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Identifying Strategic Groups in the U.S. Airline Industry: An Application of the Porter Model

Identifying Strategic Groups in the U.S. Airline Industry: An Application of the Porter Model. Author: JAMES A. KLING and KEN A, SMITH 學生 : 魏國凱 指導老師 : 任維廉教授. Agenda. Background Porter’s generic strategic Data Methodology Groupings and validation of results Conclusion Discussion.

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Identifying Strategic Groups in the U.S. Airline Industry: An Application of the Porter Model

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  1. Identifying Strategic Groups in the U.S. Airline Industry: An Application of the Porter Model Author: JAMES A. KLING and KEN A, SMITH 學生: 魏國凱 指導老師: 任維廉教授

  2. Agenda • Background • Porter’s generic strategic • Data • Methodology • Groupings and validation of results • Conclusion • Discussion

  3. Background • Deregulation(1978) Some airlines have disappeared Financial nosedive into oblivion • Temporary Equilibrium (1991~1994) The nine major U.S. passenger air carrier • Southwest, Northwest, USAir, American, TWA, Continental, America West, Delta, United • These airlines account for 90%

  4. Background • It is valuable to classify airlines based on their competitive strategies. • This type of identification can suggest future strategic directions for airline managers to target or avoid. • We first group the nine major airlines by competitive strategy, using Porter's typology of generic strategies. • Then assess financial performance to validate the appropriateness of the initial strategic groupings. • Finally, discuss the implications.

  5. PORTER'S GENERIC STRATEGIES • Cost leadership • Produce goods or services at a lowest cost • Differentiation • Being unique and for which buyers are willing to pay a premium price • Focus • Serve the needs of specific customer group or market segment • Stuck in the middle • No basis for competitive advantages

  6. Data • Cents per Available seat mile (ASM) • Cost / ASM (X-axis) • Cost to fly one seat one mile • Airline quality rating (AQR) (Y-axis) • Weighted by nineteen factors

  7. Domestic sector financial and operating data

  8. Methodology (I) Differentiation (II) Focus Quality (AQR) (IV) Stuck in the middle (III) Cost Leadership Cost Per ASM (Mean of 8.8)

  9. Groupings and validation of results

  10. Conclusion • (I)Differentiation: American, United, and Delta • Intense competition • (II)Focus: Southwest • Short and high density routes • Low cost and high quality • (III)Cost Leadership: America West

  11. Conclusion The suggestion to “stuck in the middle” firms • Continental • Improve quality to follow Southwest • TWA and USAir • Hard to survive

  12. Conclusion • Northwest • Better financial than other stuck firms • May focus on market segment which doesn’t have severe competition • Porter’s U-shaped relationship

  13. Discussion • 本文在最後提到Porter的U型曲線有點突兀 • 這樣的群組分析在台灣則無法進行，因為台灣航空公司少，且資料也不容易取得 • 為何西南航空的指標會比其他家大型航空公司的服務品質指標要高？ • 散佈圖為何再針對載客旅程做成本方向之調整？調整幅度？作者並未明確說明。

  14. Thank you for your listening

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