Airline Competitive Advantage

As the paper has just emphasized, there are many aspects which influences an industry’s profitability and therefore attractiveness. Some indicators can be shaped by the market participants while others result from an industry’s nature. The following step for a business is its positioning in the industry and its analysing regarding to its strengths and weaknesses compared to the other market actors. Even though the industry analysis shows a rather unattractive market, a firm is still able to gain a competitive advantage. This is possible by defining a business’ strategy and developing a unique value proposition which supports the firm being more profitable compared to the its competitors. There are two possibilities of competitive advantages

Starting with analysing the rivalry in the airline business, it is conspicuous that the industry remained relatively stagnant recently. The industry’s market share remains nearly the same which reinforces competition between the individual airlines. Moreover, there exist many strong carriers such as United Continental Holdings, Delta Air Lines, American Airlines, Southwest Airlines, Lufthansa, China Southern Airlines and British Airways that are already well-established and compete for market share. Furthermore, the high fixed costs and the complex products such as planes present high exit barriers and lead therefore to rather aggressive fighting for market share. Additionally, the degree of differentiation in the airline industry is rather low due to the fact that every large airline flies to the same airports for almost the same price. This aspect, as well as low switching costs for customers, enables an intensified competition (Klemperer, 1987, p. 377). Airline providers do not only face a large number on rivals but also a very strategic and effective competition since the market became more liberalized. The removal of price restrictions is just one of many effects of the deregulation (Xiaowen, Tae Hoon, & Anming, 2010, p. 27). All of these different factors lead to the conclusion

However, airline providers have many individual customers, as well as travel agencies and online portals which limits each customer’s influence. Although they can easily choose between single providers and decide for the most suitable offer, they do not buy in large volumes which also restrains their power. Noll (2005) defined buyer power as the state when “the buyer can force sellers to reduce price below the level that would emerge in a competitive market” (p. 589). Since customers in the airline industry are not able to exert that much pressure on carriers, such that they would reduce their prices, it can be concluded that buyers are less strong and, therefore, possess only little power. There are different suppliers in the airline industry but the paper just focusses at the major manufacturers, such as Airbus and Boeing. Due to the specialized and complex products they offer, they are dependent on airline providers because they are their only source of income. This explains the long term contracts they perform which increases the switching costs for carriers. Although the products are relatively standardized, there does not exist a wide choice between manufacturers which strengthens the position of the suppliers. But due to their dependency on the airlines, their power is rather