1) What are the structural forces in the airline industry that have made it so unprofitable?
             Analyzing an industry is focusing on the different forces driving the competition in it. Michael Porter has given a huge contribution in this field with his "five forces" model. This extends the analysis of the industry well beyond the simple rivalry among the existing firms, this model also focuses on other forces in the environment: suppliers , customers, potential entrants and substitute products.
             As a start we shall first consider the rivalry in this industry. In the 30's, United Airlines, American Airlines and TWA would rule this industry but, little by little, many new entrants started coming. Competition has been growing through the years, first Delta and Continental made their way in, and then by 1980, after deregulation, 20 new entrants were there to compete. In a nutshell, competition is very high in this industry, and as we have learned in class, when there are a lot of competitors, generally the profits are low.
             Through the years, companies have tried to reduce costs and cutback capacity ( they are experiencing overcapacity, it's the battle of maximizing load factors) but still there's very little money to make because there are too many fishes in the sea.
             Moreover, the exit barrier are really high. Companies have stipulated labour contracts with their employees and can't break them so easily. Broadly speaking there are very high fixed costs ( airplanes, hub costs etc...) in this industry, and not all of them can be quickly turned into cash.
             In analyzing this industry we also have to consider the potential substitutes. How can people move from one city to another without using airplanes? The main threat here are cars. Gas is cheap, people are used to drive long distances here in the US and they might also believe it's safer ( especially after September 11th). Another advantage of c...