Another important barrier is brand loyalty. For example, very few Americans who associate Coca Cola with sporting events like base ball and other important events in their life would consider switching to other brands, regardless if there is a tastier product in the market and at a lower price. As there are very few air lines in the region due to the large amount of start up capital needed, it can be very important to develop brand loyalty to stay ahead of the competitors and also prevent new entrants into the air line industry market.
Also, as the costs of switching to another air line are very low or nothing, brand loyalty can play a major factor in deterring all forms of competition and new entrants into the market. Threat of Substitute Products The substitutes for an air line industry, which is of course a segment of the larger travel and tourism industry include other modes of transportation. For over seas travel, the substitute is traveling via shipping lines and cruisers. For domestic market, the available alternatives for consumers are traveling by road, buses and railways.
Firstly, looking at the overseas market, we see that the threat is basically non-existent for air line passengers who are business travelers. For them, time is more important than money. They will prefer to spend more rather than reach their destinations in a longer period of time. For leisure travelers, shipping industry will have more appeal than for business travelers. Here, the experience of a shipping cruise and cost are the trade offs. If the cost of traveling via air line is significantly cheaper, for price sensitive buyers it will be the preferred option. Rivalry among Competitors
When there are only a few players in the market and all are vying for the coveted position of market leadership, rivalry is at its most intense level. This is the case in the air line industry in the Middle East where a few major players exist in the market such as Etihad Airways, Emirates Air line and Qatar Airways. Etihad Airways has yet to report a profit in its short history and this is mainly because of the competition and also because of the huge amounts of investments being made for the future and the fast growth that it is experiencing (Anna Aero, 2008). There is great scope for product differentiation in the air line industry.
Etihad is already a low cost producer. Because of its governmental backing, it can afford losses in these initial years for the sake of gaining market share. To increase its margins, it needs to conduct more research in the market and analyze customer needs. The South West Air line business model is an excellent model. South West provides only basic services for business class domestic travelers and has stripped away all extra benefits and luxuries for these small distance travelers. Etihad should follow suit and offer basic services for such segments of consumers so that cheaper prices can be provided to them.
Differentiation policy should be applied to more affluent and financially stronger travelers. High quality cuisine, liquor and service are some of the examples. Market niches serve as important cash generation segments for air lines. For example, flights from Abu Dhabi to Brussels and Dublin are provided only by Etihad and not by Emirates or Qatar Airways. It will be in the best interests of Etihad to build more such niches and take a first movers advantage which can enable them to charge premium prices till competitors move in and help in generating that long awaited profit.