Essay on Porter Five Forces of Air Asia

1624 Words Mar 6th, 2011 7 Pages
Porter’s Five Forces
Threat of new Entrants
Threat of new entry is moderate, because it requires high capital to support and government barrier is high such as the air service agreement can build barriers to those new entrants.
The degree of barriers to entry depends on the strength of:-
• Customers have a little bit of brand loyalty.
If customers of AirAsia do not have brand loyalty, then the threat of new entrants will be very high. But the higher numbers of competitors in the industry also will decrease AirAsia’s customer loyalty. Due to most of the travelers prefer low cost. New competitors which want to come in the industry need to spend a little to compete with AirAsia.
• Higher Capital Requirement
The airline industry needs
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Customers can compare each airline by the Internet so the information about the price and service is quite clearly.

• No significant product differentiation.
The only difference AirAsia’s product with others airlines is the holiday packages offered. Most of the low cost airlines concentrate on providing flight services to customers only. There is some offers hotel booking at the city that the airline flies to. However, AirAsia makes the difference by providing holiday packages like 3 days and 2 nights to Bali at RM800 per package includes flight ticket, accommodation and travel guides. For customers who do not want to follow the travel agencies and enjoys freedom, they will look for AirAsia’s packages, but the customer’s portion of this type is small. Thus, the bargaining power of buyers is strong as the main thing they look for is to fly to destinations.
• Switching cost is low.
Bargaining power of buyers is strong, so the cost of switching to other airlines is low. Airasia is not the only airlines operate in Asia. Besides that, the prices offered by other competitors are not much different. The main thing of customer choice is their convenience and flight schedule that fit them best.

• Portion of buyers expenditure on airline is moderate.
This factor depends on portions of individual earns. The higher the portion, the more the customer looks for cheaper price. Thus, the stronger the bargaining power of buyers. For example,

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