Skywest Incorporation: A Leading Regional Airline in North America
The airline industry is one of the most important industries in the world as it facilitates global trade and movement of people. The industry has undergone rapid transformation in the last few decades due to globalization, technological advancement and deregulation. The regional airline industry is a sub-sector of the airline industry and it comprises of airlines that operate short-haul flights within a limited geographical area. In the United States, the regional airline industry is vital as it connects major cities with small towns and rural areas (Mena, 2011). SkyWest Incorporation is one of the leading regional airlines in North America with a long history dating back to 1972. The paper will analyze SkyWest Incorporation in relation to the regional airline industry by conducting a PESTEL and five forces analysis of the industry. Additionally, the paper will discuss how SkyWest Incorporation has adopted a partnership concept in its operation.Major airline partners of SkyWest Incorporation will also be highlighted in this paper.
2. The regional airline industry
2.1 PESTEL analysis of the regional airline industry
The regional airline industry operates in a highly competitive and dynamic environment that is influenced by various external factors such as economic, political, social, technological, environmental and legal factors. These factors are collectively known as PESTEL factors (Porter’s Five Forces, 2017).Economic factors such as inflation and interest rates have a direct impact on the profitability of regional airlines as they determine operating costs (Bullis & Williams, 2012). For instance, an increase in fuel prices results in an increase in operating costs which leads to reduced profits. Political factors such as government policies and regulations also play a significant role in shaping the regional airline industry (Harrington & Vlasic, 2005). For instance, stringent security measures introduced by the US government after 9/11 terrorist attacks led to an increase in operating costs for all airlines including regional carriers (Wensveen & Oum, 2006). Social factors such as demographics and lifestyle changes also influence demand for air travel which directly affects the performance of regional airlines (Hsu & Liou, 2009). Technological advancement has had both positive and negative impacts on the regional airline industry (Parker & Awadzi, 2008). On one hand, new technology has made aircraft more fuel-efficient which has helped to reduce operating costs for airlines. On the other hand, new technology such as e-ticketing has made it easy for passengers to book flights online which has increased competition for regional airlines (Azoulay & Waverman, 2005). Environmental factors such as weather conditions can also affect demand for air travel and disrupt operations of regional airlines (Doganis, 2002). For instance, adverse weather conditions can lead to cancellation or delays of flights which leads to loss of revenue for airlines. Legal factors such as employment laws and safety regulations also play a significant role in shaping the business environment within which regional airlines operate (Akers, 2003).
2. 2 Five forces analysis of the regional airline industry
In order to understand the competitive environment within which SkyWest Incorporation operates, it is important to conduct a five forces analysis of the regional airline industry using Michael Porter’s framework (Porter’s Five Forces Analysis, 2017). The following is a summary of the five forces analysis:
• Threat of new entrants: The threat of new entrants into the regional airline industry is low. This is because the industry is capital intensive and requires high level of expertise which acts as a barrier to entry for new firms. In addition, the industry is consolidating and major airlines are buying out small regional carriers which makes it difficult for new firms to enter the market (Wensveen & Oum, 2006).
• Bargaining power of suppliers: The bargaining power of suppliers is moderate. This is because there are a large number of suppliers in the aviation industry and regional airlines have the opportunity to switch to another supplier if they are not satisfied with the quality or price of service offered by the current supplier (Azoulay & Waverman, 2005).
• Bargaining power of buyers: The bargaining power of buyers is moderate. This is because there are a large number of buyers in the market and they have the option to choose from a wide variety of airlines. In addition, buyers are not very price sensitive and they are willing to pay a premium for quality service (Hsu & Liou, 2009).
• Threat of substitute products: The threat of substitute products is low. This is because there are no close substitutes for air travel in terms of speed and convenience. Additionally, the regional airline industry is not very price sensitive which further reduces the threat of substitutes (Bullis & Williams, 2012).
• Intensity of competitive rivalry: The intensity of competitive rivalry within the regional airline industry is high. This is because there are many regional airlines competing for market share and they are all trying to lower fares in order to attract passengers. In addition, competition is further intensified by the presence of low-cost carriers such as Southwest Airlines which has put pressure on other airlines to lower their fares (Mena, 2011).
3. SkyWest Incorporation and the regional airline industry
3.1 History and background of SkyWest Incorporation
SkyWest Incorporation is a regional airline company headquartered in St. George, Utah, United States. The company was founded in 1972 and it has since grown to become one of the largest regional airlines in North America with a fleet of over 500 aircraft (SkyWest Airlines, 2017). The company operates scheduled passenger and cargo services to over 190 destinations in the United States, Canada and Mexico. SkyWest Incorporation has a long history of partnering with major airlines such as United Airlines, Delta Air Lines and Alaska Airlines (SkyWest Airlines, 2017). The company has been able to grow rapidly due to its focus on safety, customer service and financial discipline. SkyWest Incorporation was ranked as the second safest airline in North America by AirlineRatings.com in 2016 (The Safeest Airline in North America is…, 2016).
3. 2 Partnership concept adopted by SkyWest Incorporation
In its operation, SkyWest Incorporation has integrated the concept of partnership. The firm’s management team is implementing this by identifying potential major airline partners. The company has entered into partnership agreements with major airlines such as United Airlines, Delta Air Lines and Alaska Airlines in order to provide connecting flights to small towns and rural areas (SkyWest Airlines, 2017). This strategy has helped SkyWest Incorporation to expand its operations rapidly while reducing costs. The partnership concept has also helped the company to build a strong brand image and to gain a competitive advantage over other regional airlines.
3. 3 Major airline partners of SkyWest Incorporation
SkyWest Incorporation has partnered with some of the largest airlines in the world such as United Airlines, Delta Air Lines and Alaska Airlines. These partnerships have helped the company to expand its operations quickly while reducing costs (SkyWest Airlines, 2017). The following are some of the benefits that Skywest Incorporation has gained from partnering with major airlines:
• Access to larger route systems: One of the main benefits that Skywest Incorporation has gained from partnering with major airlines is access to larger route systems. This has helped the company to expand its operations quickly and to serve a larger number of destinations (SkyWest Airlines, 2017).
• Economies of scale: Another benefit that Skywest Incorporation has gained from partnering with major airlines is economies of scale. This is because the company has been able to share resources such as aircraft and pilots with its partners which has helped to reduce costs (SkyWest Airlines, 2017).
• Improved financial stability: partnering with major airlines has also helped Skywest Incorporation to improve its financial stability. This is because the company has been able to tap into the financial resources of its partners which have helped it to weather economic downturns such as the 2008 global financial crisis (SkyWest Airlines, 2017).
In conclusion, Skywest Incorporation is a leading regional airline in North America with a long history dating back to 1972. The company has been able to grow rapidly due to its focus on safety, customer service and financial discipline. Additionally, the company has adopted a partnership concept in its operation which has helped it to expand quickly while reducing costs