerals.
Introduction “Page 1” begins here at the bottom right hand corner. Use the ‘page number’ formatting function
for this purpose. The remaining pages should then be numbered ‘Page 2’, ‘Page 3’, etc.
Provide topic orientation (what is the topic and why is it important), state the aim of the report,
define any key terms and outline what will be presented in the report.
Body
Do not use this word.
Develop appropriate
heading(s).
Context: Historical overview of the economic performance of the US airline industry
Theory: Explanation and relevance of Strategic Position/Choice, PESTEL analysis, five forces tool
and its advantages and disadvantages and relevant strategic choice concepts.
Analysis: PESTEL analysis identifying key drivers, five forces analysis of US airline industry with
diagram summarising main findings.
Discussion: Evaluation of key drivers of change, industry attractiveness, potential opportunities and
possible threats. Application of strategic choice concepts to potential strategies for profitability.
Conclusions Restate the aim of report and its significance (i.e. the aim). Summarise findings/evaluation. State
limitations of report.
Recommendations List in dot point short sentences the strategies for airline profitability
List of References Correctly apply Harvard referencing style.
Appendices Any additional information if required.
Report Format:
• Perspective – Use 3rd
-person perspective when writing.
• Font style – Times New Roman, 12pt, justified, 1½ line spacing.
• Margins – top and bottom to be 2.54cm. Left and right to be 2.54cm. No page borders.
• Spelling – specify Australian English language/grammar when running spell-check.
• Writing – Grammar and expression must conform to the standards of a professional academic report.