Shanker Dev Campus

Exploration of the Airlines Industry's Task

Environment Using Porter's Five Forces

Presented By: Saugat, Ashmita, Presented To: Madhu Paudyal

Manish, Nisha, Raghu, & Ishika Subject : Foundation of Business Management
Welcome to the Airlines Industry

Let's take a casual look at the

forces shap i ng the structure
of airlines industry. Fasten
your seatbelts, we're about to
take off!
 Porter's Five Forces Overview
Porter’s Model  Developed by the founding father of
Business strategy, Michael Porter in 1979.

 Widely used theory to develop business

strategy, to understand the strengths &
and weaknesses of a firm and also to
understand the market conditions.

 These forces shape the industry structure

determine the competitive intensity and
affect an industry's long-term profit
potential.

 The main purpose of it is to find a position

in an industry where a firm can defend
itself against competitive forces
 Airlines Industry

The airline industry comprises a

complex ecosystem of interconnected
entities responsible for offering air
transport services globally. At its core
are airlines, which operate flights for
passengers and cargo, utilizing
aircraft manufactured by companies
like Boeing and Airbus.
 Threat of New Entrants
The risk of new competitors entering the airline industry of Nepal is a
significant factor to consider:

• The seriousness of the threat depends on the barriers to entry in a certain

industry.

• The higher these barriers, the smaller the chances that more players will enter
the playing field and the smaller the threads for existing rivals.

• The threat of new entrants in the airline industry can be considered medium. It
takes quite some upfront investment to start an airline industry.
 Some examples of barriers to entry are:
 Government Regulations:
The Nepal airline industry is subject to government regulations and policies. New
entrants would need to comply with these regulations, such as obtaining necessary
licenses and permits. For example, when Buddha Air started operating in Nepal, it
had to meet all the regulatory requirements set by the Civil Aviation Authority of
Nepal.

 Limited Infrastructure:
The infrastructure required to operate an airline, such as airports and maintenance
facilities, is limited in Nepal. New entrants would face challenges in securing
appropriate infrastructure and facilities. For instance, when Yeti Airlines entered the
market, it had to invest in developing its own infrastructure to support its operations
 High Operating Costs:
Operating costs in the airline industry can be high, including fuel expenses,
maintenance costs, and employee salaries. New entrants may struggle to achieve
economies of scale and manage these costs efficiently.

 Brand Recognition:
Established airlines in Nepal, such as Nepal Airlines and Yeti Airlines, have built
strong brand recognition and customer loyalty over the years. New entrants
would need to invest in marketing and customer service to build their brand and
gain customer trust.

 Competitive Landscape:
The airline industry in Nepal is already quite competitive, with multiple
established players. New entrants would need to differentiate themselves and
offer unique value propositions to attract customers.
 Bargaining Power Of Buyers
=> Threat of Bargaining power of buyers: High

Bargaining power of buyers refers to the influence and control that customers have over the prices
in a market. The bargaining power of buyers could be rated as high, as air passengers have wide
variety of airlines to choose from and shop from for the best ticket price, online to save money.
#customers always want to pay less and get more.
The factors that makes the high bargaining power of buyers in airlines industry are as below :-

 Number of airline choices available.

=> Nepal airlines, yeti airlines, Buddha air, Shree airlines, Sita Air, Tara Air etc. are some of the
carriers in Nepal. More the choices higher the bargaining power of a customer.

 Third party buyers(agencies).

=> Esewa, Khalti, connect ips, makemytrip, travel agencies etc are some of the third party buyers
in the context of Nepal. They act as a pool between travellers and airline companies.

 Features offered by other brands.

=> Lucrative discounts and offers like “Buy two tickets and get one free”.
 Low Switching Cost
Þ If there are low switching costs for passengers, such as fees for changing flights or loyalty programs
that tie customers to a specific airline, it becomes easier for buyers to switch to other airlines, giving
them more bargaining power.

 Intense Competition
=> There is an intense competition between airlines companies which reduces their net profit margins
and there is also a great challenge in retaining those travelers who flewed earlier in the same airlines.

 Customers safety, services and Satisfaction:

=> Airlines that provide excellent customer service and consistently meet expectations can build
customer loyalty. Dissatisfied customers may switch to other airlines, increasing their bargaining power.

 Industry Regulations:
=> Regulatory frameworks that promote competition and protect consumer rights can enhance the
bargaining power of buyers. If regulations make it easier for new airlines to enter the market, it can
increase competition and benefit consumers.

Therefore, airlines industry has high business risk because most people cant afford it, & price of air
tickets are too high compared to the earnings of Nepalese, in the context of Nepal.
Bargaining Power of Suppliers
Threat of Substitutes
Competitive Rivalry
Bargaining power of Conclusion Threat of New
suppliers = High
Entrants = Low
Business risk = High New Business/profitability
Entrants risk = Low

Bargaining Bargaining
Competitive
Power of Power of
Rivalry
Suppliers Buyers

Bargaining power
Threat of Substitutive Threat of of Buyers= High
commodities = Low Substitute Threat of
Profitability
products rivalry &
Business risk = High
Business risk= low risk = High
 Threat of New Entrants:
It can be quite challenging for new airlines to enter the industry due to high
barriers such as capital requirements, regulations, and established brand loyalty.

 Bargaining Power of Suppliers:

Suppliers, such as aircraft manufacturers and fuel providers, hold significant power
in the industry. This can impact airlines' costs and profitability.

 Bargaining Power of Buyers:

Buyers, which are the passengers in this case, have relatively high bargaining
power. They can compare prices, choose from different airlines, and demand
quality service.

 Threat of Substitute Products or Services:

The conclusion is that there are various substitute options available for passengers,
such as trains, buses, and even video conferencing. This can impact them.
 Thanks!
Do you have any queries?