Airline Tickets Market Analysis Frank Kingston

Introduction In my analysis of the airline ticket industry in the United States, I focused on ticket sales from airlines directly to their customers. The market for airline tickets is an example of an oligopoly. This means that there a few firms that dominate the market, and this is the case in the U.S. There is not much differentiation between the products airlines sell and there are low barriers to entry because planes and gates are available for renting and leasing. On-flight food and entertainment, unique destination options, and reward programs are a few factors that affect the value a consumer gets from purchasing an airline ticket.

Porter’s 5 Forces Competition and substitutes: The biggest competitors for airlines are other airlines, and there is intense rivalry on prices. A few substitutes for tickets are train tickets, bus tickets, and cars Barriers to entry: There are low barriers to entry in this market, so startup airlines are constantly popping up. This is because those smaller airlines can rent planes and lease gates at airlines to keep fixed costs low Suppliers: There are only a few suppliers of airplanes in the U.S. because of the huge cost of capital needed to enter the industry. Because of this there are very few suppliers of planes and the suppliers of aircraft, their parts, and airport gates have a lot of bargaining power. Labor supply is also a risk for airlines because their employees are members of a union. Pilots can shut down an airline if they were to go on strike Customers: Individual consumers that buy plane tickets are a diverse group of people with varied reasons for flying. There are low switching costs between firms and most consumers base their choice of airline on their destination and the price at the time. The bargaining power of consumers in this industry is low. The role of government regulation: From 1937-1938 the CAB managed domestic travel like a public utility, controlled fares, routes, and schedules. The airline deregulation act was introduced in 1978.

Market Graph

Conclusion In conclusion, I don’t think it would be wise to enter into the airline ticket market. Even though airlines are part of an important industry that make travel simple and efficient, they have struggled to be profitable in the last few decades. There are many factors that play a role in this, but one of the biggest reasons is the difficulty airlines have in using their planes efficiently. When demand drops, and planes aren't being used, leases and loan repayments still have to be paid, and when demand rises it can take a long time to buy additional planes. They also have to deal with space restrictions at busy airports, landing fees, and limited operating hours. All of these factors and more make it hard for today’s airlines to reach profitability because the fixed and variable costs of running them are so high.