American Airline Group Inc. is a public traded group dealing in the aviation industry offering services of air transportation across the world. The group was founded in December 2013, having headquarters in Texas, United States. As of 2019, the firm generated a huge figure of revenue of 45.768 billion US dollars and has occupied an employment figure of almost 133,700 (American airlines, 2019). The group has expanded its operations over a wide network of 350 destinations. From the observation of the American Airline industry, the evaluation of Porter’s five forces would be a supportive method for maintaining prospect strategies to better understand the company standing position in the market.
Competitive Rivalry in the Market
The competitive rivalry in the aviation industry is high because the need for traveling and transportation is increasing day by day in the contemporary world. As a consequence of this increase, several companies and institutions have captured the market to provide air transportation services. Between cities that demand connectivity, where the airline companies compete through their corresponding terminals, competition is even fiercer. Furthermore, they face rivalry on certain connecting routes from airlines that provide point-to-point service. According to Statista (2021), American Airlines Group has managed to lead the domestic market share of 19.3 percent, narrowly chased by the other big airline group Southwest Airlines capturing 17.4 percent of the domestic market share. The major competitors of the company are Delta Airlines, Southwest Airlines, and United Airlines based on the domestic market share. Therefore, making the environment of the industry with a bundle of services more competitive.
Threat of Substitutes
The threat of having substitutes is typically low in aviation because of the longer routes and time consideration while taking other means for reaching one place to other is significant. As a result, aviation is a naturally occurring practice for consumers, and the impact of replacements like the train and bus is restricted. Of course, many citizens use their transportation or automobiles to travel along highways, posing a challenge to this alternative. Despite the element of low switching cost, the airline firms provide the services within less time and with more comfort which maintains customer loyalty and the preference over substitutes (Rai and Srivastav, 2014). Therefore, the availability of substitutes is considered to be low in the industry.
The Threat of New Entrants
The threat of new entrants in the aviation industry is considered to be low as there are loads of airline companies all over the region, and the entry barriers in the industry are considerably higher which keeps the new entrants away from the market. The airline industry is not for everyone since this needs a large sum of money as well as difficult qualifications and knowledge, which is a barrier. Exit barriers are also regulated, as authorities would not permit airlines to withdraw until they are persuaded otherwise. and the use of landing rights and security concerns are in hands of governments (Chattopadhyay, 2015). Furthermore, the airline industry takes advantage of economies of scale, so entry barriers are high. Hence, making less room for the newcomers.
Bargaining Power of Buyers
The Bargaining power of consumers in context to the aviation industry is moderate to high because of the availability of multiple channels to buy the tickets and consider the fluctuated prices. Also, there is various kind of buyers, some choose airlines industry for individual or group traveling while other for discovering and business purpose. The bargaining power of such segments is identified by the fact that what choices they have to choose airlines. Like agents play their role as well when consumers expect them to arrange reasonable tickets with the presence of low switching costs (Mhlanga et al, 2015). Considering such a pattern of buyers in the aviation industry makes the barraging power moderate to high.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the Aviation industry is usually high since the surrounding environment affects the input variables in provisions of fuel, equipment, and labor. For example, changes in the global energy sector, which can change drastically economic and geopolitical and other factors, influence the cost of petroleum products. Similarly, labor is governed by groups, which often bargain with airlines to receive unjust and costly agreements Moreover, the aviation industry has to depend on few aircraft manufacturers for the availability and maintenance of planes (Helleloid et al, 2015). Thus, in context to the aviation industry, the bargaining power of suppliers is considered to be hig
References
AmericanAirlines, 2019. Annual report. [online] Sec.gov. Available at: https://www.sec.gov/Archives/edgar/data/6201/000000620120000023/a10k123119.htm.
Chattopadhyay, C., 2015. Aviation industry: challenges and prospects. Journal of Research in Business, Economics, and Management, 3(2), pp.145-149.
Helleloid, D., Nam, S.H., Schultz, P. and Vitton, J., 2015. THE US AIRLINE INDUSTRY IN 2015: INSTRUCTORS’NOTES. Journal of the International Academy for Case Studies, 21(6), p.145.
Mhlanga, O., Steyn, J. and Spencer, J., 2018. Impacts of the micro environment on airline performances in southern Africa: Management perspectives. GeoJournal of Tourism and Geosites, 1(21), pp.158-173.
Rai, A.K. and Srivastav, M., 2014. Customer loyalty in the Indian aviation industry: An empirical examination. Asia Pacific Journal of Business and Management, 5(1), pp.44-59.
Statista, 2021. U.S. airline industry market share 2019 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/250577/domestic-market-share-of-leading-us-airlines/.