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Competitive Analysis of the Airline Industry

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Competitive Analysis of the Airline Industry

  1. 1. COMPETITIVE ANALYSIS OF THE AIRLINE INDUSTRY Prepared by BooM
  2. 2. BARGAINING POWER OF SUPPLIERS Boeing and Airbus are the two suppliers of aircrafts in the airline industry, this means in the airline industry, the suppliers have a high bargaining power. In this industry, the buyers; the airlines have a lower bargaining power, as there are few suppliers and many buyers. In terms of switching cost, it might be low due to the competition between the two producers. Switching cost is also high as many airlines are tied to long term contracts with airline manufacturers.
  3. 3. BARGAINING POWER OF THE BUYERS The buyers in the airline industry have a high bargaining power. Customers have better access to information about ticket prices. Yeoman, I. (2013) posits that “Soaring rates of smartphone ownership mean the global consumer is becoming better equipped to chase value right up until the moment of purchase.” The switching cost is also low, customers are not loyal to any brand. Deloitte "Rising above the Clouds” survey found that airlines customer reward programs aimed at driving brand loyalty was not effective 50 percent of overall respondents were enrolled in two or more airline loyalty programs.
  4. 4. THE THREAT OF POTENTIAL NEW ENTRANTS Capital Requirement Airlines are capital and labour intensive, there are low net profit, high fixed costs relative to revenue and high taxes. Economies of Scale Existing airlines in the industry enjoy economies of scale. The size of their operations helps cover their fixed costs, and their experience helps improve efficiency. Experience Benefits People are less likely to patronize airlines they do not trust, due to safety concerns. Customers feel safer with airlines with have a proven safety track record. This would not be available to new entrants.
  5. 5. THE THREAT OF POTENTIAL NEW ENTRANTS Access to low cost inputs Established airlines have better credit worthiness than new airlines. Established airlines also benefit from long term relationships with aircraft suppliers. Customerbrand loyalty There is low brand loyalty in the airline industry, Customers are price sensitive, they have access to latest prices, and this makes it difficult for airlines to establish any strong loyalty in their customers. Government policy The airline industry is heavily regulated and monitored by both local and international authorities.
  6. 6. THE THREATS OF SUBSTITUTES The airline industry faces competition from direct sources like trains, Ferry, Yacht, Ships and even vehicles. There is also teleconferencing which is an indirect substitute for Business travellers. There are now several viable alternatives available to business traveling. Teleconferencing and improvement in communication technology provides cost-efficient and time-conscious alternatives to Business travelling.
  7. 7. EXTENT OF COMPETITION The extent of competition in the airline industry is high, as there are many airlines competing for the ever growing number of passengers patronizing the airlines operating in the industry. Airline operating in this industry strive to ensure their customers are very satisfied with the services they offered, this is to ensure that the customers patronize them repeatedly. In conclusion, the airline industry is not an attractive industry to invest in, the capital requirement is high, the suppliers and consumers have high bargaining power.

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  • quickstrategy

    Mar. 31, 2018
  • MohamedAslamSuja

    Nov. 28, 2018

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