Porter’s 5 Forces Analysis for Airline Industry
Through Porter’s 5 forces analysis for airline industry, it can be easier for the players in the sector to determine the competitiveness and profitability of the market. With this information, they will be able to come up with effective strategies for sustainable operations. According to reports, the airline industry is expected to double in the next 20 years. This implies airline companies must be ready to muscle up in order to effective handle to intense pressure that comes with such developments. Tailwinds 2015 report suggests that airlines must be able to swiftly adapt to three main challenges; fuel prices, infrastructure and talent.
Evaluation of Porter’s 5 Forces Analysis for Airline Industry
This article will provide an in-depth look into Porter’s 5 forces analysis for airline industry, by identifying the threats of new entrants, bargaining power of buyers, bargaining power of suppliers, threats of substitute products and intensity of rivalry within the sector.
Bargaining power of buyers
Buyers in the airline industry refer to the people who board flights or transport their cargo by air. Generally, buyers have very low bargaining power due to various reasons. One is that it is quite costly for customers to keep switching flights, whether for their own transport or cargo. Since planes offer the fastest means of transport, many people have no choice when it comes to the need for urgency. Besides, developments like globalization has led to the increasing number of people traveling overseas, which drives the demand for air transport even higher.
Bargaining power of suppliers
Airline companies mainly rely on suppliers to provide them with aircraft and fuel. However, there are not as many suppliers as companies that offer air transport services. This gives suppliers a greater bargaining power over industry players. Besides, there is no effective substitute to fuel, which means airline companies have to comply with the global fuel prices in order to keep their operations running.
Level of competition in the industry
The airline industry is one of the most competitive today, with prospects of even more intense rivalry in the coming years. Many companies are shaping up their structures to offer alternative travel routes, improve the quality of their services and also lower fares in order to attract more customers. Technological developments may also impact competition since it provides information to the masses, which is likely to influence the choices made by customers.
Threat of New entrants
There is a relatively low to medium threat of new entrants into the airline industry. Major airline companies are more focused on product differentiation, which makes it hard for newly established companies to surpass them. Many people tend to prefer renowned airline because of their strong brand names, convenience and flexible time schedules. Such companies have adequate number of aircraft for both short and long haul services, unlike new and smaller companies. Investments in the airline industry require huge amounts of capital that is not easily accessible to many. Besides, stiff regulations on air transport imposed by aviation authorities and various governments is also another scare to new entrants.
Threat of substitute products
Although air transport remains the fastest and most convenient means of travel, people could still opt for buses, cars, trains or water transport. When it comes to the element of time, many people will always go for plane tickets. Customers may only go for alternative means of transport if they need to travel to short distances, which may prove expensive when using flights. This is likely to impact only regional airline companies. For international flight operators, there is almost no substitute for passengers or those who transport cargo.
From the above Porter’s 5 forces analysis for airline industry, it can be concluded that the sector has relatively low threats of new entrants and high bargaining power of suppliers. Competition between the existing players is becoming intense by the day, although threats of substitutes remains medium across the industry. Buyers have limited options and this results into a low to medium bargaining power on their part. Generally, those are the main factors that airline companies should consider when streamlining their operations.
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