THERE is a new way to travel between Los Angeles and San Francisco. At $230 for
ID: 396905 • Letter: T
Question
THERE is a new way to travel between Los Angeles and San Francisco. At $230 for a round trip, it may not be cheaper than flying, but at least it is slower.
Cabin is an interesting experiment; an attempt to compete with airlines by promising a better night’s sleep. Flying between the two cities may take less than an hour and a half. But getting to the airport, shuffling through the security queue, waiting at the gate, picking up your bag upon arrival, and getting from the airport to your actual destination can nearly quadruple the total travel time. That means a trip can eat up most of the day. Or if you want to travel at night, you have about an hour to sleep, between several hours of hassle and tedium. Rather than go through that rigmarole, Cabin is betting that some passengers will instead choose an overnight bus, on which they crawl into sleeping pods, stacked like bunk beds but ensconced behind curtains and soundproof walls, and wake up eight hours later at their destination. On offer: water, coffee, melatonin and a communal area for people who are not sleepy. Not on offer: room to sit up within the sleeping pod. There is one objective on a Cabin (called SleepBus in an earlier iteration), and that is to reach the destination via the land of nod. The drivers intentionally go slowly and take back roads so that the trip, normally six hours, lasts eight. The service currently runs only between Los Angeles and San Francisco, leaving each city at 11pm and arriving at 7am. Although Cabin is looking to expand to other cities, the current route is a perfect example of that awkward travel distance to which there is no good solution. Others abound, such as Washington-Boston or London-Edinburgh: a short flight that sounds easy, until you realise it is part of a four- or five-hour total travel itinerary. There are, of course, other options. You can drive, but being behind the wheel tends to limit the chance of getting some shut-eye. You can take a train, but Amtrak routes between Los Angeles and San Francisco can be several times as expensive as Cabin or flying, plus you don’t have a bed and are likely to be woken up periodically by stops, announcements or fellow passengers bumping your elbows. The arrival of self-driving cars could provide a nice alternative for these types of trips. They do not come with beds or fully reclining seats—at least not yet—but passengers will probably be able to programme a route that allows for a full night’s sleep, and unlike Cabin, they can travel between any two cities or addresses, not just along a prescribed route. Cabin itself, meanwhile, is hoping that its buses will one day be autonomous. There is another option on the table that could, at least hypothetically, obviate the need to worry about balancing sleep and travel. Various companies have pitched a “hyperloop” concept that could ostensibly transport carriages between Los Angeles and San Francisco in as little as half an hour along near frictionless tubes. (Last month, Elon Musk of Tesla and SpaceX claimed on Twitter (https://twitter.com/elonmusk/status/888053175155949572) that he had received “verbal govt approval” to construct an underground hyperloop that would connect New York and Washington, DC in 29 minutes, although the lack of details provoked scepticism.) At those kinds of speeds, there is no need to budget time: you could leave Los Angeles after work and be in San Francisco for dinner, with a full eight hours of shut-eye ahead of you. But that project is a long way and a few potentially insurmountable hurdles from reality. In the meantime, for those of us not on the Cabin route, the same distasteful choice persists, between a plane, train and automobile that might offer the shortest travel time or the lowest cost but definitely no California dreaming
Q1) 1. Suppose that you are a marketer for one of the American airline companies that runs flights between Los Angeles and San Francisco. Based on the text below and your own information, analyze the Five Competitive Forces that your company faces in this situation. Which of the five forces is the biggest threat for your company in this case and why? .
Explanation / Answer
The US Airline Industry has a long list of external factors like increasing operating expenses, growth of substitutes like ‘Cabin’ as shared in the brief or the intense competition prevalent in the industry. The industry has already seen many bankruptcies filed and many mergers between players to stay afloat in the industry. From the Porter’s 5 forces model, we can have the following analysis:
- Bargaining power of suppliers: HIGH – the major inputs for the airline industry is aircraft, fuel and labor. All of which is severely affected by the external environment. Due to geopolitical or other factors, the price of fuel undergoes severe fluctuations. Labors often see unionization and have often made unreasonable demands and concessions. Dependency on the two major carrier makers – Airbus and Boeing is very high since either the aircrafts needs to be purchased outright or needs to be taken on lease.
- Bargaining power of Buyers: MEDIUM – Online ticketing has seen a boom, hence the dependency on travel agents or the airlines themselves has reduced considerably. The advent of Low cost Carriers, has only resulted in price wars with the benefit certainly going to the Buyer. Also, the buyers are sufficiently well protected by the strong regulations in the industry.
- Threat of New Entrants: LOW – It is no doubt a capital intensive industry with the vagaries of external environment affecting fuel, aircraft and labor cost and supply. The industry has seen consolidation with many players struggling to survive. Hence, only players with deep pockets and a strategic synergy in operations would look to enter this industry.
- Threat of Substitutes: LOW – Unlike the developing nations, consumers do not necessarily opt for trains or buses for travel. It is widely apparent that it is the least time consuming option of all the currently available options - that certainly rules out any switching for the business travelers who value time over anything else. However, the case made here for ‘Cabin’ as a comfortable alternative to the regular flights between certain selected places like Los Angeles and San Francisco sounds cogent but still has a long way to make a concrete case before the travelers.
- Inter firm Rivalry: HIGH – The competition in this industry is intense with all players striving to gain a greater market share. The entry of Low cost carriers has only made the competition fierce. Oddly enough, the industry is highly regulated on the supply side in comparison to the demand side. Hence instead of the airline companies deciding on their operating markets it the fliers who benefit the most.
Undoubtedly, with a high level of regulation the Suppliers’ Power appears to be the greatest threat. The airline operators do not really have much options apart from continuing operations in the uncertain surroundings of Fuel price rise or any labor protests in response to any cost cutting exercise.
As a marketer of an American Airline, the bus service offered by ‘Cabin’ doesn’t really pose a great threat. Despite it offering an 8 hour comfortable night journey to ply between LA and SF, there is a great chunk of passengers who are not really open to the idea of sleeping in a moving vehicle that too in a pod that can often be claustrophobic. It is more or less the same old Bus journey in a new avatar of it being comparatively comfortable by going slower in the same route. As far as the extra time consumption is concerned due to all checks and balances at the airport, airports are adopting technology at a fast rate and pretty soon they would operate completely paperless with biometric screening. This would certainly reduce time further. However, thinking about “hyperloop” does bring in a grave concern as the seating arrangements in all probabilities would be similar to an aircraft, however the technology would be so advanced that the travel time would be reduced drastically.
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