1. Conduct a competitive forces analysis of the U.S. airline industry. What does this analysis tell you about the causes of low profitability in this industry?

2. Do you think there are any strategic groups in the U.S. airline industry? If so, what might they be? How might the nature of competition vary from group to group?

3. Given your analysis, what strategies do you think an airline should adopt in order to improve its chances of being persistently profitable?

Just two companies, Boeing and Airbus, have long dominated the market for large commercial jet air-craft. In early 2012, Boeing planes accounted for 50% of the world’s fleet of commercial jet aircraft, and Airbus planes accounted for 31%. The reminder of the global market was split between several smaller players, including Embraer of Brazil and Bombardier of Canada, both of which had a 7% share. The overall market is large and growing. Demand for new aircraft is driven primarily by demand for air travel, which has grown at 5% per annum compounded since 1980. Looking forward, Boeing predicts that between 2011 and 2031 the world economy will grow at 3.2% per annum, and airline traffic will continue to grow at 5% per annum as more and more people from the world’s emerging economies take to the air for business and pleasure trips. Clearly, the scale of future demand creates an enormous profit opportunity for the two main incumbents, Boeing and Airbus. With five producers rather than two in the market, it seems likely that competition will become more intense in the narrow-bodied segment of the industry, which could well drive prices and profits down for the big two incumbent producers.