Five Forces of Competition
Five Forces Model of Airline Industry
Five Forces model of Airline Industry
Air travel has changed the way people live and experience the world today. The airline industry is a strategic sector that plays a fundamental role in the globalization of other industries since it promotes tourism, world trade, foreign investment and, therefore, leads to economic growth. However, all airlines within the industry operate in a highly dynamic environment where various legal, social, technological and economic forces interact with each other, thus influencing their decisions and actions
In the industry where airlines can face severe financial distress due to oil crisis, recessions and terrorist attacks, In order to survive, as well as succeed, the business needs to assess its competitive environment and identify key factors that may influence its actions (Porter, 1998, p.45).
The airline industry is very competitive and Michael Porter’s five-forces model can be used to analyse the intensity of the competition and the profitability of this industry. Porter’s five forces model is a business unit strategy tool which is used to make an analysis of the value of an industry structure (Hubbard, 2004, pg 35). The analysis is made by the identification of 5 fundamental competitive forces. These include:
Threat of new entrants is high
One of the forces identified by this model is the 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 to enter the market. 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
Five Forces model of Airline Industry
Air travel has changed the way people live and experience the world today. The airline industry is a strategic sector that plays a fundamental role in the globalization of other industries since it promotes tourism, world trade, foreign investment and, therefore, leads to economic growth. However, all airlines within the industry operate in a highly dynamic environment where various legal, social, technological and economic forces interact with each other, thus influencing their decisions and actions
In the industry where airlines can face severe financial distress due to oil crisis, recessions and terrorist attacks, In order to survive, as well as succeed, the business needs to assess its competitive environment and identify key factors that may influence its actions (Porter, 1998, p.45).
The airline industry is very competitive and Michael Porter’s five-forces model can be used to analyse the intensity of the competition and the profitability of this industry. Porter’s five forces model is a business unit strategy tool which is used to make an analysis of the value of an industry structure (Hubbard, 2004, pg 35). The analysis is made by the identification of 5 fundamental competitive forces. These include:
Threat of new entrants is high
One of the forces identified by this model is the 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 to enter the market. 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