The Industry Environment

Supplier power

Power of suppliers gives information regarding the power and hold of a supplier for a company
having the ability to increase prices or decrease the quality of items which would decrease the
potential of profits of the industry. The amount of suppliers and availability of multiple suppliers
are the factors which determine the power of suppliers. If there are less suppliers, they have more
power. Those businesses which have multiple suppliers have a better system. The bargaining
power of suppliers can be huge in the airline industry. The major inputs require by the airline
companies is fuel and aircrafts. However, these inputs are affected by the external environment
which the airline companies have little to no control over. Fluctuations in the global market
cause the changes in price of airline fuels which can be heavily affected by geopolitical and
various other factors. There are only two major aircraft suppliers, Boeing and airbus. Therefore,
they have a huge bargaining power over the amount they charge from customers.

Buyer power

Bargaining power of buyers represents the market of outputs. The team analyzes the degree to
which consumers can impact the company, which also influences the customer's pricing
sensitivity. When there are not many and the customers are able to purchase from other options,
the customers have a lot of control. In fact, moving from one business to another would be easy
for them. Nonetheless, buying power is weak as consumers purchase limited amounts of goods,
behave individually and the product of the retailer is very different. The internet has improved
transparency and thereby motivated consumers. Customers can conveniently compare prices
online, provide details on different goods and quickly access other companies 'deals. The
businesses that, for example, introduce loyalty programs or distinguish their goods and services,
take measures to minimize the purchasing power.
Buyers in the airline industry have a strong negotiating power. The several websites for online
price comparisons such as Skyscanner and Expedia enable customers to compare rates of various
airline companies easily. Furthermore, the process requires no switching costs. Nowadays,
consumers can travel to and from their destination with various carriers if this decreases the cost.
Therefore, brand loyalty does not tend to be so strong. Some airlines seek to improve that with
frequent flyer services to help travelers who return to them periodically. [ CITATION Jac \l 1033 ]

Potential entrants

Airline newcomers may be considered to be a threat from low to medium levels. In order to start
a business (e.g. buying aircraft) it needs many early investments. In addition, new entrants
require permits, insurances, networks of distribution and other skills that are not readily obtained
when you are new to the sector. In addition, existing players may be expected to have acquired
considerable experience over the years to reduce costs and increasing the quality of service. A
novice is unlikely to have this form of experience, creating an immediate competitive
disadvantage. Nevertheless, new doors for potential entrants open, owing to the liberalization of
market access and the presence of choices such as availability of leasing and foreign funding
from banks, investors and aircraft producers. While entering into the aviation industry doesn't
sound very enticing to businesses, it is NOT impossible. Over the years, numerous low-cost
carriers such as Southwest Airlines, RyanAir and EasyJet have successfully entered the industry
through creative cost-cutting business models that shake original competitors such as American
Airlines, Delta Air Lines and KLM.[ CITATION Ovi13 \l 1033 ]

Substitute products

The occurrence of items above the traditional standard limits enhances consumers 'willingness to
consider different approaches.. To find these choices one should look deeper than like goods
marketed by competitors differently. Each product fulfilling a specific consumer need should
also be taken into account. Energy drinks such as Redbull are usually not treated as a coffee
brand rival such as Nespresso or Starbucks. Since coffee and energy drinks serve a common
requirement (i.e. stay alert) consumers will be able to move between themselves if they feel that
prices in either coffee or energy drinks escalate too much. This essentially affects the
competitiveness of an industry and is therefore critical when evaluating the standard of the
industry. In terms of the airline industry, the general needs of its customers fly. It should be
evident that, aside from flying on an aircraft, there are other alternatives. Customers may either
choose to go by train or go by car, considering th shortage of time and length of travel. High
speed trains such as Bullet Trains and Maglev Trains are increasingly used in Asia in particular.
In addition, the aviation industry could face some significant competition from Elon Musk's
Hyperloop design where passengers fly through a vacuum tube that reaches speeds of 1200 km /
h in capsules. In general, the challenge of substitutes can be considered at least medium to large
in the airline industry.

Rivalry among existing competitors

The last forces in the Porter's Five Forces analyze how strong the current market rivalry is based
on the number of established competitors and the skill of each competitor. Rivalries are strong
when many rivals are around equal in size and strength, when the market expands gradually and
when customers can quickly turn to a better deal at low costs. The concentration ratio of an
company is a great representation of competition economically. The lower the ration, the greater
the rivalry. When the market is big, rivals will undoubtedly participate aggressively in marketing
and price wars, which can harm the bottom line. In addition, rivalries are strengthened when exit
barriers are high and companies are forced to remain in the sector even though profit margins
decline. For example, long-term credit agreements and high fixed cost barriers may be the
barriers to the exit. When we look at the US airline industry, we see that it is highly competitive
because of a variety of reasons including the introduction carriers available at low cost, the close
regulation of the industry where protection is crucial and leads to high fixed costs and exit
barriers, a Customers often have very low costs for switching, and many market players of
similar size have a greater rivalry between them (see diagram below). Completely taken,
competition between established airline industry competitors is strong.[ CITATION Mar19 \l 1033 ]

Bibliography
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Retrieved from Finance: https://www.toptal.com/finance/market-research-analysts/porters-five-
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Jurevicius, O. (2013, May 27). Porter's Five Forces. Retrieved from Strategic management
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Martin, M. (2019, December 3). How Porter's Five Forces Can Help Small Businesses Analyze
the Competition. Retrieved from Business news daily:
https://www.businessnewsdaily.com/5446-porters-five-forces.html