Skywest airline case study

Skywest Case

What are the Company's Vision/Mission and Objectives?

Corporate Strategy

Business (Or Competitive) Strategy

Industry Analysis

Competition from Rival Sellers

Competition from Potential New Entrants to the Industry

Competition from Producers of Substitute Products

Supplier Bargaining Power

Customer Bargaining Power

Company Situation Analysis

Strengths

Weaknesses

Opportunities

Threats

What are the Company's Vision/Mission and Objectives?

The company was founded with a vision to be able to connect passengers to smaller airports and smaller routes. It objectives were to maintain a high level of customer service, develop and maintain a strong safety image, maximize on-time arrivals and acquire new aircraft in order to service their customers without compromising their 'scope' contracts.

The company sought to achieve this vision by using strategies, and having alliances and partnerships with other major airlines, and to this end was successful in doing so. Currently, the company envisions itself serving emerging markets such as China, Brazil and Mexico.

Corporate Strategy

The company, SkyWest has been looking at a variety of strategies concerning with how the business environment has been. Initially with the set up of the business in 1972 the company was looking at stability and expansion in terms of alliances, increasing internal capabilities at the same time. The initial step it took was to acquire a company by the name of Sun Aire, which was an external expansion, followed by an alliance with Western Airlines, and then internal expansion by going public and expanding its ownership strength.

Corporate culture tends to plat a very important role in the implementation of strategies, as it is the human resources of any organization that play the most important role in running the company. If the culture is friendly with employees being satisfied, there is a greater chance that they will be loyal to the firm, and will do their work with more dedication.

Moreover remuneration such as the competitive compensation paid by SkyWest, kept its employees happy, and even though they were non-union, they did not demand a union, as all their demands were met by the company without having been demanded. This lent the company flexibility as satisfied employees are more prone to be motivated and willing to participate in change.

Business (Or Competitive) Strategy

SkyWest airlines' business strategy is cost leadership where it is a low-cost carrier, offering a timely, reliable and safe service, without any luxurious frills.

Industry Analysis

The company belongs to the U.S. airline industry operating as a low-cost carrier. The industry analysis is as follows:

Competition from Rival Sellers

The five regional rivals are Mesa Air Group, ExpressJet, Republic Airways and Pinnacle Airlines. However the operating revenue of SkyWest is nearly thrice as much as its second largest rival Republic Ariways (exhibit 5).

Competition from Potential New Entrants to the Industry

This threat is low, as the airline industry is pressured due to high fuel costs and many of the airline companies are making losses, or are barely surviving. Economically, this is not a feasible time to enter as the world is in a recession other reasons for the threat of new entrants being low is that there is a high sunk cost required for setting up airlines, and competition is severe in the mature market which can prove to be a deterrent.

Competition from Producers of Substitute Products

Substitute products for air travel are either through the sea of by road, both of which are tedious, making air travel as a genre not being substitutable in the long run for its convenience and speed.

But as far as substitute categories of domestic air travel are concerned, there are networks, regional and low cost carriers and competition among these is high as there are many companies that operate under each category.

Supplier Bargaining Power

Suppliers have a high bargaining power, as there are two major players, Boeing and Airbus. As far as fuel is concerned, here too suppliers have influence as fuel is a highly demanded commodity, and the demand for fuel tends to be inelastic, making companies very dependent on the fuel suppliers.

Customer Bargaining Power

Customers are plenty in number, but as they have a large amount of choice, as an aggregate customers have power in the sense that the company needs to know their requirements before setting out any particular route or service. However individual customers don't exert any strong influence.

Company Situation Analysis

Strengths

The current ratio of SkyWest for 2008 is strong, being 24 times, indicating that the current liabilities are well covered by current assets for the company.

Interest cover is also strong at 2.4 times, indicating that the company is well set to be able to pay its immediate liabilities.

Gearing Ratio is 1.8 times, which is also a strong indicator of the fact that the firm has a healthy ratio of debt vs. equity financing.

Weaknesses

The ROCE (Return on Capital Employed) is 6%, which is not very high, as banking investments and deposits give better returns.

2008 Operating profit margin is 7.3% and has fallen from the 2007 Operating profit margin which was 10.2%.

Return on Assets went down to 2.8% from 3.9 in the previous year, as did Earnings per share, which decreased from 2.54 to 1.95

Opportunities

Business travel is on the rise, as people are looking at all avenues for profits and they are the most profitable travelers for the airline industry as they need to be on time and consider reliability a priority.

Threats

The air travel industry is cyclical and the recent recession has caused travel to go down for three consecutive years as reported by IATA (Pg 199)

Fuels costs are increasing prices of air travel as compared to driving