Air Asia Essay

1574 Words Apr 26th, 2015 7 Pages
Porter's 5 forces analysis on Air Asia

Porter's 5 forces analysis on Air Asia

Threat of new Entrants
The extent of barriers to entry depends on the strength of:

Customer has little brand loyalty. If consumers of Air Asia do not have brand loyalty, then the strength of the threat of new entrants is very high. The high numbers of competitors in the industry also decrease Air Asia customer loyalty. Most of the travelers prefer low cost. New competitors which want to come in the industry have to spend little to compete with Air Asia.
High capital requirement. The industry of airline needs large volume of start-up capital. The cost of setting up of offices, buying or leasing aircraft, hiring pilots and other staffs like air
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In obtaining license and permit to operate an airline company is quite restricted. This is because in Malaysia, the airline industry is very competitive already and that the government also wants to protect the interest of its national airline, MAS which is operating on loses a few years back.

Rivalry among existing firms
The strength of this factor depends on:
High numbers of rivals. There are approximately 59 low fares and no frills airlines compete with Air Asia Among of them are Tiger Airways, JAL Express, Jet Star Airways, Air Arabia and etc. Some of the airline does not compete directly with Air Asia, but it competes indirectly in routes that Air Asia does not fly. Thus, the higher the number of competitors, the more fierce the competition.
High fixed cost. The airline industry incurs high fixed cost which consists of finance cost, hire purchase, and staff costs. The airline companies have to gain more market share to cover the fixed costs. In doing that, constant price reduction is done by them to compete with others. Thus, the rivalry is strong.
Customers easily switch. The nature of airline industry is that customer’s priority is to look at price and flight schedule that suits them the best when buying air tickets. The main purpose of using the airline services is to get to the destination intended. Customers can switch to other airline easily which makes the industry so competitive.
High exit cost. It is hard for an airline company to exit

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