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The Airlines industry: Porter's 5 forces

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Nattanan K.
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  1. The airlines industry: Definition
  2. Evolution of the market
  3. Criticism of Michael Porter's 5 FORCES

Airlines are companies and their aim is to operate routes and carry passengers. We will not analyse the cargo part of the airlines here but only the passenger carrying. An Airline can be:
? A national company (airline owned by the government of a country). It normally conducts scheduled flights but can sometimes conduct chartered ones.
? A regional company (airline which only conducts domestic flights between regions of a country).
? A public company (airline the main shareholders of which are the public such as national or regional institutions). They can conduct all types of flights.
? A private company (established on private investments).

[...] They also try to put forward their network and their reliability and safety but in a lower measure. The thing is that they all have the same approach on how to get a competitive advantage, but they also know that there can only be one price leader, and also that they all offer more or less the same services. So it is a cut-throat competition among the competitors. All the companies see the low-cost rivals as their main threat. All this competition makes the market industry growth average and the customers are not very faithful to a particular company because of the different options they have in comparing prices. [...]


[...] For the low-costs companies, these substitutes are not so threatening because of the low prices of the tickets which enables them to have a better balance of power. Competitive rivalry Competitive rivalry describes the competition between the established firms in an industry. The airline industry is a very competitive market as it is very saturated. As a result, the companies are first of all searching to differentiate themselves from their competitors by offering good service qualities and low fares (according to a survey of the Copenhagen business school's students) (http://www.aea.be/aeawebsite/webrsc/resources/07_SURVEY_Model_Innovation.pd f viewed on 1st of December). [...]


[...] The fact is that they must rely on three powerful suppliers that can make them lose money in case of conflicts. Substitutes Airlines' substitutes are as we can expect the other forms of transport. It can be transport by road (with cars, buses), railways, or sea. But these substitutes can be strong with one airline, as they can also be very weak for another one. Take the example of an international airline: the road won't be a substitute if the distance of travel is 10,000 miles. A ship will no more be a substitute if the journey is across land. [...]


[...] And as an external analysis cannot only be focused on the micro or the macro environment, linking these two tools is more effective. Finally, the strategy also has to take into account the company itself and its strengths and weaknesses, the SWOT analysis has to be additional to the other two. Bibliography 1. Investopedia website, Handbook, http://www.investopedia.com/features/industryhandbook/airline.asp [accessed the 28th November 2008] 1. Boeing website, Current Market Outlook 2008-2027, http://www.boeing.com/commercial/cmo/ [accessed 25th November 2008] 2. Vallfly website, 12/03/2008, Obtaining the aerial transportation certificate, label of confidence for aircraft operators, http://www.valljet.com/docs/ultimate2.pdf [accessed the 28th November 2008] 3. Boeing website, 15/12/2006, http://www.boeing.com/commercial/startup/pdf/business/planning_roadmap. [...]


[...] Some companies as Aloha Airlines went bankrupt because of the high fuel prices. In the United States of America, the fuel price at the beginning of 2008 had risen by 80% comparing to one year before. The companies have been obliged to reduce the number of flights proposed and started to sell their old planes which consumed the most. (http://www.rfi.fr/actufr/articles/102/article_67982.asp translated from French, Accessed 29th november 2008) Today the fuel price is decreasing, but the Organisation of Petroleum Exporting Countries (OPEC) has decided to reduce its production to stabilize the market. [...]

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