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Porter developed a concept which involves the use of six forces of analysis on a given industry. They include threats of alternative products, pressure from new rivals in the market, and the magnitude of aggressiveness in the competition. In addition, there is the customers’ bargaining power, suppliers’ bargaining power as well as the comparative influence of other stakeholders. This article will discuss the Porter’s six forces model analysis on the commercial airline industry. Porter’s model is an analytical tool that offers a trouble-free approach for evaluating an industry. It gives an opportunity for the management of an organization to take crucial decisions on when and how to enter a given industry (McAfee, 2005, p. 10).
Threat of new participants
The simpler it is for new players to enter into business, the more aggressive competition from new entrants turns out to be. There is a low threat posed by new entrants in this industry. This is because of the small profit margins, the high amount of capital that is required for entry in addition to the great significance of brand image and loyalty (Bishit and Garg, 2009). This implies that once a company has a strong brand and offers some incentives, it can still attract customers and retain loyal ones even when its services are costly.
Bargaining power of suppliers
This refers to the amount of force that suppliers can impose onto a business. The power of suppliers depends on the number of possible alternatives, the cost of changing to another product and the significance of the product to customers among others (Meyer and De Wit, 2010, p. 243). Boeing and Airbus are the major brands that control the airline supply business. As a result, there is no stiff competition among suppliers and therefore, they have a high bargaining power (Drab, Bear and Pruiett, 2011). In addition, there is a very low likelihood of a supplier to integrate vertically and start providing flight services.
Bargaining power of buyers
This is the amount of force that customers impose on a business. A customer who can affect the margins of a business has a considerable power on the business. The power of buyers depends on their sensitivity to price, the simplicity of changing to another product, less number of customers, and insignificance of the product to the customers. Customers within the industry have a high bargaining power (Omer, Stringa and Orges, 2001, para. 12). This is due to the fact that the process of switching between planes is relatively low. Customers can easily choose which airline company to use. Also, customers are offered incentives by respective companies in order to retain them and develop loyalty.
Threat from substitutes
When the cost of changing to another product is low, then there is a possible threat on the industry. The major problem occurs when the substitutes are similar and the customer can easily switch between products and services (Shaw, 2011, p. 86). There is a moderate pressure from available alternatives. This is because the switching cost among the various options of transportation is high when considering long distances. Regional airlines are the ones that are greater affected than those that offer international flights (Wilde and Hax, 2001, p. 263). This is because, within a short distance, customers can easily drive, take a motor boat or board a train instead of taking a flight.
This refers to the magnitude of competition among companies that are within a given industry. There is a high competitive rivalry in the airline industry due to the high number of players such as Delta Airlines, Spirit Air, and Jet Blue Airways among others. When the competition is stiff, profit margins are narrow due to the high cost of competition incurred. There is also slow growth in the industry with no dominant firm in the market as every firm tries to take customers from others so as to maintain their optimal level of performance.
Power of other stakeholders
These stakeholders include governments, communities, and trade unions among others. Their power is relatively high within the airline industry. They are also very influential since they provide the link to other sectors of the economy. They have a great influence on the industry performance (Oswald and Flouris, 2006, p. 32). For instance, a government can authorize a given airline firm to withdraw its operations in a certain region. On the other hand, it can authorize its departments and agencies to use flight services from a specific company and not another.