A Case Study of SkyWest Inc.
1. What are the general economic condition of the U.S. regional airline industry macroenvironment? What is the relationship of the industry to the national and global airline industries……
2.What does a Five Forces analysis of the industry tell you about competition in the regional airline industry…Which forces tend to be the strongest….The weakest…..
3.What factors are causing change in the regional airline industry? What is the individual and collective impact of these changes on the regional airline carriers…..
4.What are the key factors that determine success for the companies in the regional airline industry?
5.what is skywest, Inc.’s strategy? What kind of competitive advantage is it trying to achieve?
6.What is skyWest’s competitively important resources and capabilities? What are its resource weaknesses and competitive deficiencies? Its market opportunities? Its external the threats…..
7.What does an analysis of the SkyWest, Inc.’s financial statements reveal about the company’s performance…..
8.What recommendations would you make to the management of the SkyWest,Inc. to strengthen the company’s competitive position and improve its financial performance…..
A number of external factors have affected the US regional airline industry. Most of these factors are detrimental. The prevailing economic times are hard, forcing major stakeholders in the industry to look for better strategies to cope. One major issue is the increased and the fluctuating cost of fueling the jets. This forms a bulk of the expenses of the regional airlines. According to Platzer (2009), there has been a rapid decline in the number of planes ordered by regional airlines (p. 6) owing to the cost of acquiring funds to purchase new and more effective jets. Most regional airlines are still recovering from the economic recession that was with us a few years ago. New regulations have been put in place which require the airlines to comply with, further increasing costs incurred. Enhanced security has become a priority following terror attacks. This has resulted in long checks for customers, a bother which has made a lot of clients reluctant to travel because of the hustle involved. The entrance of new manufacturers of jets into the market could turn out to be beneficial to the industry. We might have better planes at a lower cost.
These economic factors have not spared the national and international airlines, with most of them having to drop some of their flights. New collaborations with regional airlines have become necessary.
A five forces analysis of the industry indicates that most of the factors are relatively stable. The strongest forces are the supplier and buyer powers. Though SkyWest has reliable suppliers for its jets, factors such as the cost of fuel and maintenance costs are key concerns, especially for the older jets. SkyWest faces stiff competition from the existing airlines such as Southwest, Frontier and Midwest airlines. New players and substitute problems are the least likely forces to affect the industry. It is very hard for new entrants in the market to prosper. Customers do not prefer to use rail, road and water transport as substitutes to air travel due to the many inconveniences. Air travel is convenient, fast, safe and quite affordable.
A variety of factors are responsible for the changes being experienced in the regional airline industry. One such force is the difficult economic times. Major national airlines have been forced to abandon some flights, thus creating more room for growth of the regional airlines as they attempt to cope with the expanding market. In a bid to cut down on costs, national and global airlines have entered into agreements with regional airlines. The political climate has also changed how the industry conducts business. According to “USA today” (2009), “aviation industry experts said the changing conditions reflect the broad restructuring of the industry after Sept. 11, 2001, when air travel dropped sharply and major airlines began pairing with regional ones.” (para 4)This reflects how terrorist activities affected the industry. These changes have impacted strongly on individual airlines, with some having to close done operations while creating opportunities for others to team up with global airlines. Most had to find coping strategies, as the impact was apparent across the whole industry.
The key factors that determine the success of companies in the regional industry include the ability to utilize economies of scale, capacity to enter into agreements that benefit both parties, the capability to adapt promptly to adverse outcomes and investing on strategies to fight off the stiff competition. Strategic and contingency plans are essential for success.
SkyWest’s strategy is to increase its customer coverage base by entering into partnerships with other major airlines while acquiring new operations. It has contractual agreements with United Airlines, Delta Airlines and US Airways. It also recently acquired ExpressJet Airline. The strategy is to cut down on costs while bridging the regional gap. Having contracts with large couriers diversifies its risk. It does not have to depend on one big client. Rather, it has many reliable customers. Its strategy is meant to establish the company as the number one regional airline in the United States. Its customers can go to more destinations at reasonably fair SkyWest greatest capability is its attractiveness to global airways. Its capacity to maintain a variety of well maintained and constantly upgraded aircrafts enabled it to be the choice of major airlines seeking partnerships. Its pilots work on a non union contract since its inception, a fact which gives the company a strong advantage. Its major weakness is its history with flight cancellation, delays and bad luggage handling. The delays could be attributed to large aircrafts being given priority in landing as opposed to the small airplanes. Contracts with global airlines undermine the independence that regional airlines would desire. Flight schedules and landing privileges are also affected. Its market opportunities are enhanced. Threats, especially in form of competitors, are rife.
An analysis of the company’s financial reports shows that the recent acquisition of ExpressJet Airline has brought significant changes in its operations. According to “SkyWest Inc News Release” (2011),”during the quarter ended September 30, 2011, SkyWest experienced a reduction of approximately $41.4 million in pretax earnings compared to the same period the previous year.” (para. 2) This reduction in profit was largely attributable to its acquisition of ExpressJet Airline, a move which increased its operating costs. The company had to bear a loss from the new acquisition. Given the circumstances, this is not good, but it is not too shabby either.
My recommendation is that the company should prepare for future acquisitions more vigorously. I believe the company did not fully consider the implications of the action. This has resulted in a big blow, which might be difficult to recover from. Reaching out to other airlines and creating more contractual agreements will strengthen its position as a regional airway.
Platzer M. (2009 Dec). US Aerospace Manufacturing: Industry Overview and Prospects. Congressional Research Service
SkyWest Inc. News Release. (2011) SkyWest announces third quarter 2011Results. Retrieved February 6, 2012 from http://inc.skywest.com/invest/investor_releases/SKYW%20Earnings%203Q11v3.pdf
Swaim R. (2009)The Strategic Drucker; Growth strategies and Marketing insights from the works of Peter Drucker.
USA Today. (2009). Airline industry changes raise safety issues. Retrieved February 6, 2012 from http://www.usatoday.com/news/nation/2009-05-16-airline-pilots_N.htm
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