The Porter’s Five Forces analysis for the airline industry showed that four forces are very attractive for airline providers although market players face a highly intense competition. High entry barriers prevent potential market newcomers to fight for market share and the risk of being substituted is relatively low due to the time savings and convenience by traveling by planes. The power of buyers and suppliers is also low caused by their number and dependency on airlines. Looking at the results, it can be concluded that the airline industry is a highly profitable and attractive industry for well-established airlines. Discussion Since not all airlines are successful although the paper has just examined the attractiveness and profitability of the airline industry, there need to be another factor influencing a firm’s success.
Only very high efficient operations can keep the new entrants out of industry. Bargaining power of suppliers: This is high, since there are only few suppliers in the industry, and no direct substitute for their products. Product is very important element for buyers industry. Boeing and Air Bus are the only major suppliers to the industry. Pilots are trained for a particular airline, switching cost can be significant if airline plans to change their plans.
Threat of New Entrants. In the airline industry, the arrival of a new airline can be disruptive, particularly since new carriers tend to focus on high-value route corridors and bill themselves as bargain carriers. On the other hand, the cost of entry into the market is fairly high, and that fact together with the industry’s reputation for lim-ited profitability makes such disruptions rather rare. The airline industry needs huge capital investment to enter and even when airlines have to exit the sector, they need to write down and absorb many losses. This means that the entry and exit barriers are high for the airline industry.
Thus, the power of the suppliers is high, since the suppliers have a grip on the market due to the huge demand of their manufactured products. Moreover, suppliers can affect the industry through their capacities to raise prices or reduce the quality of purchased goods and services. Bargaining Power of Buyers The buyers in the airline industry are demanding more and better quality services .The bargaining power of buyers in the industry is high due strong as low switching costs and plethora of options in the market. Now, e-ticketing has improved the chance and flexibility to search for different airlines companies leading to down word cost pulls and upward services push. Furthermore, it eases of switching between different airlines companies.
Lower cost of flying urged more people to go on travel in a higher frequency and generated more income for entrepreneurs. This further intensified the air-bus market with additional competitors entering and existing firms were reorganizing strategically. Therefore, it was recommended that budget airline acquired another possible competitive edge, other than employing lower price, to establish an unceasing growth. References Fageda, X., Suau-Sanchez, P., & Mason, K. (2014). The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe.
In the case of the Caribbean Airline Industry such factors directly affect the profit margins of companies such as Caribbean Airlines or Liat that operate within the industry. Cost drivers are important because understanding the strategic use of identifying the cost drivers of various value chain activities can improve the performance of a company, allows managers to gain knowledge and awareness of the cost factors that impact
INTRODUCTION. At the present time, the airline industry faces many cost pressures. The industry has made remarkable achievements in improving its efficiency. But cost pressures continue, from record high fuel prices to unjustified increases in charges from monopolistic airports, to further taxes imposed by governments (industryspotlight.org.uk). Higher costs inevitably lead to higher prices for airline passengers.
Millions of people rely on the airline industry to travel quickly and efficiently between cities in the United states and throughout the world. Since 1978 where, when laws were put in place to promote competition in the market, the nation has relied on competition among airlines to promote affordability, innovation and make service improvements. The constant improvement of airlines and airplanes would in theory lead to lower prices for consumers. In recent years, however, the major airlines have raised some of the fares and the quality of the service has decreased. Competition is essential in any market as it avoids a high market concentration which consequently almost leads to higher ticket prices to be cheaper and always causes prices to increase and consumer surplus which is defined as the difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay to decrease.
Airline industry has become an essential part of the economy in both developed and less developed worlds. When the distances involved are far, air transport plays an important role in moving people and products from one place to another, be it domestic or international Oyewole, Sankaran, and Choudhury (2008). Route is one of factor to student preference in selecting airlines industry. The demand of air transportation industry increases continuously due to the growth of economy. Passengers take airplanes more frequently for business or tourism purposes, and many type of products and parts such as mobile phones, semiconductors, and computer parts are transported through airplane for timely deliveries (Ko & Hwang, 2011).
According to Adamkasi (2016) airline industry has affected negatively by increased security measures especially with the 9/11 occurrence. “The terrorist attacks known by their date, September 11, led to a global recession, with the depression of the consumers”. Economic Analysis Economic analysis addresses a number of factors that influence the entire economy. However, some of the factors of economic are the rate of inflation, unemployment rate, exchange rate the price of goods and services, the rate of interest that is charged on capital and investments, foreign exchange rate and economic growth and development. However, research has indicated that Virgin Atlantic has encountered stiff competition from other companies in the industry, for instance, they were once forced to lower the rate of their flight which follows a review of prices for air travels by their major competitors which include British Airways, Fly emirates, and Qatar Airways.