Competitive Rivalry in Airline Industry
Competitive rivalry in airline industry is very high. Competitive rivalry can be defined as the competition that occurs between companies as they attempt to increase their share of the market. In the saturated airline industry, different airlines compete for similar customers. Different airlines are competing against one another continually in terms of technology, prices, customer services and in-flight entertainment. Due to the heavy investments that companies make in purchasing planes, exiting the industry is usually difficult. As such, existing players have to continue competing even when profitability hits low levels.
How competitive rivalry in airline industry is experienced
Competitive rivalry within the airline industry is experienced in different ways. Here are the major competitive forces in the airline industry.
- Competitive rivalry among sellers
There is strong or moderate competitive rivalry among airlines when it comes to selling their services. Airlines compete on the basis of services and prices. Nevertheless, they compete on flights frequency though to a less extent, frequent-flyer programs and flights reliability among other amenities. Over the years, there has been easing of pressure to some extent because the established carriers remained in their existing areas where they had geographical dominance. These airlines concentrated more on enhancing profitability instead of expansion. Nevertheless, established airlines have faced pressures from the low-cost carriers that have been trying to expand.
- New entrants
New entrants have posed weak or moderate competitive rivalry. Absence of desirable gate access and low levels of traffic in the airports has led to entry barriers in the industries. Additionally, the industry is naturally labor intensive, energy intensive and capital intensive which have made it hard for new entrants to venture into this industry.
- High substitutes’ availability
This is a moderate competitive factor. For the national airlines however, substitutes pose a significant threat. This is because customers can use ground travel that includes buses, ferries and trains. These cost less as compared to airplanes and they have already won trust from customers. Additionally, the substitutes are seen as more convenient for traveling shorter distances. Nevertheless, air travel remains the most preferred mode of traveling for longer distances.
- High power of the suppliers
Airports, aircraft manufacturers and fuel companies are the main suppliers in the airline industry. The competition rivalry among these suppliers cannot be described as cutthroat competition. Additionally, there is a rare likelihood of vertical integration of a supplier. Nevertheless, vital equipment pieces and aircrafts are very costly. In regards to the manufacturers of the commercial passenger airplanes, there are two suppliers only. These are the Airbus and Boeing. The industry is limited naturally and this allows aircraft suppliers more power when it comes to setting prices. The industry is also fuel intensive. This makes the airline industry very sensitive to fluctuation of fuel prices as set by fuel suppliers.
- Buyers’ bargaining power
The competitive rivalry in regards to the bargaining power of the buyers is weak. Airline tickets buyers include organizations and individuals. Due to the large separation of customers, the industry experiences little rivalry or power from buyers because they are not a cohesive group.
Why it is important to understand the competitive rivalry in airline industry
Airline industry is very important because it contributes to economic development of a country by enabling goods and passengers’ movement regardless of the distance. Business structure among airlines differs in terms of fleet, cost structure and network. Nevertheless, globalization has led to low liberalization, considering the fact that there are low entry barriers making the industry more competitive. Understanding the competitive rivalry that exists in this industry is therefore important for players in order to come up with policies that will enhance their competitiveness. Additionally, entrepreneurs that want to venture into this industry should understand the nature of the existing competition in order to determine whether venturing into this industry is a noble idea.
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