Airline industry analysis by Porters Five Forces Essay Example for Free

Airline patience analysis by Porters Five Forces striveThe Airline industry provides a very unique service to its customers. It transports people with a high level of convenience and efficiency that crowd outnot not be provided by any early(a) industry or substitute. Airline companies pride themselves on the government agency they treat their customer during the flight. They induce things such as food, drinks, entertainment, and a take staff. The service of transportation is provided in other industries but the airline surpasses all of them when it comes to timeliness. The geographic scope of the airline industry is at a global level. near firms atomic number 18 able to fly their unconditionals all over the world while others focus on smaller geographic beas.The five forces model is 1 way to answer the first basic question in strategic management Why atomic number 18 some industries more attractive than others? This model shows the five forces that settle industry competition threat of parvenu entrants, bargaining generator of buyers, threat of substitutes, bargaining power of suppliers, and competitors. In lodge to analyze the airline industry we take for look at each of these forces.Bargaining power of BuyersThe airline industry is made up of ii groups of buyers. First, there are individual flyers. They buy plane tickets for a number of reasons that can be personal or business related. This group is extremely diverse most people in developed countries have purchased a plane ticket. They can do this with the specific airline or through the second group of buyers travel agencies and online portals. This buyer group full treatment as a middle man between the airlines and the flyers. They work with multiple airline firms in order to give customers the best flight possible. Between these two groups there is definitely a large amount of buyers compared to the number of firms.There are poor switching be between firms because many people require the flight based on where they are going and the cost at the time. This is some loyalty to firms but not enough for high switching costs. each(prenominal) customer needs a lot of important information. They need to know the details of whatis provided during the flight. Buyers need to understand the timing of the flight and the safety aspects of flying in general. The service provided is unique. Each airline has a niche. Some airlines focus on cost, while others focus on having the best conveniences, etc. Overall the bargaining power of buyers has an extremely broken in threat in this industry.Bargaining Power of SuppliersNext we look at the bargaining power of the suppliers. In this case the major suppliers are the aeroplane manufacturers. The top two manufacturers in the world currently are Boeing and Airbus(Odell,Mark). In this industry the inputs are extremely standardized. Airline companies only seem to commemorate with amenities. The planes are very similar. Curr ently some manufacturers are trying to make their plans more ecofriendly.Airline companies cannot easily switch suppliers. Most firms have long marge contracts with their suppliers. Planes are such high nifty products that firms probably make long term loan agreements and have more favorable quote terms when they entert switch companies. It is difficult to enter into the plane manufacturing industry because of the capital needed to enter. The amount of money and expertise needed to make even one plane is almost 200 million dollars. For this reason there are very few suppliers in the airline industry. Airline firms are the only source of income for these manufacturers so their business is extremely important. Based on these things the bargaining power of suppliers has a low threat as well.Threat of New EntrantsThreat of new entrants is another major aspect of the five forces. This aspect has a low threat for the airline industry. There are two aspects that do however excite the threat level. First, there are extremely low switching costs. Second, there are no proprietary products or services snarled.Even with these two aspects the industry still has a very low threat overall. Existing firms have a large cost advantage. This industry requiresa large amount of capital and without a strong customer base there will be little to no profit in the first few years. Existing firms can and will use their high capital to retaliate against newer firms with whatever means necessary such as lowering prices and taking a loss.Although there are low switching costs between brands, consumers tend to only chose well-known names. Airline tickets are expensive so people dont indigence to give that money to firms they dont trust. There is in addition a huge safety aspect involved and most consumers feel safer with firms that have been around for a long period of time. This industry requires plane and flying experience which also lowers the threat of entry. When firms decide to enter the market they first have to nonplus licensed which can take about a year. later on that they are constantly being regulated by several organizations such as the federal official Aviation Administration and the Department of Transportation. The time and money spend to solely open an airline company is enough to prevent most people from entree the industry.Threat of SubstitutesAfter looking at the threat of entry it is important to also consider the threat of substitutes. This industry has a medium substitute jeopardize level. There are substitutes in the airline industry. Consumers can choose other form of transportation such as a car, bus, train, or boat to meet to their destination. There is however a cost to switch. Some means of transportation can be more costly than a plane ticket. The main cost is time. Planes are by far the fastest form of transportation available. Airlines surpass all other forms of transportation when it comes to cost, convenience, and somet imes service. Consumers do sometimes choose other methods for various reasons such as cost if they are not traveling very far which raises the risk.Rivalry among Existing PlayersThe last area of the five forces is the ambition among existing players. The argument in the airline industry is very intense for many reasons. The industry is currently very stagnant. It seems to be in the mature gift of the business cycle. The number of competitors stays the same in the long runand it doesnt seem to be under or over capacitated. The fixed costs are extremely high in this industry. This makes it hard to leave the industry because they are probably in long term loan agreements in order to stay in business. The products involved or the planes are highly complex which also heightens the competition.The competition is lessened by the brand identities of different firms. For example, Jetblue is known for its amenities and Southwest is known for its low prices. The market share seemed to be eq ually distributed because each company has its own part of the market and because switching costs are low none of the firms can really hold a large percentage of the market.The strongest forces in this industry are the competition of existing firms and the power of suppliers. The rivalry of existing players is high and will push out any firm that doesnt have enough capital. Suppliers are strong forces because planes are so costly to make. If the suppliers changed the credit terms by even a small amount it could mean a significant loss for the firm. On the other hand the other forces involved seem to have a weak threat. It is costly and time consuming to enter the market which lowers the risk of entry. Buyers have a weak force because of the low switching costs and substitutes are weak because they are unremarkably too costly.The profit in this industry is high because for most people flying in necessary. It is not a trend which makes this industry profitable for the long term. Airl ines that are more profitable are in a better position because they usually have more planes and a larger variety of flights which provides further convenience for the consumer.Recently there have been some changes in some of the forces. Some airplane manufacturers have been making ecofriendly planes, which is a change in the bargaining power of suppliers. This would differentiate the products, raising the threat of suppliers. Another recent change is the use of web portals such as Expedia to book flights. This positive change creates a whole new group of buyers and makes purchasing flights faster and easier. The increase in gas prices has also been a positive change for the industrybecause it lessens the power of substitutes. People are more willing to fly to their destination if driving would be more expensive.After looking at the Five Forces Model firms should make dealing with the competition their main priority. The other areas in the model seem to have an overall low threat s o existing firms dont have to focus on those areas as much in their business strategy.Now that we have brought you through our Porters Five Force analysis, the last thing that is important to consider when exploring an industry, are the dominant economic features. The next section of our report will give you an overview of what features need the airline industry most.