Aviation Industry Five Forces Analysis
The attractiveness of any industry is affected by several forces. In the 21st century, the aviation industry has kept growing in popularity and demand. Apart from a fast growing world economy, there are several forces that have affected its growth. It is a lucrative industry. However, several forces decide the level of competition and competitiveness in the industry. Porter’s five forces model is a unique tool that helps understand the level of competition in the industry and how attractive an industry and market. These forces are in every industry and market. Managers can formulate more effective strategies to tackle competition and to increase their company’s competitive strengths using this analytical tool. This is a five forces analysis of the aviation industry that explains how these forces affect the competitive strength of any company in the industry.
- Five Forces Analysis of Aviation Industry
Threat of new entrants:
The threat of new entrants in the industry is low which is mainly because of the high entry and exit barriers. These barriers deter new entrants from entering the industry. Apart from economic factors there are regulatory factors that make both entry and exit difficult. Entry requires large capital investment apart from skilled human resources and technical knowhow. All these factors act as big barriers deterring nay new players. So, only the determined players enter the market, which know they would be forced to bear major losses if they ever decided to exit. Moreover, aviation companies gain from economies of scale, and so operating on a large level is generally considered more profitable. Overall, the barriers are too high which keeps the threat from new layers minimized. Brand loyalty to existing airlines is also a reason that restricts new players. There is a big investment in marketing and building customer loyalty too.
Bargaining power of buyers:
The bargaining power of the buyers following recession has risen. Apart from technological innovation, economic factors have also allowed huge power in the hands of customers. Each individual passenger is important. Moreover, the law is tilted in the favour of the passengers and their safety and convenience are important concerns for the aviation brands. To acquiring customers to building customer loyalty, Airlines have to focus a lot on creating a great customer experience and managing prices. Customers have several options, as there are several players in the industry which provide matching experiences.
Prices become important basis of gaining customer loyalty and market share. Customers can easily check and tally prices online and buy from their preferred airline. All these factors have given customers sufficient power which is moderated only by pricing and customer convenience. Overall, the bargaining power of customers is moderate.
Bargaining power of suppliers:
The bargaining power of suppliers in the aviation industry is high. The key inputs include aviation fuel, craft and technology and skilled labor. The prices of fuel are subject to fluctuations based on economic and political reasons. The craft and technology suppliers are limited in number and aviation brands depend upon them to supply fuel efficient, fast and well-designed aircrafts. Two leading names of aircraft manufacturers are Boeing and Airbus. Similarly, the labor force in the aviation industry mainly consists of well-paid high level professionals. Airlines focus on hiring as well as retaining the best talent. Overall, the bargaining power of the suppliers is high. There is a big investment in purchase, maintenance and running of aircrafts.
Threat of substitutes:
The threat of substitutes is low in the developed countries where people mainly use airlines for both short and long distance travel. In the developing world however, there is some threat from other modes like trains. While trains do not provide the same speed, they are still less costly as compared to airplanes and therefore the preferred mode of transportation in the developing world. However, airline companies are offering lower prices to attract passengers in higher numbers in these regions. So, the overall threat is low to medium from substitute products.
Level of competitive rivalry:
The level of competitive rivalry in the airlines industry is high. Apart from the increased number of airlines brands, the entry of low cost carriers has intensified the competition. Regulations are also a reason that competition has kept growing intense. Most airlines have reduced prices and upped the level of customer service to remain competitive. Investment in marketing has also grown higher for attracting customers and retaining market share. The low cost carriers have grown in popularity and the high cost carriers have been forces to provide better customer service at their existing prices. The level of competitive rivalry overall is high