Business strategy fundamentals and application

Business

The Competitive Strategy of U.S. Airways

Michael Porter argued that for a company to be successful it needed to gain some type of advantage over its' competitors (Mintzberg et al., 2008). The way in which a firm may gain that advantage was defined in the Porters' generic strategies, in which he argued there were two main ways in which an organization may gain a competitive advantage; the cost advantage or advantage by differentiation (Mintzberg et al., 2008). In literature many companies are utilized as examples that typify different types of advantage; in most cases they are companies that demonstrate strong characteristics with one of the advantages. However, when examining the case of U.S. Airways, in maybe argued that the difficulties faced by the firm over the last few decades have been the result of its lack of effective competitive advantage. In order to assess U.S. Airways it is necessary to briefly consider Porters' generic strategies and then consider the way strategies utilized by this American airline in order to compete.

The cost advantage is gained when an organization is able to achieve a superior profit of organizations in the same industry (Mintzberg et al., 2008). The organization will supply service that is of an acceptable quality, but at a lower cost to itself compared to its competitors (Mintzberg et al., 2008). In order to gain a cost advantage firms that is utilized the strategy need to identify their major cost drivers, and implement effective cost control strategies to reduce both their overheads and operating costs. The size of an organization may have an impact on this strategy, as the economies of scope and scale have the potential to impact greatly on the underlying cost structure (Baye, 2007). Firms that gain a cost advantage are likely to be highly efficient, and are also likely to have access to low-cost capital (Mintzberg et al., 2008). The cost advantage can only be gained by one firm in each sector (Mintzberg et al., 2008).

Differentiation is the advantage gained by a company when they offer a unique feature or characteristic on the product or service which is not offered by other companies (Mintzberg et al., 2008). The characteristic will only be advantage if it is one that is valued by the customer, but it can be tangible or intangible (Mintzberg et al., 2008). For example, a tangible benefit may be a physical characteristic associated with the product or service, for example an extra function on a good, or an added service, or and intangible aspects such as a reputation (Mintzberg et al., 2008). A key aspect of the differentiation is that the cost of creating the advantage should create a premium in price above the cost of its supply (Mintzberg et al., 2008). Firms that seek to compete using differentiation need to make themselves different from other firms, which may include leveraging sources of innovation, as well as having a strong sense of the marketplace in order to identify ways in which they may create differences which is valued by consumers (Mintzberg et al., 2008).

Examining U.S. Airways it is apparent that the organization does not have superior profits to other airlines; the 10-k for 2012 showed a net profit of 4.61% to 2012, while the firm has a better profit margin compared to some other airlines, it is lower than some other airlines, including American Airlines and Southwest (Yahoo Finance, 2013). As it is not have a superior profit margin the company is not a firm with a cost advantage. Therefore, this leaves the competitive advantage of differentiation.