SkywestJustin Flatt Mgmt. 439.01 March 8, 2012
Case Study #3
SkyWest, Inc., and the Regional Airline Industry in 2009 Situation: The regional airline industry specializes in short-haul flights that operate to serve as feeder airlines transporting passengers to and from major hub airports that have larger aircraft and the ability to cover a larger geographical area. Regional airlines partner with major airlines to create an efficient hub and spoke system. Major carriers pay regional airlines a fee for every departure. This allows regional airlines to develop a customer base and establish a revenue stream. Regional airlines are controlled by or have contracts with major carriers to secure flights but because one cannot exist with the other, the relationship between regional and major airlines is reciprocal and necessary for the success of both entities. Complication: Since 2001, SkyWest, Inc. has been struggling to maintain their string of success. SkyWest was adamant on acquiring new contracts with major carriers, but would have to overcome the external situations to achieve this growth. During this time, it was difficult for SkyWest to develop and maintain high levels of customer service, develop and maintain a strong safety image, maximize on-time arrivals, and acquire new aircraft. Before SkyWest could compete with existing contracts and competitors, it first had to prevail over external factors in the industry to achieve the requisites for acquiring new contracts. Table 1 shows some of the external factors in the industry. Table 1Economy • Airline industry highly correlated to economy • SkyWest's relationship with Delta over $25M in unpaid payments • Didn't want to sue for money and risk loss of business Partnerships • Midwest Airlines bankrupt/bought by direct competitor of SkyWest • Old partner could eventually become larger, more capable, and become threatening competitor in future. Fuel Cost • Estimated 30-50% of total costs • Availabilty becoming problem,...