Capital requirements • The saturation of the airline industry has made it difficult for the new firms to enter the industry as there are barriers to entry such as the cost barrier. The airline industry requires huge amounts of capital for the aircrafts buying, safety, security and man power. Government policies • Another barrier to the industry is the restrictions put by the government. But in the Australian industry this is not the case the market deregulation in 1990 gave way to new entrants to enter the market and Tiger airways and Jet Star are prime examples which have reduced Virgin Blue’s market share ever since there emergence.
Access to competitor’s brand • The threat of substitutes is also there and it can affect competition and firm’s strategy. This depends on the degrees of money, convenience, comfort, time and personal preference of the consumers that make them switch to the next available brand (Jetstar, Tiger and Virgin Blue …, 2008). Strong bargaining power of suppliers • It enjoys economies of scale due to its large size. This even gives an opportunity to the airline to choose from its suppliers such as while buying that on board snacks the company will buy from the supplier that is offering the lowest rate.
They are at a stronger bargaining position due to industry dominance. Intensity of industry rivalry • This industry is an oligopoly where few firms dominate the market therefore the competition is aggressive in nature. The competition rivalry in the airline industry is cut throat where competition exists of a low cost nature. Due to the high fixed costs the rivalry is also high because the cost of a flight is going to be of a fixed nature so the company will sell the extra tickets at a cheaper rate which will give rise to the price war. These firms compete on price, customer service, comfort, in-flight entertainment.
When Ansett left the market Qantas tried to increase its profitability by filling in the gap in the market that Ansett has formed by targeting the business class (Ansett Crash Leaves Locals Burnt, 2009). The price hike in the world oil markets did not seem to have a major impact on the profitability of the airline industry. This is because airline companies are able to counter such temporary changes in the external environment through the forward purchase contract management. And moreover Virgin Blue is a new airline and its aircrafts are also new and fuel efficient.
Even Qantas had withdrawn the fuel inefficient aircrafts from the operations. The Competitive Environment It is an oligopoly market structure where few players are dominating the market. They have a control over the pricing and each others pricing and other decision has an impact on the competitor’s strategy in the long run. Competitor Intelligence This is gathering all the information related to your competitors, strategies, policies and current strategy, their strengths and weaknesses. Analysis of the competitors is very important because this has an impact on Virgin Blue as well as the entire industry.