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Jill O'Keeffe

on 18 October 2012

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Transcript of SkyWest

Sam Westerkon, Sean Finegan, Rebecca Kornstein, Jill O'Keeffe, TJ Dodd, Michelle Rochman SkyWest, Inc. Five Forces
Analysis Factors Causing Change in the Regional
Airline Industry Faster, more efficient commuter jets
Regional airlines could operate longer routes expanding service areas thus increasing customer base and revenues
They could also run shorter routes more efficiently, reducing costs

Good customer service/satisfaction
Positive Airline Quality Report often led to more customers Factors that Determine Success
for Companies in the Regional
Airline Industry SkyWest, Inc.
Strategy 2. Employees' work on a non-union contract. Competitive Advantages Financials SkyWest, Inc.'s Growth Recommendations SWOT
Availability of fuel
More fuel meant lower costs for regional airlines leading to a better chance of success
People afraid to travel after 9/11
However, people thought regional aircrafts were safe from terrorists Comments/Questions? 1. Capability to maintain aircrafts. Periodic inspections Maintenance training programs Conflict with labor unions and airlines Operated with departures from 208 cities in the US, Canada, Mexico, and the Caribbean
Acquired Atlantic Southeast Airlines, improved greatly their baggage delivery and on time arrival metrics
Has operated at a high level and has been respected in the airline industry despite the current economy
Highest operating revenue of the 5 largest U.S. independent regional airlines The de-partnership of Midwest airlines
Unsuccessful acquisition of ExpressJet in 2008
Fuel cost coupled with airplane sizes - needs larger air crafts in order to compete with Delta and United
Regional airline, could be hard to compete with the Network airlines
9/11 Market Opportunities Factors that Determine
Success for Companies in the
Regional Airline Industry Accommodate business travelers
Expand to countries like Brazil, China and Mexico
Financial opportunities
Use past profits in order to serve business passengers at a low cost
Marketing to regions
Connector flights 5 Forces Model: SkyWest Inc. COMPETING SELLERS: MODERATE
Many competitors: Air Wisconsin, American Eagles Airlines, Comair, ExpressJet, Pinnacle, Republic Airways, Trans State Airlines
Fierce competition with other regional airlines when competing for business of major airlines
Strong competition on pricing
Low switching costs
Direct competition with low cost carriers

Summary: Difficult Industry/Market, Regional Airlines compete for routes offered by Major Airlines; Regional airlines also compete with low cost carriers; helps that SkyWest has reputation for being well run which gives them a competitive advantage THREAT OF ENTRY: WEAK
Extremely high start up costs create barrier to entry
During recession lending standards are tighter (fed subsidies are available though)
Industry as a whole is less attractive because demand is lower
Joint Ventures pose a threat

Summary: Threat of Entry is relatively weak, greatest threat is new joint venture of two existing airlines SUBSTITUTE PRODUCTS: WEAK
Main travel substitutes are trains, cruise ships, car rentals, buses, private jets
The greater the commute, the less attractive the alternative travel options become

Summary: The threat of substitute products is weak. Unless you have access to a private jet, commercial flights are the most viable travel option for long distances. 5 Forces Model SUPPLIER POWER: STRONG
Jet fuel prices increasing
Major Airlines in the red put pressure on regional airlines to accept lower fees/royalties
Employees -Human Resources and Labor Unions (history of strikes that lead to major losses)
Major airlines have bargaining power as many Regional Airlines place bids for their business

Summary: SkyWest has limited control over rising fuel costs, major airlines putting on pressure for lower fees, or Labor Unions lobbying for higher wages/greater benefits (SkyWest is not union whereas ASA is union) 5 Forces Model BUYER POWER: MODERATE
Flights are highly price sensitive
Low switching costs
Leisure buyers typically have more buyer power, flights are cheaper when you buy in advance
Business travellers typically do not plan in advance and pay a premium
Regional flights typically made up of more business travelers

Summary: Buyers have control and price is highly sensitive; business travelers have begun to travel on low-cost carriers 5 Forces Model Strongest: Supplier Power –limited bargaining power with oil companies, major airlines, and labor unions lead to higher overall costs

Weakest: Substitute products – flying commercially is best option when commute is considered to far to drive

Competitors: unattractive, many competitors
New Entrants: somewhat unattractive, requires large capital investment and credit standards are tight following the recession
Substitutes: attractive, commercial flights are most popular long distance travel option
Suppliers: unattractive, suppliers have control
Buyers: unattractive, consumers have control

Overall: Somewhat unattractive industry, SkyWest has an excellent reputation and is operationally efficient which puts them in a good place, but a poor economy, rising costs of fuel and overall costs and increased competition with low-cost carriers hurt the industry's attractiveness 5 Forces Model Summary 5 Forces Model 5 Forces Model Factors that Determine Success
for Companies in the Regional
Airline Industry Resources and Capabilities (Strengths) Weaknesses and Competitive
Deficiencies Factors Causing Change in the Regional
Airline Industry Partnership with a major airline
Lowers costs and increases revenue

A good economy leads to more flyers which increases revenue and success SkyWest, Inc. Strategy 1. Become the airline of choice

2. Expand current partnerships
with other major airlines and
increase geographic growth

3. Develop and maintain high
levels of customer service

4. Develop and maintain a
strong safety image Factors that Determine Success for Companies in the Regional Airline Industry Low cost flights
Could eliminate regional airlines
Buy out from network airline
Need to take over international departures
Another economic recession
Possible terrorist attacks
Rising fuel costs
Expensive safety regulations
Scope clauses Increasing Expenses Expansion of Fleet Operating Revenues of 5 Largest U.S. Independent Regional Airlines Marketing, Customer Service, & Employee Training Eliminate preconceptions that regional airlines are not as safe
Develop a strong program for employee training
Remedy the mishandled baggage and complaint problem International Growth Expand to countries like Brazil, China, and Mexico

Do not venture into mature markets like Europe Diversifying Fleet & Fuel Efficiency Diversify fleet; use more of the Turboprop aircrafts overseas and the Regional jets domestically

Board more of the larger jets to cut down on the number of flights AKA reduce fuel costs Labor Unions & Regulation Liberation from "scope clauses" of major airlines

Create more benefits and incentives for workers to stay out of unions **all numbers are in thousands except shares and ROE External Threats ** all numbers in millions Objectives Discuss the five forces analysis
Understand the factors causing change in the regional airline industry
Determine the factors for success in the regional airline industry
Discuss SkyWest Inc.'s strategy
Perform a SWOT analysis
Understand the financials
Determine recommendations Summary Five forces analysis of the regional airline industry
Factors causing change in the industry and their effects
Key factors that determine success in the regional airline industry
SkyWest, Inc.'s strategy and competitive advantages
SWOT analysis
Analysis of SkyWest, Inc.'s financial situation
Recommendations Factors Causing Change in the Regional Airline Industry Operating Cost Statistics
(costs per passenger revenue mile in cents)
Full transcript