Threat of Buyers-High
There are three main types of buyers: travel agencies, businesses and individuals. Many travel agencies, such as Expedia, Kayak, and Orbitz, purchase flights that they can resell to consumers to make a profit. Some businesses use airlines for business-related trips while others use them to ship different items. Individuals mainly use airlines for leisure purposes or for emergencies. Whatever the reason may be, airlines prove to be a necessity for buyers because they are fast, efficient, and convenient.
Although airlines do have all of those traits, there is not much product differentiation throughout the industry. No matter what flight one takes, all of the airlines are still very similar. Most of the planes look alike and have the same setup, which makes switching from company to company easy. The overall switching costs are low, so the threat of buyers is relatively high in this industry. Instead of favoring a particular company, most buyers get on the flight that can get them to their location the fastest and cheapest, indicating little to no customer loyalty. Because of the lack of product differentiation, airlines have come up with incentives to offer their buyers to inspire brand loyalty. Most airlines offer sky miles, which gives you a certain amount of points for every mile you take on their airline. Those points can then be used to purchase flights or even prizes. Many airlines also offer credit cards to their customers which include benefits such as free checked bags and pre-boarding. Southwest, for example, offers their customers a “Southwest Airlines Rapid Rewards Premier Credit Card on which you can get 6,000 bonus points that don’t expire and one or two points for every $1 you spend with them” (Southwest Rapid Rewards, 2016). This demonstrates that airlines are doing whatever it takes to differentiate their service from that of their competitors. The high threat of buyers can only be reduced by airlines building a reputation different from all others and creating that customer loyalty found in so many other industries. Threat of Rivalry-High When considering all the other forces previously discussed, we can fully support the fact that competition in the airline industry is extremely high. There are many factors to consider to be …show more content…
The external environment has eliminated several firms over the years and caused others to take drastic measures to stay alive. Even then the five forces all point to a highly competitive environment with few sustainable competitive advantages. In the airline industry, if a firm were to create an advantage it would soon be on every other firms’ planes. This results in a temporary competitive advantage that will lead to competitive parity. There is no top airline carrier in this industry; only carriers that have been able to survive the competition and, if lucky, make a profit due to the high strength found within Porter’s Five Forces. However, if a carrier can find a hidden niche in the market, they can make large profits, if even for a short period of time. Even then, the first mover advantage may lead to other advantages such as stronger reputation or higher switching costs. In the end, profitability is an option in this highly competitive industry, but only for those who choose the right strategies to overcome the high threats within the industry’s local and general
There are three main types of buyers: travel agencies, businesses and individuals. Many travel agencies, such as Expedia, Kayak, and Orbitz, purchase flights that they can resell to consumers to make a profit. Some businesses use airlines for business-related trips while others use them to ship different items. Individuals mainly use airlines for leisure purposes or for emergencies. Whatever the reason may be, airlines prove to be a necessity for buyers because they are fast, efficient, and convenient.
Although airlines do have all of those traits, there is not much product differentiation throughout the industry. No matter what flight one takes, all of the airlines are still very similar. Most of the planes look alike and have the same setup, which makes switching from company to company easy. The overall switching costs are low, so the threat of buyers is relatively high in this industry. Instead of favoring a particular company, most buyers get on the flight that can get them to their location the fastest and cheapest, indicating little to no customer loyalty. Because of the lack of product differentiation, airlines have come up with incentives to offer their buyers to inspire brand loyalty. Most airlines offer sky miles, which gives you a certain amount of points for every mile you take on their airline. Those points can then be used to purchase flights or even prizes. Many airlines also offer credit cards to their customers which include benefits such as free checked bags and pre-boarding. Southwest, for example, offers their customers a “Southwest Airlines Rapid Rewards Premier Credit Card on which you can get 6,000 bonus points that don’t expire and one or two points for every $1 you spend with them” (Southwest Rapid Rewards, 2016). This demonstrates that airlines are doing whatever it takes to differentiate their service from that of their competitors. The high threat of buyers can only be reduced by airlines building a reputation different from all others and creating that customer loyalty found in so many other industries. Threat of Rivalry-High When considering all the other forces previously discussed, we can fully support the fact that competition in the airline industry is extremely high. There are many factors to consider to be …show more content…
The external environment has eliminated several firms over the years and caused others to take drastic measures to stay alive. Even then the five forces all point to a highly competitive environment with few sustainable competitive advantages. In the airline industry, if a firm were to create an advantage it would soon be on every other firms’ planes. This results in a temporary competitive advantage that will lead to competitive parity. There is no top airline carrier in this industry; only carriers that have been able to survive the competition and, if lucky, make a profit due to the high strength found within Porter’s Five Forces. However, if a carrier can find a hidden niche in the market, they can make large profits, if even for a short period of time. Even then, the first mover advantage may lead to other advantages such as stronger reputation or higher switching costs. In the end, profitability is an option in this highly competitive industry, but only for those who choose the right strategies to overcome the high threats within the industry’s local and general