D o a Structural and Five Forces Analysis of the Industry that America Airlines is in.

Then d o a Five Forces Summary

Detailed Instructions to follow:

Structural or Five Forces Analysis of the Industry

The analysis MUST be completed with a numerical ranking of 1-10 for each force, including empirical data, analysis and logic provided to justify the ranking.

• 1 = very low intensity of the competitive force
• 10 = maximum intensity of the competitive force

Note: A lower number = less intense competitive force = higher profitability (all things being equal). a) Rivalry or direct competitors In this section, you can identify factors such as:

• Identify all major firms competing head to head i.e. direct competitors (that segment from the Strategic Group Map in which your firm is located)
• If possible, calculate concentration Ratio if possible - i.e. top 4 firms account for what percentage of industry revenues (will review in class);
• Industry annual growth rate vs GDP growth rate? faster or slower or same? If cannot find industry revenue use a large incumbent as a proxy (e.g., revenue growth of Microsoft in the software industry) and compare to GDP growth.
• Industry ROIC if available (please note that this may not be available)?
• If available, fixed costs as percentage of industry assets (e.g., can use a proxy from a major firm by looking at their financial statements)?
• Discuss whether a commodity industry with no differentiation?
• Subject to foreign competition or protected by government laws or regulation? e.g., foreign firms can NOT buy Canadian airlines or telecoms

Note: You are NOT analyzing competitors you are analyzing STRUCTURAL conditions of the industry to determine industry attractiveness

Important: You must address the questions from the text and the course slides under each of the 5 Forces

b) Threat of Entry In this section, identify and analyze any barriers facing potential entrants, including:

• average capital investment needed to enter the industry (e.g., use proxy from major firm in financial statements or see such sources as Stats Canada for some industries);
• discuss presence of strong brand names among existing firms;
• discuss economies of scale;
• government regulation e.g. CRTC, Investment Canada Act
• patents.
• Discuss any deep pocketed incumbents and impact on threat of new entrants.
• provide quantitative or empirical data where possible if not, please discuss qualitatively each barrier. Review textbooks and slides for barriers.

Important: Do NOT title the heading Barriers to Entry. It is a Threat of Entry. You are examining and analyzing barriers to entry to determine the threat of entry.

• low barriers to entry = high threat of entry
• high barriers to entry = low threat of entry

c) Substitutes

A substitute is a product with similar NOT identical functionality (e.g. car vs plane)

MUST identify substitutes if any. For instance, oil is a substitute for natural gas which is a substitute for coal which is a substitute for solar which is a substitute for wind etc

Note: Many industry associations or Stats Canada provide a chart or table that lists the relative market share of each type 10 years ago, 5 years ago, and today to demonstrate relative shifts (e.g., bottled water is going up while relative liquor consumption is declining).

In this section, discuss the substitutes according to price and value and use data to enable comparisons (where available):

• where possible make a table that lists annual gallons or ounces consumed PER CAPITA or annual dollars spent PER CAPITA, by consumers on milk, water, juice, new age, energy, wine, beer, liquor, etc.
• identify and analyze the number and functionality or utility of substitutes available, including the price-value relationship between the product and the substitute (e.g., return airplane ticket from Ottawa to Toronto around $200 versus average cost of $50-$100 to rent a car)

d) Power of Suppliers

In this section:

• identify the aggregate numbers of firms and revenues in the supplier industry (if available, if not please discuss);
• analyze the availability of substitutes for the products supplied;
• if possible identify whether the supplier industry is concentrated or fragmented (i.e., less than 5 firms account for more than 50 percent of industry sales);
• determine whether suppliers are price takers or price makers

e) Power of Buyers: Customers and Consumers

In this section, you may:

• identify the aggregate number of buyers/consumers. Use the NAICS code for industry buyers if possible.
• analyze buyer power under the categories of:
  • Customers distributors or retailers (i.e., NAICS code for corporate buyers);
  • Consumers final end buyer (i.e., you and I).
• Analyze whether buyers/customers are concentrated or fragmented.
  • Can buyers/customers threaten to backward integrate?
  • Are there switching costs? If so, you must analyze them.
  • Is the product a commodity that gives buyers more power if there is no differentiation between the commodities except price?

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Five Forces Summary This section MUST provide:

• a summary of the five forces, with an overall numerical ranking (the average of the 5 individual rankings). Which forces are the most important (i.e., intense)?
• Keep it brief.

Driving Forces

Note: Driving forces are those STRUCTURAL or permanent trends in the macro or industry environments that cause one or more of the five forces to increase or decrease in intensity.

Do NOT cite CYCLICAL trends e.g. interest rates, economic growth, unemployment, exchange rates

In this section, you should:

• identify and analyze the driving forces and state which competitive force is being affected by the driving force
• identify whether the identified competitive force is being made less or more intense

The purpose of Driving Forces analysis is to transform Porters five forces model, which is a static snapshot at one moment in time, into a dynamic video of the industry that measures industry change over time.