Airline Industry Analysis
Before the commencement of the analysis, it is important to realize that the airline industry is a global industry with many players interacting in the market. These include airlines such as Etihad Airways, Emirates, Cathay Pacific and United; air craft manufacturing companies such as Boeing, Airbus and Douglas; governmental organizations, regulation authorities, and the millions of customers travelling with the airlines.
From the view point of analyzing this industry or any other industry, it is extremely important, rather essential, to carefully scrutinize the nature of these industry players and how they affect the industry, both individually and interacting with each other. We used the classical Five Forces framework designed by Michael Porter to conduct an analysis of the Airline industry. The five forces are Bargaining Power of Customers, Bargaining Power of Suppliers, Threat of new entrants, Threat of Substitutes and Rivalry among competitors.
Together, these five forces act and affect the cost and price of business in a given industry and consequentially the profit one can make in the business. Therefore, it is important to loot at each of these five forces very carefully, and then apply the aspects of these forces to the relevant industry – the airline industry in this case. Porter’s Analysis Bargaining Power of Customers An airline has hundreds of thousands of people in its customer base and many more if we include the potential customers who might decide to travel some time later, either for the purpose of business or leisure.
Customers have bargaining power in an industry if there are only a few customers. For example, if the business is a B2B organization and does not provide directly to the end consumer, rather to other businesses, then these businesses are the customers of that company. If there are only a handful of these businesses operating in the market, then this means that the bargaining power of these customers is very large and they can affect the prices of the products that they are buying, hence making it very difficult for the organization to operate according to its own preferences.
However, in the airline industry this is not the case. There are millions of people who travel each year for business, leisure, adventure or religious purposes. Therefore, customers have limited power individually to affect the airline industry. Bargaining power of Suppliers The same theory applies as above. If there are numerous suppliers in an industry, they have limited power over their customers as is the case in the auto mobile industry.
In the auto mobile industry there are hundreds of small vendors who produce spare parts or specialize in different components of an auto mobile. They have no bargaining power over the large automobile organizations who are their competitors. In the airline industry, there are very few suppliers such as aircraft manufacturers, namely Boeing, Douglas and Air Bus. There are also fuel suppliers and they are also relatively few. Airline industry organizations have limited influence over their suppliers and have to cooperate with these organizations.