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Porter's 5 Forces Model Airline Industry

Essay by   •  July 3, 2011  •  Case Study  •  330 Words (2 Pages)  •  1,773 Views

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Porter's 5 Forces Model Airline Industry

Threat of New Entrants is low

The airline industry is so saturated that there is hardly space for a newcomer even to squeeze its way in. The main concern for this is the cost of entry. The airline industry is one of the most expensive industries, due to the cost of buying and leasing aircrafts, safety and security measures, customer service and manpower. Another major barrier to entry is the brand name of existing airlines and it is really difficult to lure customers out of their existing brands.

Power of Suppliers is low.

The airline suppliers are mainly aircraft manufacturers, airports, fuel companies and there isn't a lot of cutthroat competition among suppliers. Also, the likelihood of a supplier integrating vertically is rare.

Power of Buyers is medium to and increasing

The cost involved with switching airplanes is decreasing as customers can access internet easily to compare and buy air tickets online nowadays. With emerge of budget airlines like Jetstar and AirAsia,

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more customers including travel agents and individuals prefer to take the budget airlines rather than full service airlines

Availability of Substitutes is low

For international airlines, the threat is quite low as airline is the only way for travelling to long destinations. Eg from Australia to USA.

For national airlines, the threat might be a little higher than international carriers as passengers can use ground travel like train or bus as substitute. By the way, time, money, personal preference is also needed to be considered.

Competitive Rivalry is high.

Airline industry is completely saturated. There are more service providers than needed in both local as well as international markets. The various airlines are competing for the same customers. The airlines are continually competing against each other in terms of prices, technology, in-flight entertainment, customer services etc. Highly competitive industries generally earn low returns because the cost of competition is...



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