Porters Five Forces Model & the Airline Industry
Porters Five Forces Model & the Airline Industry
Robert Warren
6/11/2011
Abstract Having conducted research on Porter’s Five Forces Model and the current business climate of the airline industry, I will be analyzing the industry using the Five Forces Model. Porter’s Five Forces model is a highly recognized framework for the analysis of business strategy. Five forces are derived from the model that attempts to determine the competitive intensity, competitive environment and overall attractiveness of an industry. The framework is based on five forces that describes the attributes of an attractive industry and suggests when opportunities will be the greatest and threats the least within an industry. The five forces include threat of entry of new competitors, intensity of competitive rivalry, substitute products or services, bargaining power of customers and the bargaining power of suppliers. When a business is better able to understand and increase their conception of their competition beyond their direct competitors while assessing the broader economic fundamentals of their own industry, they will be able to design a better strategic plan to better optimize their profitability. The current economic climate of the airline industry is one of low profitability. However, using Porter’s Five Forces, specific airlines are able to obtain positive profitability and outpace the industry average.
The domestic airline industry in the United States has generally been characterized by very intense rivalry and slim profit margins. The years since the Airline Deregulation Act of 1978, the airline industry has had numerous years of low profitability. To more clearly understand the competitive economic nature of the airline industry, as well as, the influence of complements to the industry, an examination of Porter’s Five Forces can be used to gain a clearer picture of the forces at play within the airline industry. Threat of new entrants
Robert Warren
6/11/2011
Abstract Having conducted research on Porter’s Five Forces Model and the current business climate of the airline industry, I will be analyzing the industry using the Five Forces Model. Porter’s Five Forces model is a highly recognized framework for the analysis of business strategy. Five forces are derived from the model that attempts to determine the competitive intensity, competitive environment and overall attractiveness of an industry. The framework is based on five forces that describes the attributes of an attractive industry and suggests when opportunities will be the greatest and threats the least within an industry. The five forces include threat of entry of new competitors, intensity of competitive rivalry, substitute products or services, bargaining power of customers and the bargaining power of suppliers. When a business is better able to understand and increase their conception of their competition beyond their direct competitors while assessing the broader economic fundamentals of their own industry, they will be able to design a better strategic plan to better optimize their profitability. The current economic climate of the airline industry is one of low profitability. However, using Porter’s Five Forces, specific airlines are able to obtain positive profitability and outpace the industry average.
The domestic airline industry in the United States has generally been characterized by very intense rivalry and slim profit margins. The years since the Airline Deregulation Act of 1978, the airline industry has had numerous years of low profitability. To more clearly understand the competitive economic nature of the airline industry, as well as, the influence of complements to the industry, an examination of Porter’s Five Forces can be used to gain a clearer picture of the forces at play within the airline industry. Threat of new entrants