Running Head: Airline Industry based on Porter’s Five Forces
Airline Industry based on Porter’s Five Forces
January 27th, 2019
Today’s airline industry is nowhere near the level it used to be thirty, twenty or even ten years ago. There are many factors that has the industry at the level we all know and probably share a consensus of dislike in current times. We will discuss Porter’s five forces pertaining to the airline industry; industry competition, threats of new entrants, bargaining power of buyer’s, threats of substitutes and the bargaining power of suppliers and competitors. To begin the industry has a multitude of external factors for example high fuel prices, significantly increasing operating expenses, declining passenger traffic, greater landing and maintenance cost, forced bankruptcies and merges in order to stay afloat, competition from low cost carriers creating a price war and lastly terrorism.
Bargaining power of suppliers in the airline industry is categorized as high in Porters framework due to the three factors affected by the external environment; fuel, aircraft manufacturers and skilled labor. Fuel prices are subjected to fluctuations on the global market for oil; as we have seen these numbers climb as a result of geopolitical and other factors. Without aircrafts the airlines would cease to exist; they are needed on either outright sale or wet lease basis. This leaves the airline industry dependent on the two major manufacturers Airbus and Boeing for their aircraft needs. Labor is a constant need in any industry and this one consists of well-paid high level professional, but the unions hold the bargaining power which results in unreasonably and costly concessions from the airlines. The airlines focus on the hiring and retaining of the best talents. There is also the air transport supply chain consisting of the manufacturers, lessors, air navigation service providers, travel agents and freight forwarders; they also incorporate providers of other service like computer reservation systems, catering, ground services, maintenance, repair and overhaul. The purchase, maintenance and running of aircrafts is a huge investment.
Buyers have a tremendous amount of power in the airline industry; according to Porter’s methodology the power is moderate to high. With the age of technology and the proliferation of online ticketing and distribution systems; buyers have been released from the mercy of travel agents, intermediaries and the airline themselves for ticketing needs. There are low cost carriers in the industry whose presence has generated a price war in addition the regulation on the demand side of the airline industry. These factors have greatly benefited the buyers and tipped the balance of power in their favor making the airline cede power to consumers. By Porter’s methodology the power of the buyers is moderate to high. Even being faced with fluctuating prices the buyers have “price discovery” at their disposal;...