Commercial Airline Industry

Commercial Airline Industry February 17, 2014 Bargaining Power of the Buyer The power of the buyer is extremely low in this industry for a variety of reasons. An airline customer is looking for a specific flight time and the final destination cannot be switched. This lowers the customer’s power to have an immediate threat on the airline because the convenience and efficiency of using a plane over another form of transportation is too high.

Although the customer may have loyalty to certain airlines depending on if they want a flight that offers comfort at a higher cost or offer lower cost but do not focus on the amenities as much, they still will stayed within the airline industry for transportation. Recently customers have increased the want of flying premium, such as first-class and business-class, which has airlines looking into more amenities for the customers rather than finding the cheapest flight from point A to B. (“You still fly,” 2008)A new group of buyers that has entered the market recently are web portals, such as orbits, seductiveness, and kayak.

Bargaining Power of the Supplier It is very difficult for the airline to switch between suppliers. The top manufacturing companies for the airline industry are Boeing and airbus. The planes that most airlines use are standardized between those two manufactures and the amenities they offer is what makes them different. The capital needed to enter the airplane manufacturing business is extremely high that many of the suppliers rely on the airlines for their business. Many manufactures offer long term contracts to airline companies as a way to make it more difficult for the companies to switch between appliers.

As mentioned in the previous section, customers have made an increase in flying premium which has increased the sale and demand of business aircrafts. (“You still fly,” 2008) Threat of New Entrants Capital Requirements: Airline industry requires a huge amount of capital in order to enter the industry. Product differentiation: All airlines use the same products By agonizing focusing on cost or amenities. (Killing, 2014) Switching Cost: They are low because customers have very specific times and locations which limits them on options.

Customers tend to have loyalty to certain airlines making it difficult for new entrants that are not known as well. Government Policy: are highly regulated by the Federal Aviation Administration and the Department of Transportation. Rivalry among Existing Firms Number of Competitors: The airline industry has reached its mature stage and the number of competitors stays relatively the same. Amount of Fixed Cost: The amount of fixed cost is very high because many of the airlines are long term contracts with the manufactures.

Height of exit barriers: Since the airlines are in long term entrants it makes it that much harder for a company to leave the industry. Rate of growth: although the industry has reached its mature stage, customers do seem to want more amenities and are willing to pay higher price. (“Transportation Business journal,” 2010) Threat of Substitutes The airline industry does have some form of threats of substitutes causing there to be risk but not enough to make it an extremely high risk. Customers do have other transportation options such as train, cars, and bus.

Although it becomes costly to witch to these methods because of the convenience that airlines offers as well as the fact that many customers have a limited time to travel. Since time is a high cost it doesn’t risk the threat of substitutes to the airline industry. Also gas prices have gone up in the recent years making it more costly for customers to use their cars to travel long distances compared to an airplane. Relative Power of Other Stakeholders The airline industry is highly regulated by the government through two departments, The Federal Aviation Administration and the Department of

Transportation. They make sure that airlines are following the safety regulations and pilots have the experience before being allowed to fly a plane. Sources You still fly commercial? That’s so down-market. (2008, June 17). The New York Times. Retrieved from http://search. Riding. Com/texts/rd/suite/ Industry: An Application of the Porter Model. ” Transportation Journal 35. 2 (1995): 26. Protest. “Research and Markets; US Airlines Industry – Porter’s Five Forces Strategy Analysis. ” Transportation Business Journal (2010): 18. Protest.