Blog Post #5: How do we define the type of market that the airline industry is apart of?

When we look at the airline industry, it's clear that the market is different from many others. Specially, when we consider how drastically changes at one airline effect the entire industry, we can see that the industry is dominated by a few large competitors. Also, there are significant barriers to entry in the airline industry when we consider the cost of entry and the competitive forces of the large already existing airlines in the market.



The airline industry's market would be best described as an oligopoly. The characteristics of an oligopoly market mainly are a market dominated by a hand full of large firms partnered with high barriers to entry. Recognizing the type of market that the airline industry operates within is important when we think about some of the variables that influence performance. One of the common themes that we see in the airline industry is one that is full of mergers. In the industry there are a few large competitors that control the majority of the market and then there are many other small companies that control less of the market. when a smaller company is not preforming as well as it needs to be in order to stay in the market, we often see mergers where a dominant force in the market buys the under-performing company.

This pie chart shows how the airline industry in the U.S. is dominated by American Airlines, Delta, Southwest and United. On comparison, the other many airlines that operate in the industry make up a small amount of the market.




Southwest Airlines, (the largest domestic carrier in the U.S.), bought a smaller struggling company called AirTran back in 2011. Rather than liquidating the company, AirTran management decided to sell the company to Southwest for 1.4 billion (Bureau of Transportation Statistics). This merger was a huge undertaking for Southwest particularly in regards to how it was going to have to deal with the existing staff at AirTran. Seniority liberties for the integrated AirTran pilots made up most of the major complications throughout the transition, but for the most part the merger has gone smoothly, as the chart to the right  suggests.

When we look at different market places we need to be able to decipher what type of markets we are dealing with in order to know what operating in the industry entails, especially in terms of competition and accessibility. Hopefully this blog is helpful in it approach to discussing what type of market the airline industry operates within.