This industry requires plane and flying experience which also lowers the threat of entry. There is also a huge safety aspect involved and most consumers feel safer with firms that have been around for a long period of time. Airline tickets are expensive so people don’t want to give that money to firms they don’t trust. Existing firms can and will use their high capital to retaliate against newer firms with whatever means necessary such as lowering prices and taking a loss.Īlthough there are low switching costs between brands, consumers tend to only chose well-known names. 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. Existing firms have a large cost advantage. Second, there are no proprietary products or services involved.Įven with these two aspects the industry still has a very low threat overall. First, there are extremely low switching costs. There are two aspects that do however raise the threat level. This aspect has a low threat for the airline industry. Threat of new entrants is another major aspect of the five forces. Based on these things the bargaining power of suppliers has a low threat as well. Airline firms are the only source of income for these manufacturers so their business is extremely important. For this reason there are very few suppliers in the airline industry. The amount of money and expertise needed to make even one plane is around 200 million dollars. It is difficult to enter into the plane manufacturing industry because of the capital needed to enter. Planes are such high capital products that firms probably make long term loan agreements and have more favorable credit terms when they don’t switch companies. Most firms have long term contracts with their suppliers. Currently some manufacturers are trying to make their plans more ecofriendly.Īirline companies cannot easily switch suppliers. Airline companies only seem to differentiate with amenities. In this industry the inputs are extremely standardized. The top two manufacturers in the world currently are Boeing and Airbus(Odell,Mark). In this case the major suppliers are the airplane manufacturers. Next we look at the bargaining power of the suppliers. Overall the bargaining power of buyers has an extremely low threat in this industry. Some airlines focus on cost, while others focus on having the best amenities, etc. Buyers need to understand the timing of the flight and the safety aspects of flying in general. They need to know the details of what is provided during the flight. Each customer needs a lot of important information. This is some loyalty to firms but not enough for high switching costs. There are low switching costs between firms because many people choose the flight based on where they are going and the cost at the time. Between these two groups there is definitely a large amount of buyers compared to the number of firms. They work with multiple airline firms in order to give customers the best flight possible. This buyer group works as a middle man between the airlines and the flyers. They can do this through the specific airline or through the second group of buyers travel agencies and online portals.
This group is extremely diverse most people in developed countries have purchased a plane ticket. They buy plane tickets for a number of reasons that can be personal or business related. The airline industry is made up of two groups of buyers. In order to analyze the airline industry we have look at each of these forces. The five forces model is one way to answer the first basic question in strategic management “Why are some industries more attractive than others?” This model shows the five forces that shape industry competition threat of new entrants, bargaining power of buyers, threat of substitutes, bargaining power of suppliers, and competitors. Some firms are able to fly their planes all over the world while others focus on smaller geographic areas. The geographic scope of the airline industry is at a global level. The service of transportation is provided in other industries but the airline surpasses all of them when it comes to timeliness. They have things such as food, drinks, entertainment, and a welcoming staff. Airline companies pride themselves on the way they treat their customer during the flight.
It transports people with a high level of convenience and efficiency that cannot not be provided by any other industry or substitute. The Airline industry provides a very unique service to its customers.
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