American Airlines: Competitors and Five Forces Analysis

American Airlines: Major Competitors and Five Forces Analysis

The major competitors of American Airlines are likely to be low-cost or 'budget' airlines such as Southwest and Jet Blue. Given the recent troubles Jet Blue, Southwest may pose the most daunting threat. Cost is still they key motivating factor in deciding what airline to fly for many American travelers. Southwest has remained profitable, despite being hard-hit by recent political and national disasters like all of the major airlines. Even though Southwest is a regional carrier and does not pose a threat to American Airlines for its international travel routes, American Airlines still accrues a fairly substantial amount of revenue from domestic travel. Now, with just a click of the mouse, consumers can access websites and go fare-shopping for the lowest cost airline for their destination, which is quite often Southwest in many areas of the country. Although American Airlines is still the world's largest airline, it cannot afford to be complacent about the threat posed by budget, regional carriers ("American Airlines struggling to hang on to price-shopper market" 2005, Reuters).

But what of business travelers, typically the money-makers of the airline travel industry, as they have no recourse but to fly at a moment's notice, often on the company's dime? Although less price-sensitive than leisure travelers, businesses are being more careful about how and where they send their corporate representatives. This has caused Delta Air Lines to slash the fares used mostly by business travelers ("American Airlines struggling to hang on to price-shopper market" 2005, Reuters). American Airlines will need to follow suit, which may cause a dip in revenue, but will be necessary to remain competitive.

Thus even non-budget competitors such as Delta and Continental pose a considerable threat regarding pricing initiatives. Continental is targeting the price-sensitive market through fare cuts and incentives that make use of innovative technology such as promising "customers who find a lower fare on another travel Web site will be refunded the difference and be given a $50 voucher for future travel" ("American Airlines struggling to hang on to price-shopper market" 2005, Reuters). Furthermore, while it is true that American recently implemented a refund and $50 voucher guarantee for consumers who find a lower possible fare to their destination, also to keep up with pricing pressure from low-cost carriers, Continental had already implemented such a guarantee first. This may contribute to the industry perception that once-dominant American Airlines is merely playing catch-up with even major carrier rival in terms of consumer incentives and is not offering substantial product innovation and superior customer service. ("American Airlines struggling to hang on to price-shopper market" 2005, Reuters).