KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT

Balkumari, Lalitpur

An Assignment on “Industry Attractiveness and Competitive Advantage”

Submitted to:

Mr. Ajay Shrestha

Strategic Management (GEM 711)

Submitted by:
Prasansha Shrestha (21330)
MBA Spring 2021

Submission Date: 21st October, 2022

Q.) Please assess "Industry Attractiveness" based on porter’s 5 forces model in connection
with one of the following industries and make a conclusion as to what type of value
proposition would sustain competitive pressures in the said industry.
1. Domestic Airlines
2. Online Food and Grocery Delivery
3. Internet Service Provider

Answer
Any organization's strategy-building process begins with a Porter's Five Forces analysis. For any
business to survive, it is essential to understand who the competitors are and how their goods,
services, and marketing tactics impact our business. Using Porter's Five Forces model is one of
the techniques to examine our rivals and comprehend our place in the area. The five forces
model, first created by Michael E. Porter of Harvard Business School in 1979, examines five
distinct aspects that influence whether or not a business can be profitable in comparison to other
businesses in the field.

Porter proposed that formulating sound, strategic decisions and creating a compelling
competitive strategy for the future require a grasp of both the competing forces at work and the
overall industry structure. Porter’s five forces help us identify: whether the market/industry is
attractive or not, what are the opportunities and risks, how profits within the industry will be
distributed and estimate future trends.

Applying the five forces identified by Porter as influencing industrial competition in the context
of Domestic Airlines Industry:

i. Threat of New Entrants – low to moderate

There is no question that entering the aviation sector needs a significant financial commitment as
well as a number of legal procedures that must be rigorously followed. The industry requires
significant capital expenditures both at the entry-level and the exit-level. Any enterprise in the
aviation sector will only start to make a profit if it operates on economies of scale. Some Indian
players, including Spice Jet and Indigo, have benefited from emerging markets like low-cost air
travel and catering to varied customer needs. As a newcomer, this has helped them solidify their
position. However, in the case of Nepal, there aren’t many choices for the customers. Customers
need to choose from 20 airline companies that provide almost identical service and the
companies generally have loyal customers that do not switch easily. Thus, it will be very difficult
for new entrants until and unless they provide differentiated service than the competitors.
Moreover, new airline company will have to undergo rigorous and tedious process to obtain
license and complete the legal procedures. Thus these factors prevent new entrants from
emerging in the domestic airline industry.

ii. Bargaining Power of Suppliers – Low

Boeing and Airbus are the only two suppliers of aircrafts in the world. The production of the
aircraft is largely uniform, and amenities are the only area in which businesses can differentiate
themselves from. The majority of airline industries are under long-term debt agreements, and
planes demand enormous capital. For example, one plane costs about $200 million to construct.
Thus, these long-term contracts prevent airlines from quickly changing their suppliers.
Manufacturers are aware of how crucial their relationship with airlines is and based on this, there
is very little threat from suppliers' bargaining strength.

iii. Bargaining Power of Buyers – High

There is a great deal of concern about passenger's convenience and safety. Airlines go the extra
mile to ensure this. Additionally, establishing a strong brand, winning over customers, and
gaining market share are the areas that airline companies are focusing on. However, aggregator
websites that advertise a variety of options depending on time, cost, and layovers provide
passengers many options. Customers can compare costs online and make purchases from the
airlines of their choice. In these circumstances, brand loyalty is low, yet brand positioning is still
crucial because the clients have a limited number of well-known options. The switching cost for
customers is low and therefore the threat to the bargaining power of customers is high.

iv. Threat of Substitutes –Moderate to High

In the case of Nepal, there is a high probability that people will travel via road instead of sky,
mostly from economical point of view and due to safety concerns. Buses are the cheapest
alternative to travel across Nepal. However, due to the current road conditions, reaching the
destination takes a lot of time and some of the remote areas of Nepal such as Humla, Jumla, etc
are not connected by roads. Thus making air travel or trekking the only alternative. While
airways surpass in terms of convenience and time, consumers do choose buses for reasons
mentioned above. Despite of these facts, the number of people travelling via air has increased a
lot after COVID-19. Due to health concerns, people started travelling via air to prevent transfer
of infection, but now this has become a norm.

v. Rivalry among Existing Players – High

There is fierce competition among current players of airline industry for a number of reasons.
The aviation sector is dominated by a small number of major companies with evenly dispersed
market shares. Any new participant will face fierce competition, and current participants may
also be forced out of business because of a shortage of funding. Due to debt arrangements with
suppliers or significant exit costs, every existing player is committed to the game for the long
haul. The processes for buying tickets, flying, and checking in and out luggage are all relatively
standardized in the aviation sector. The positioning and ideals of the airlines' brands serve as a
point of differentiation. Amenities like food, drink, and Wi-Fi capabilities may also serve as a
distinctive feature. In current days, the market has become extremely saturated and the
competition is unchanged.

Value Proposition
The global economy and society both rely heavily on the aviation sector. The aviation sector is
crucial for the tourism industry; moreover, it also contributes to global economic growth,
expands employment possibilities, fosters trade ties, and creates connectivity. However, due to
an unprecedented global pandemic, economic recession, and protracted travel disruptions, the
aviation industry has been severely harmed.

In my view, airline industries can opt for following values in order to sustain competitive
pressures in the industry:
 Focus on increasing brand value by developing existing or new core competencies such
as decreasing flight time, on-time arrival and departure, customer service, amenities
within flight, cost, etc.
 Providing/expanding freight services. Consumers are increasingly involved in online
shopping and want their products as soon as possible. So airlines can explore on
increasing freight capabilities to increase their source of revenue.
 Transitioning to greener and sustainable fuels: Going green.
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