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Marketing Environment Analysis1.docx

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Boston College
MKTG 1021

Marketing EnvironmentAnalysis: Analysis of the external environment: Over the last five years, the Domestic Airlines industry has remained level with revenues growing marginally at 0.7% to $164.6 billion and the International Airlines industry has experienced ups and downs but is currently at a level of $60.6 billion in revenues. Industry profitability and demand have been threatened by rising fuel prices and the corresponding increase in ticket prices, particularly in 2009 when the recession further decreased demand. Fortunately, beginning in 2010, airlines were able to turn a corner as more passengers boarded domestic flights due to improving economic conditions along with hefty cost-cutting measures by international airlines. Revenue is anticipated to increase 5.3% from 2012 to 2013 in the DomesticAirlines industry and to grow at 7.0% in the InternationalAirlines industry. Over the five years to 2018, the domestic airlines industry revenue is expected to grow at 5.0% to $210.4 billion and international airlines industry revenue is forecasted to increase at 2.3% to $67.9 billion. As consumer and business sentiments recover and spending increase, heavy passenger traffic will return. Open sky agreements and foreign tourists coming to the United States encouraged by another cycle of depreciation of the US dollar will also aid demand. Future profit will largely depend on volatile fuel prices, along with airline's capacity to effectively hedge against changing prices and increases in the cost of greenhouse gas emissions. Innovative fuel-efficient aircraft will boost operator competitiveness in the global market. Competitive Landscape: Over the past five years, industry participation has declined as a result of mergers and acquisitions, consolidations and bankruptcies. With the top four industry players combining for about 49.7% of industry revenue in 2013, the Domestic Airlines industry has a medium level of concentration. Meanwhile, the International Airlines Industry is classified as having a high concentration level with the top four industry players are estimated to hold a combined market share of more than 70.0% in 2013, up significantly from their combined 50.0% market share in 2008. Delta Air Lines and Northwest Airlines merged in 2008 nearly doubling their market share and creating the world's largest airline at the time and United Airlines and Continental Airlines merged in 2010, taking the place of the world's largest airline. In November 2011, American Airlines filed for bankruptcy protection and in February 2013, American Airlines and US Airways agreed to merge, and will supersede the competition as the world's largest airline (measured by miles travelled). These trends point out that many airlines are having trouble sustaining operations. Airlines lack of profitability caused many firms to leave the industry or consolidate. In 2010, the industry regained profitability. Low-cost airlines, such as JetBlue Airways Corporation, have been most profitable in the industry, which is expected to encounter further structural changes in the form of mergers and acquisitions, given such competition from low-cost airlines. Analysis of Competitors: United Continental Holdings: As the world's largest airline with a 26.6% market share in the international airlines industry and a 14.7% market share in the domestic airlines market, United Continental services about 5,656 flights a day to 376 airports on six continents. The airline's hubs are in Chicago, Cleveland, Denver, Guam, Houston, Los Angeles, New York/Newark, San Francisco, Tokyo and Washington, D.C. One of United Continental's major strengths is that it is a founding member of Star Alliance, an international global alliance network that provides service to 189 countries via 26 member airlines. Therefore, UCH ser
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