Aviation industry constitutes basically of the airline industry which includes the manufacturing of aircrafts as well as well the selling of services of different airlines. The aviation industry of US is one of the most developed one in the whole world but it still needs some kind of revamping as it is reported to be going down in terms of passenger control as well as use of innovative technology.
Porter’s model was developed by Michael E. Porter which analyses the industry on the basis of five forces acting on it.
Threat of New Entrants
When it comes to Aviation industry, the threat of new entrants is low and that is due to some reasons:
• The investment required to enter this industry is very high and the skills and knowledge required are also not that every person can have. Due to high investment, it is a risk to enter the aviation industry.
• To flourish in the aviation industry, the investors also have to keep in the mind of the possible customer base and the returns from that investment. It is also difficult to develop customer base in this industry as customers have concerns of safety and trust only a few service providers.
• Government regulations are very difficult to deal with.
Due to all these reasons, aviation industry has a very low threat of new entrants as there is a very little chance of new competition to enter in the market.
Threat of Substitutes
The aviation industry has a lot of substitutes; people can switch to train, bus, car, ship or any other transport. The switching cost in the transport industry is low and people can have a lot of reasons to switch to a different means of transportation than airline. Sometimes people switch to a different transportation mean because of the high cost they have to pay to airlines, although there are low cost means of transportation available as well. But there are also reasons why people may not switch to another transportation system despite the low switching cost and this involves the convenience that the airlines provide as well as this transportation saves time. Thus the threat of substitutes for aviation industry can be declared on moderate level.
Bargaining Power of Buyers
The buyers in aviation industry include various kinds of buyers. Some people choose aviation industry for individual traveling while others travel in groups. Some people travel for leisure while others travel for business purposes. The bargaining power of these customers are determined by the fact that what choices the buyers have when choosing the aviation industry. When people turn to travel agents for their tickets, they expect them to buy them a convenient as well as cheap mode of transport so in this case the travel agents consider various options and the bargaining power is in their hands. Similarly, when an individual is buying the ticket himself, he will also have the bargaining power as he will have various options to choose from and the switching cost is also low. So the bargaining power of the buyers is high.
Bargaining Power of Suppliers
The suppliers in the aviation industry include airplane manufactures, fuel suppliers, and labor suppliers. For airplanes, the industry is dependent on two suppliers and they have to maintain good relationships with those suppliers in order to have long term contracts with them so their bargaining power is high. Similarly, the fuel suppliers control the price as well as other negotiations as the aviation industry cannot function without them supplying the fuel on time. Same is the case with the labor suppliers as the aviation industry depends on their supply of labor, thus giving them high bargaining power.
Industry Rivalry
There is intense rivalry among different companies existing in the airline industry and there are several reasons for it:
• The industry is in its mature stage and the competitors stay for very long time due to huge amount of investments required just to enter the aviation industry.
• Companies existing in the industry compete on various grounds including low prices, convenience and better services and it becomes difficult for any brand to maintain their competitive edge.
• Exit price and fixed cost is very high so the competitors compete on all levels in order to remain in the industry.
Due to all these and many more reasons, the competition in the aviation industry keeps on growing and all the companies need to keep on growing in order to flourish in the industry.
Reference
Teresa Cederholm | Dec 29, 2014 1:39 pm EDT. Top airlines by revenue passenger kilometers. Retrieved September 10, 2017, from http://marketrealist.com/2014/12/top-airlines-revenue-passenger-kilometers/
Teresa Cederholm | Dec 29, 2014 1:37 pm EDT. Bargaining power of the airline industry’s customers and suppliers. Retrieved September 10, 2017, from http://marketrealist.com/2014/12/bargaining-power-airline-industrys-customers-suppliers/
Investopedia. (2015, May 4). What companies are the major players in the airline supply business? Retrieved September 10, 2017, from http://www.investopedia.com/ask/answers/050415/what-companies-are-major-players-airline-supply-business.asp