Airlines Porter's Five Forces Analysis
The airline industry landscape changed dramatically after the U.S. Airline Deregulation Act in 1978. The legal deregulation of 1978 created more opportunity for low-cost carriers to enter the market operating using point-to-point systems with the same aircraft model as traditional airlines (Dess, Lumpkin, Eisner, & McNamara, 2014). Airlines have more flexibility in routing structures and the ability to implement new affordable pricing strategies, resulting in a more competitive market. From 1993 to 2009, low-cost carriers gained competitive advantage increasing their market share in the airline industry. According to Tan (2016), “low-cost carriers increased to over 119 million passengers in 2007 resulting in …show more content…
In the airline industry, buyers exert a moderately high level of control since there are minimum switching costs, products and services are standardized, and there is an extensive amount of information available to buyers about other airline carriers. Low-cost carriers like Southwest and JetBlue focus on providing consumers with low-fare travel options, while legacy airlines like Delta and United Airlines provide quality service with more amenities at a higher fare price. Technology, especially the Internet has become a driving force behind the increasing power of consumers, allowing buyers the preference to compare prices, review flight schedules, and check service performance before selecting an affordable airline carrier to travel. Leisure travelers are price conscious and might find alternative modes of transportation instead of traveling by aircraft, however the airline will remain the best choice when traveling extremely long distances and when time is a …show more content…
Boeing and Airbus manufacturers have immense bargaining power since the airline industry has high switching cost associated with using alternative aircrafts. Fuel is one of the highest expenses associated with the aviation industry and is highly dependent upon supplier’s price and availability. Therefore, increasing fuel prices can affect the airline’s profitability. Additionally, the airline’s labor unions are a key supplier group and have strong negotiating power over the market. As a result, airlines need to develop and maintain strong long-term relationships with aircraft manufacturers, fuel suppliers, and labor unions since they hold a powerful position in the market.
The Threat of Substitutes
The airline industry has a low to moderate substitute risk level since there are several different means of transportation available. Consumers have the option to travel to their destinations by “cars, buses, trains, or boats however switching costs are involved (Airline Industry Analysis). Consumers prefer these modes of transportation when traveling short distances and when airfare prices are on the rise (Strategy Development, 2016). However, airplanes are the fastest form of transportation available and the best option for traveling long distances.
The Intensity of Competitive