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Industry Analysis On Airline Industry

1115 words - 5 pages

Industry Analysis

The Airline is one of the major industries in the world today and is majorly affected by Michael Porter's Five Forces model. In case of the Airline industry, this is the most important force today, especially since the market is completely saturated. There are more service providers than needed in both local as well as international markets. The airlines are continually competing against each other in terms of prices, technology, in-flight entertainment, customer services and many more areas.

One of the forces that Porter describes is Threat of New Entrants which refers to the possibility of new competitors entering the industry and undermining the profits of the ...view middle of the document...

Individuals wishing to travel to and from the KLIA are presented with various choices when selecting an airline but price is usually the most important factor, especially for students and families. Hence, the bargaining power of customers in the airline industry is very high since they are price sensitive and search for the best deals available. AirAsia attracts travellers that are price sensitive by offering them low fares and those that are convenience oriented by providing them with frequent flights.
In addition to buyers, suppliers can also exercise considerable pressure on a company by increasing prices or lowering the quality of products offered. The bargaining power of suppliers depends on supplier concentration, substitute supplies, switching costs, threat of forward integration and buyer information. Suppliers within the airline industry are concentrated since Boeing and Airbus are the main suppliers. As the supplier industry is dominated by Boeing and Airbus the concentration undermines the ability of airlines such as AirAsia to exercise control over suppliers and earn higher profits. Since AirAsia has a fleet of 26 Boeing 737 aircraft its supplier has a high bargaining power over AirAsia. However, other suppliers who work with the airline such as the providers of on board snacks do not have the same bargaining power as they are a larger industry which allows for AirAsia to have a choice over who they are purchasing from. AirAsia will purchase their on board snacks from the supplier which is the most economic so AirAsia can make a higher profit margin from the goods when they are sold.
The availability and threat of substitutes is another factor that can affect competition within the airline industry. It refers to the likelihood that customers may switch to another product or service that performs similar. Substitutes for air travel include travelling by train, bus or car to the desired destination. The degree of this threat depends on various factors such as money, convenience, time and personal preference of travellers. The competition from substitutes is affected by the ease of with which buyers can change over to a substitute. A key consideration is usually the buyers switching costs, however due to their low fare non-stop flights, AirAsia can lure both price sensitive and convenience oriented travellers away from these substitutes. AirAsia has actually joined forces with its substitutes, such as car...

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