Now with a basic understanding of the general environment, we can use Porter’s Five Forces to focus more on the local environment surrounding the industry. These five forces include: threat of entry, threat of substitutes, threat of suppliers, threat of buyers, and threat of rivalry. When each analysis of these five forces are combined, an individual can determine how competitive the industry really is and if an entering firm even has a chance of survival or profit.
Threat of Entry-Moderate
When a new entrant is introduced to an industry they bring an increase in capacity and a desire to gain market share from existing firms. However, in order to enter the industry the new firm must overcome a wide range of barriers presented before them. The …show more content…
A substitute can have close or distant relations with the industry; it is a substitute as long as it fulfills the same customer needs, but in different way. In the airline industry, the threat of substitutes comes from cars, trains, buses, or boats. The level of threat these substitutes cause an airline depends on the market we are considering: national or international.
When it comes to the national market, substitutes pose a moderate threat to the airline industry. Cars, trains, and buses are all cheaper sources of transportation compared to flying, but take more time to than flying. So if a customer does not want to pay high prices for an airline ticket, the substitute of road or rail transportation can be a viable source. On the other hand, with international transportation, substitutes are a low threat. Airlines are much quicker and safer when compared to other forms of transportation in the international …show more content…
Both of these suppliers pose a high threat to the airline industry’s performance. The airline industry has no power over the oil suppliers; oil suppliers (e.g. BP or Shell) supply to everyone around the world from gas stations to major airlines to governments. Airlines, though they might constitute a significant portion of the oil industry’s sales, will not make or break the industry. There will always be someone else to whom oil and fuel can be supplied. In a New York Times article titled “Airlines Reap Record Profits, and Passengers Get Peanuts”, Jad Mouawad discusses the “fuel surcharges” that airlines imposed on travelers in order to make up for the hike in oil prices several years ago (2016). This hike affected the industry, but they had no way of controlling it. This results in more power in the hands of this particular
Threat of Entry-Moderate
When a new entrant is introduced to an industry they bring an increase in capacity and a desire to gain market share from existing firms. However, in order to enter the industry the new firm must overcome a wide range of barriers presented before them. The …show more content…
A substitute can have close or distant relations with the industry; it is a substitute as long as it fulfills the same customer needs, but in different way. In the airline industry, the threat of substitutes comes from cars, trains, buses, or boats. The level of threat these substitutes cause an airline depends on the market we are considering: national or international.
When it comes to the national market, substitutes pose a moderate threat to the airline industry. Cars, trains, and buses are all cheaper sources of transportation compared to flying, but take more time to than flying. So if a customer does not want to pay high prices for an airline ticket, the substitute of road or rail transportation can be a viable source. On the other hand, with international transportation, substitutes are a low threat. Airlines are much quicker and safer when compared to other forms of transportation in the international …show more content…
Both of these suppliers pose a high threat to the airline industry’s performance. The airline industry has no power over the oil suppliers; oil suppliers (e.g. BP or Shell) supply to everyone around the world from gas stations to major airlines to governments. Airlines, though they might constitute a significant portion of the oil industry’s sales, will not make or break the industry. There will always be someone else to whom oil and fuel can be supplied. In a New York Times article titled “Airlines Reap Record Profits, and Passengers Get Peanuts”, Jad Mouawad discusses the “fuel surcharges” that airlines imposed on travelers in order to make up for the hike in oil prices several years ago (2016). This hike affected the industry, but they had no way of controlling it. This results in more power in the hands of this particular