Case study 1: The European Airline Industry
Q1. Evaluate how the rivalry among existing firms has developed after 2004. (no
more than 400 words)
A1. Rivalry among existing firms has developed for several reasons:
First, it is because of more and more companies realize the profitability of the airline
industry.As the table shows that both average AEA operating margins of before
interest and after interest were increasing obviously from 2004 to 2007. And it is
worth noting that both average AEA operating margins reach the breakeven point and
keeping increasing from 2004. The statistics mentioned above all indicate from 2004
airline industry become profitable.From 2004, AEA market share of the 4 and 8
largest airlines were decreased. It mean
s that the top largest airlines鈥?nbsp;market influence
are decreased and monopoly situation become weak. Then the other airlines
companies has more market share, so the top largest airlines will have more
competitors. So when the profitability were found, more competitive companies came
to the airline industry. And while the top airlines power were weaken from the impact,
airline industry became more competitive. As a result rivalry among existing firms
has developed.
Second, the revenue passenger kilometers (RPK) increased quickly from 656,677mn.
to 781,165mn. from 2004 to 2007. Same as the RPK, cargo tonne kilometers
increased from 36,009mn. to 38,635mn.. It indicate that the demand of cargo transport
and passengers were increasing, which lead to a significant increase in supply.
However, the high market share companies can not satisfy the increasing demand of
passengers and cargo transport. Giving the competitive companies with lower market
share a chance to get more customer. As a result, rivalry among existing firms has
developed.