Influence of Rivalry Among Competitors in Airline Industry Essay

736 Words Oct 2nd, 2011 3 Pages
Influence of rivalry among competitors

Rivalry is the competitive struggle between companies in an industry to gain market share from each other. A more intense rivalry usually means that there are lower prices and more spending on non-price-competitive weapons. These would be things such as in-flight complimentary items like drinks and snacks. A more intense rivalry will lower prices and raise costs. This means that this makes the window for profitability smaller. If the rivalry is less intense, the company can raise its prices and spend less money on non-price-competitive weapons. This would mean an increase in industry profits. There are four main factors that deal with the intensity of rivalry among competitors in an industry:
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A second determinant of the intensity of rivalry among competitors is the industry demand. If demand for the industry increases, this tends to decrease rivalry because companies can then sell more without taking away market share from other companies. This then increases industry profits. If there is a decrease in demand in the industry, this then increases the rivalry between the companies. The only way for a company to grow is to take market share away from their competitors. So if more people want to fly instead of other modes of transportation, then this will generate larger industry profits because there is less competition between the companies. The industry doesn’t want to see a decrease in demand, because there is more rivalry between the companies, driving price down and resulting in a decreased industry profit. The third determinant of the intensity of rivalry among competitors is cost conditions. If a company’s fixed costs are high, then profitability is highly leveraged to sales volume. Then companies are trying to increase the sales volume which increases the rivalry between the companies. In the airline industry, fixed costs are very high. An example is having to pay just to land at an airport, labor fees, and cost of the airplanes. When fixed costs are high and sales volume is low, then the companies can’t cover their cost. This makes the companies

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