SERVED MARKET The served market is that segment of the total market that the firm actively attempts

to serve.

Eg: Fastjet aims to spread LCC movement to West Africa

Africa was selected as the home of Sir Stelios project despite the continents lack of open skies policies that make operating an airline, let alone establishing one, challenging despite its huge growth potential. While Africa continues to suffer from a lack of investment, poor liberalisation, competition from Middle Eastern carriers and corruption, the region is a major growth market where LCC capacity is just starting to gain speed. Fastjet.coms entry could change Africas LCC market. South Africa is now the most developed LCC market in Africa, with LCCs currently accounting for 45% of domestic capacity. Fastjet.coms decision to operate in West Africa is an important step in spreading the African LCC movement to other markets. LCCs now account for only about 1% of total capacity in West Africa. Nigeria and Ghana account for 46% and 7% of the regions total capacity, respectively. Ghana currently has an LCC penetration rate of zero as not a single LCC now serves the country. West Africas current aviation market is plagued by corruption, mismanagement and safety issues. But there are some successful full-service airlines in the region. HERFINDAHL INDEX The Herfindahlindex (also known as HerfindahlHirschman Index, or HHI) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. It is an economic concept widely applied in competitionlaw, antitrust and also technology management. It is defined as the sum of the squares of the market shares of the 50 largest firms (or summed over all the firms if there are fewer than 50) within the industry, where the market shares are expressed as fractions. The result is proportional to the average market share, weighted by market share. As such, it can range from 0 to 1.0, moving from a huge number of very small firms to a single monopolistic producer. Increases in the Herfindahl index generally indicate a decrease in competition and an increase of marketpower, whereas decreases indicate the opposite.

Southwest Airlines HHI Analysis

01. May 2012 Write a comment Categories: Airlines Industry Tags: AMR Corporation, Business, Herfindahl,Herfindahl index, Market power, Market share, Southwest Airlines, United States

CHICAGO - APRIL 05: A Southwest Airlines Boeing 737-7H4 passenger jet prepares to land at Midway Airport on April 5, 2011 in Chicago, Illinois. Southwest Airlines said it finished inspecting its grounded 737-300 series planes and of the nearly 80 planes five of them have cracks in the aluminum skin. The inspections come after Southwest Flight 812 had to make an emergency landing when a piece of its fuselage skin was torn while on its way from Phoenix to Sacramento. The discovery prompted the Federal Aviation Administration (FAA) and Boeing to require emergency inspections on a portion of the 737 fleet manufactured during the 1980s and 1990s for the same fatigue cracks in the fuselage like the ones on the Southwest jets. (Image credit: Getty Images via @daylife)

The Herfindahlindex (also known as HerfindahlHirschman Index, or HHI) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. It is an economic concept widely applied in competitionlaw, antitrust and also technology management. It is defined as the sum of the squares of the market shares of the 50 largest firms (or summed over all the firms if there are fewer than 50) within the industry, where the market shares are expressed as fractions. The result is proportional to the average market share, weighted by market share. As such, it can range from 0 to 1.0, moving from a huge number of very small firms to a single monopolistic producer. Increases in the Herfindahl index generally indicate a decrease in competition and an increase of marketpower, whereas decreases indicate the opposite. The major benefit of the Herfindahl index in relationship to such measures as the concentrationratio is that it gives more weight to larger firms.

Where is the market share of firm in the market, and is the number of firms. Thus, in a market with two firms that each have 50 percent market share, the Herfindahl index equals

The Herfindahl Index (H) ranges from range up to 1002, or 10,000.

to one, where N is the number of firms in the market.

Equivalently, if percents are used as whole numbers, as in 75 instead of 0.75, the index can A HHI index below 0.01 (or 100) indicates a highly competitive index. A HHI index below 0.15 (or 1,500) indicates an unconcentrated index. A HHI index between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration. A HHI index above 0.25 (above 2,500) indicates high concentration\

Rank 1 2 3 4 5

Airlines Companies Delta Airline Inc. United Continental Holding Inc. SouthwestAirlines AMR Corporation USAirwaysGroupInc. Total

Marketshare 15.2% 14.8% 10.8% 9.7% 6.7% 57.2% Market share HHI 231.04 219.04 116.64 94.09 44.89

HHI 231.04 219.04 116.64 94.09 44.89 705.7

Delta Airline Inc. United Continental Holding Inc. Southwest Airlines AMR Corporation US Airways Group Inc. Others

15.2% 14.8% 10.8% 9.7% 6.7% 42.8% 100.0%

1831.84 2537.54

The upper estimate, let us assume that the remaining 48.2% market share in its piece of the market participants. The above mathematical background thread is the idea that these market shares up to the sum of squares 48.2/K. Since the counting of market shares in each of 5 small US Airways Group Inc. ranked at 6.7%, Ks minimum value 42.8/6.7, i.e. is K > 8. For this reason, the 5th place after the maximum sum of squares of market shares 48.2/8=602.5 and HHI, bringing the total up 602.5+705.7=1308.2 The U.S. domestic aviation HHI is between 705.7 and 1308.2 which indicate an un-concentrated index. Customer profitability
Customer profitability (CP) is the difference between the revenues earned from and the costs associated with the customer relationship in a specified period. According to Philip Kotler,"a profitable customer is a person, household or a company that overtime, yields a revenue stream that exceeds by an acceptable amount the company's cost stream of attracting, selling and servicing the customer"

Eg: Future success in the jet engine industry is dependent upon improving customer profitability. For example, the GE90 recently completed its first year in revenue service with no in-flight disruptions and industry-leading dispatch reliability powering the Boeing 777. Launch customer British Airways describes the GE90 on its 777 aircraft as the most successful introduction ever of a new engine into its fleet.