The Airline is one of the major industries in the world today and is majorly affected by Michael Porter’s Five Forces model. In case of the Airline industry, this is the most important force today, especially since the market is completely saturated. There are more service providers than needed in both local as well as international markets. The airlines are continually competing against each other in terms of prices, technology, in-flight entertainment, customer services and many more areas. One of the forces that Porter describes is Threat of New Entrants which refers to the possibility of new competitors entering the industry and undermining the profits of the established businesses.
In the world today, the airline industry is so saturated that there is hardly space for a newcomer even to squeeze its way in.
The biggest 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.
Other barriers to entry which will recess new comers into the airline industry include Government restrictions and the brand name of existing airlines. Brand name recognition and frequent fliers point also play a role in the airline industry. An airline with a strong brand name and incentives can often lure a customer even if its prices are higher. On the other hand, a newcomer could enter this saturated market easier with a completely new concept and/or technology.
The bargaining power of buyers is another force that can affect the competitive position of a company. This refers to the amount of pressure customers can place on a business, thus, affecting its prices, volume and profit potential. The various airlines flying from the KLIA are competing for the same customer, which also results in strengthening the buyer power. Individuals wishing to travel to and from the KLIA are presented with various choices when..
Porter’s Five Forces Model
Posted on April 4, 2009 by admin
Porter’s five forces model helps in accessing where the power lies in a business situation. Porter’s Model is actually a business strategy tool that helps in analyzing the attractiveness in an industry structure. It let you access current strength of your competitive position and the strength of the position that you are planning to attain.
Porters Model is considered an important part of planning tool set. When you’re clear about where the power lies, you can take advantage of your strengths and can improve the weaknesses and can compete efficiently and effectively. Porters model of competitive forces assumes that there are five competitive forces that identifies the competitive power in a business situation. These five competitive forces identified by the Michael Porter are:
The Porter’s 5 force analysis (Porter, 1985) is used to analyse the competitiveness and attractiveness of the airline industry of which Qantas operates. It analysis consists of 5 fundamental competitive forces:
Bargaining power of Buyer
The airline industry is very competitive as they are competing for the same passengers and switching cost between airline operators is low. As a result, the buyer power is high in this industry. There are various choices presented to customers; which usually means brand loyalty or price is the main factors when selecting an airline. Qantas has the frequent flyer program which rewards loyal customers and increases switching costs for a passenger selecting a rival airline operator.
Threat of entry of competitors
The airline industry is currently so inundated it is virtually impossible for newcomers to enter the market and has made the threat of new entry low. The cost of entry is by far the biggest contributor. The high cost of buying and leasing aircraft; operational activities including safety and security measures, customer service and manpower; makes the airline industry one of the most expensive industries.
The airline industry is very competitive and as a result, profit margins are usually low. Also, the bargaining of the supplier is very high which undermines companies in the airline industry to exercise control over their supplier. With high entry cost, new competition into the international airline market is very low. Qantas can continue to dominate this market while still competing with domestic market using the Frequent Flyer programme increase loyal customer
Read more: http://www.ukessays.com/essays/management/the-qantas-group-international-and-domestic-air-transportation-services-management-essay.php#ixzz2dGQiY46F
Cite this Michael Porter’s Five Forces Model
Michael Porter’s Five Forces Model. (2016, Jun 08). Retrieved from https://graduateway.com/singapore-airline/