Porters 5 Forces Indian Airlines Industry

Bargaining Power of Supplier

The power of suppliers in the airline industry is Very High because of the fact that the three inputs
that airlines have are all affected by the external environment.

Fuel: For instance, the price of aviation fuel is subject to the fluctuations in the global market for
oil. To reduce costs from fluctuating market prices of fuel airline companies hedge fuel.

Labor: Similarly, labor is subject to the power of the unions who often bargain and get
unreasonable and costly concessions from the airlines.

Aircraft: Third, the airline industry needs aircraft either on outright sale or lease basis which

means that the airlines have to depend on the two companies, Airbus, and Boeing for their aircraft

needs. Most firms have long-term contracts with their suppliers. Planes are high capital products

that firms probably make long-term loan agreements and have more favorable credit terms when
they dont switch companies.

Bargaining Power of Buyer Power

The geographic scope of airline industry is not limited to local or national level but it is at a global
level. The following conditions indicate that a buyer group is powerful:

In Civil aviation industry, the buyers are dispersed and buy mostly in low volumes.

Products purchased from the industry are differentiated

Few switching costs exist (little penalty for moving to another supplier)

The buyer does not have full information (knowledge of demand, market prices and
supplier costs could them with leverage).
The above indicators show that bargaining power of the buyers is categorized as low according to
the Porters Five Forces framework

Competitive Rivalry

The Indian civil aviation industry is on a high growth trajectory. India has a vision of

becoming the third largest aviation market by 2020 and is expected to be the largest by

2030.

The various airlines are competing for the same customers, they are competing in terms of
prices, technology, in-flight entertainment, customer services etc.

The cost of competition is very high due to:

High number of competitors

Fixed cost is high

Exit cost is high

Similarity of product offering

This is the reason Competitive Rivalry is categorized as high according to the Porters Five Forces
framework.

Threat of Substitutes

Civil aviation industry has a medium substitute risk level.

There are substitutes in the airline industry. Consumers can choose other form of

transportation such as a car, bus, train, or boat to get to their destination.

There is however a cost to switch. Some means of transportation can be costlier than a

plane ticket.
 The main cost is time. Planes are by far the fastest form of transportation available. Airlines

surpass all other forms of transportation when it comes to cost, convenience, and

sometimes service.

Consumers do sometimes choose other methods for various reasons such as cost if they
are not traveling very far which raises the risk.

As for complementary, the provision of services like Wi-Fi, meals and other amenities

offered by airlines does not translate into more passengers as in the recent past, fliers have
been induced more by lower fares than by add-on amenities

Threats of New Entrants in Aviation Industry

This aspect has a low threat for the airline industry.

There are extremely low switching costs.

There are no proprietary products or services involved.

This industry requires a large amount of capital and without a strong customer base there

will be little to no profit in the first few years.

The time and money spend to solely open an airline company is enough to prevent most
people from entering the industry.

Thus, threat of new entrants in civil aviation industry is categorized as low according to the Porters
Five Forces framework.

According to the above understanding the most important force that drives the civil aviation
industry is the Bargaining power of Suppliers, which in turn also affects the other forces.