Delta Airlines is a major airline company in the United States which provides flights to 325 different destinations across the US and world. The company has more than 80,000 employees in different regional offices of the world. The headquarter of the company is based in Atlanta America. The revenue collection of the company in 2017 was 21.24 billion USD speaking volumes of its success. Porter’s five forces analysis of Delta Airlines is presented to understand different industry-level factors.
Competitive Rivalry
The aviation industry at a global level has a number of different companies with financial and non-financial strength. Lufthansa Airlines is leading the global aviation industry with a revenue collection of 42.6 billion USD in 2017 which is 42.2 billion for American Airlines Group in the same year. Delta Airlines come at the third spot with a revenue collection of 41.24 billion USD while United Continental Holdings has collected 37.73 billion USD in the same year. Air France and Emirates Group come at 5th and 6th spot with a revenue collection of 29.06 billion USD and 27.9 billion USD respectively. The presence of all these international companies with revenue collection in billions shows that all have a high level of acceptance in the world (Airport Technology, 2019). The presence and success of multiple numbers of companies in the airline industry intensify the competition in the industry. The companies are not only financially stable but they possess a large base of customers in different regions of the world.
Bargaining Power of Suppliers
The airplane is the major supply of the airline companies and there are only a few companies around the globe that manufacture and supply airplanes to these companies. The number of suppliers is way less than the number of buyers for the airlines. There is a high dependence of the airline companies on the airplane suppliers such as Boeing. The high dependence of companies with no alternate options keeps the dominance of the suppliers in the aviation industry (Tretheway & Markhvida, 2014). Therefore, the bargaining power of suppliers is high.
Bargaining Power of Buyers
The buyers prefer to buy the products from the companies that offer high value. The high competition in an industry keeps on increasing the value for customers and they are willing to shift from one company to another in case of some better value. It is often happening when the numbers of companies for the buyers are high and they can select from any company as no one is offering a radically innovative product or service. The situation of the airline industry is no different as the passengers can select from a range of companies for national and international traveling (Bamber et al., 2013). The availability of alternative options without bearing extra cost is something that keeps the buyers on the dominant position. Therefore, the bargaining power of buyers is high in the airline industry.
Threat of New Entrants
Capital is one of the basic requirements to start a business in any industry across the world. If the business is capital intensive, it is a hurdle for new entrants to enter into the industry. Analyzing the airline industry from this perspective, it is safe to say that the airline business is a highly capital intensive business. The processing of business is another factor that is considered by new entrants for a particular industry. The processing and operations of the aviation industry are externally complex which is the reason for it as a hurdle for new entrants. The hurdles in the airline industry are not limited to these two hurdles but the hurdle of legal provisions also exists (Wensveen, 2010). The aviation or airline company has to fulfill a range of legal requirements not only at national but at the international level which further adds to the complexity. Therefore, the threat of new entrants is low.
Threat of Substitutes
The traveling is a need and there has been a substitute for the mediums of traveling as horses and camels used to be the luxury travel items. The airline is the current traveling service which is considered luxurious, highly valued, and quick. The businesses and countries are dependants on their airline systems and there is no substitute developed for this form of traveling that is threatening for it. Therefore, the threat of new substitutes is low in the airline industry.
References
Airport technology. (2019). The world’s biggest airlines in 2018. Available at: https://www.airport-technology.com/features/worlds-biggest-airlines-2018/
Bamber, G. J., Gittell, J. H., Kochan, T. A., & Von Nordenflycht, A. (2013). Up in the air: How airlines can improve performance by engaging their employees. Cornell University Press.
Tretheway, M. W., & Markhvida, K. (2014). The aviation value chain: Economic returns and policy issues. Journal of Air Transport Management, 41, 3-16.
Wensveen, J. (2010, February). The airline industry: trends, challenges, strategies. In Faculty of Economics and Business Leadership and Policy Seminar (pp. 29-34).