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Definition of the Airline Industry
Firstly, the definition of the Airline industry has to be provided to determine the key aspects while focusing on demand-side approach. In this case, the primary concepts of the airline industry are aimed at the convenience of the air transportation while offering the network of destinations to ensure the availability of the dissimilar travelling destinations around the world (Wensveen, 2007).
Meanwhile, the companies, which are operating in this sector, have to comply with regulations and growth principles while assuring safety and sustainability (Wensveen, 2007). In turn, it is apparent that the airline industry has a vast geographical coverage and consists not only out of air carriers but also implies the inclusion of airplanes, airports, service companies, and other participants, which determine the functioning of the overall segment.
Porter’s Five Forces
It could be said that the evaluation and objectives of the company’s strategy are defined by the industry’s external environment, as it determines the overall flow of decision-making in the organisation (Wensveen, 2007). In this case, threat of new entrants is moderate, as despite the necessity of the high investment in the initial establishment of the airline, the inability to reach the international market, and the well-established brands, the growth of the industry tends to be highlighted due to the overall increase of the competitors for the lower price (Cederholm, 2014). Meanwhile, the bargaining power of suppliers is high due to high costs associated with the switch of the providers with the domination of Airbus and Boeing (Wensveen, 2007).
As for the bargaining power of buyers, it could be said that it is high, as the buyers have an extended variety of options and do not experience loss of the economic efficiency while switching between the competitors of the industry. Speaking of the threat of substitution, this matter can be defined as moderate, as despite an extended variety of different means of transport, the airline industry has its benefits associated with the high level of efficiency and reasonable price to quality ratio. Meanwhile, other modes of transportation tend to exist but are limited to the domestic areas of operation (Wensveen, 2007).
Based on the factors provided above, it could be said that the overall rivalry is high, as the competition is intense with the high cost exist barriers (Ireland, Hoskisson, & Hitt, 2008). Meanwhile, the companies tend to have well-established brand images due to the extended operations in the market while assuring their loyal customers’ bases. In the end, a combination of the matters related to Porter’s Five Forces analysis represents the overall structure of the industry while defining its rivalry.
Based on the factors provided above, it is critical to assess the attractiveness of the overall industry, as this knowledge is crucial for newcomers and the companies with the well-established brand image. In this case, the attractiveness of the industry is questionable and can be defined as moderate, as it is associated with the intensified competition while combining it with the necessity of a high capital investment (Ireland, Hoskisson, & Hitt, 2008).
Nonetheless, the overall industry continues to grow due to the appearance of new companies in the market while causing the fluctuations in prices (Cederholm, 2014). These matters question the stability of the airlines with the well-established brand images while highlighting the importance of the price to quality ratio from the customer’s perception.
Cederholm, T. (2014). Economic impact of travel and tourism industry. Web.
Ireland, D., Hoskisson, R., & Hitt, M. (2008). Concepts and cases: Understanding business strategy. Mason, OH: South-Western Cengage Learning.
Wensveen, J. (2007). Air transportation: Management perspective. Burlington, VT: Ashgate Publishing Limited.