Airline Industry Structure

Structure, conduct and performance are the three building blocks of industrial organization. Structure is best thought of as those things which are mostly outside of the control of the industry participants. They are the things that are the same for everyone. They can and do change over time. Some become more important while others become less important. However, at any given point in time they set the stage to be performed on.

For the airline industry several structural elements are present:
Regulatory environment
Fuel prices
Foreign exchange rates
Interest rates
Demand
Aircraft technology
Etc.

Structure also encompasses the relationships to other industries or averages. It is often said that the airline industry is capital intensive, or labor intensive. It is also said that the industry is highly leveraged or has high fixed costs. These statements are all true to an extent and the relationships do not move quickly over time.

The most important thing about the structure of the airline industry is that while management needs to understand and look for ways to address the inherent strengths and weaknesses it provides to their individual companies, structure also needs to be recognized in order to find those aspects of an airline that can be made truly unique in order to compete as differentiated players.

As the new decade begins the airline industry structure continues to evolve. Issues like security have become more important while new structural issues like the advance of social media are reshaping the stage. Good luck and hard work will determine the airline winners in this decade just like the past ones. To all my airline friends have fun and enjoy the twelfth decade of flight!