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PDtax, Master's Degree
Category: Business and Finance Homework
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Experience:  MBA/CPA, Former college instructor and tutor.
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Select an industry an analyze it by using one, and only one,

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Select an industry an analyze it by using one, and only one, of the five components of the Five Forces Model (Competitive Rivalry, Threats of Substitute Products, Threat of New Entries, Bargaining Power of the Buyers; Bargaining Power of the Suppliers).

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Five forces analysis is used to review competitiveness of an industry. Each of the five measures analyzes a unique component, Competitive Rivalry is our subject, and the US domestic airline industry our target.

This industry is complex, with unique access to airports, routes, and hubs, but similar in cost of airplanes, fuel, and overheads. Competitors who stand out must 'break the mold' or risk being considered a homogeneous airline, with no advantages.

Several carriers offer unique services or cost advantages that make them stand apart from their competitors. Southwest airlines has long offered superior cost structure, and thus lower cost tickets for consumers. More recently, they have fought the industry's add-on fees for services that were once free, such as luggage, pillows and comfort items, and fees for switching flights. Virgin Airlines has taken advantage of both its name and ownership (Sir Richard Branson) recognition to promote its superior flight experiences. Both are examples of competitors with reputations for sustainable advantage through innovation.

Airlines are quick to copy their competitors, so things like price cuts are often matched step for step by rivals, often on the same day. Most airlines fall into the trap of competing on price and destination, and agree to list fares with one-stop shopping sites like Southwest, in a brilliant move, forces you to shop at their web site for tickets. By moving their purchasing to their own avenue, they differentiate themselves again from other airlines selling tickets online. Virgin America also sells its domestic tickets only on its own site, but sells international tickets through the online exchanges.

Virgin does not eliminate fees to the extent of southwest, but are transparent in their fee structure with full disclosure for change fees and the like.

Since the consumer is making many of their own travel arrangements, advertising commitments pointing out advantages have steadily increased.

The mere cost of airplanes limits competition, as do limits to airport access and hub spaces. This concentrates the number of firms, and is another factor in competitive rivalry.

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