International Airlines Group, known as IAG, is an Anglo-Spanish multinational airline holding company. The company was formed in 2011 by the merger of British Airways and Iberia (IAIRGROUP, 2021). The Group portfolio consists of unique operating companies, from full-service long haul to low-cost short-haul carriers, targeting specific customer needs and geographies. The company has five major airlines, including British Airways, Iberia, Vueling, Aer Lingus and LEVEL (IAIRGROUP, 2021).
The company holds key positions in each of its home markets Barcelona, Dublin, London and Madrid, with a major presence in the North Atlantic, South Atlantic and Intra-Europe. It is a member of ONEWORLD Alliance, which brings together 13 of the world’s leading airlines. Porter’s five forces model is a valuable tool to identify threats and opportunities faced by IAG in the airline industry.
Competitive Rivalry in The Market
The aviation industry is very competitive. Air travel is a profitable business in Europe because of intercontinental tourism and a higher percentage of passengers. IAG is a part of the leading airline’s world groups, including European-based Lufthansa Group, Air France-KLM, US-based United Airline Holdings, and American Airline Group. IAG faces tough competition from Lufthansa Group and Air Frame- KLM.
AirFrance-KLM and Lufthansa Groups transported 34 M and 36.4 M passengers respectively in 2020 despite the disruption caused by the pandemic (Statista, 2021). In the same period, IAG transported around 31.3 M passengers. IAG has published an annual revenue of €7.08 Billion in the last fiscal year (Statista, 2021). The competitive rivalry is high due to the presence of multinational companies in the region.
Threat Of Substitutes
The aviation industry reduced the commuting time and connected the world in an unprecedented way. It is one of the reasons the world became a global village. In the last century, no significant threat was posed by any means of transportation to the aviation industry. The high-speed rails are beginning to challenge the aviation industry. The inception of modern train services in Western Europe has played the opposite role and is starting to take over a large portion of the low cost, short-haul flight market in this sector (Moreira, 2014).
The high-speed train is covering ground on the aeroplane industry for short-haul flights. The rise of Chinese and Japanese high-speed railway is decreasing the cost of the technology. It saves time and money from the customer’s point of view. It started to pose a low-level threat to the aviation industry in Europe, such as IAG.
The Threat of New Entrants
The main barriers to entry in any industry are capital requirements, product differentiation, regulatory requirements, and economies of scale (Grant, 2010). The threat of new entrants in the airline industry is reasonably low, primarily due to the industry’s high entry and exit barriers. These barriers often dissuade new entrants from entering the industry because of the high expansion costs and the associated risks. The new entrant must compete with the industry runner; the industry is already concentrated.
The majority of airlines are part of the bigger groups, which provide the support to compete with new entrants. IAG operates 533 aeroplanes, and it keeps on replacing the old ones with fuel-efficient and better aeroplanes (IAG, 2021). Startups can’t compete with industry leaders. Considering the higher financial cost and regulatory hurdle, the threat of new entrants is low.
Bargaining Power of Buyers
The buyers in the aviation industry are the individuals and the second group of buyers, which are travel agencies and online portals. The first group is diversified, and they can be influenced easily. Travel agencies and web portals work as a middleman between the airlines and the flyers. They work with multiple airline firms to give customers the best flight possible Buyers exercise higher bargaining power if there are available options. IoT changed the industry.
Now, technology companies have removed this hustle and buyer can directly compare the available options in the market and choose from multiple options. When consumers are aware of their importance to the business, they can exercise high bargaining power (Dess et al.,2006). The internet provided a means of obtaining information on service quality and cost and allowed purchasing products and services instantly and interactively. In the aviation industry, consumers hold higher bargaining power.
Bargaining Power of Suppliers
The suppliers’ industry is more concentrated than the industry to which it sells, and no readily available substitutes are available (Oregon State, 2021). The major suppliers in the aviation industry are aeroplane manufacture and human resources provider. Airliner manufacturer is responsible for delivering the plans and providing parts for in-service maintenance.
There is three major producers of Airliners Airbus, Boeing and Bombardier. Airbus and Boeing are considered industry leaders; they work with their partnered firms, such as General Electric and Rolls Royce, to deliver the plans. In this case, suppliers are limited, and industry is concentrated. There are not many other options available. In this case, the supplier owns moderate power in negotiating a better deal.
References
Dess, G. G., Lumpkin, G. T. and Eisher, A. B (2006). Strategic Management. Text and cases. International edition. London: McGraw-Hill.
Grant, R. M. (2010). Contemporary Strategy Analysis. 7th Edition.
IAIRGROUP. (2021). IAG Overview. Available at: https://www.iairgroup.com/en/the-group/iag-overview
IAIRGROUP. (2021). Our fleet. Available at: https://www.iairgroup.com/en/the-group/our-fleet
IAIRGROUP. (2021). Our network. Available at: https://www.iairgroup.com/en/the-group/our-network
Moreira, M. (2014). An analytical model for the assessment of airline expansion strategies. Journal of Airline and Airport Management, 4(1), 48-77.
Oregon State (2021) Analyzing the Organization’s Microenvironment. Available at: https://open.oregonstate.education/strategicmanagement/chapter/3-analyzing-the-organizations-microenvironment/
Statista. (2021). Leading airlines in Europe in 2020, based on number of passengers. Available at: https://www.statista.com/statistics/1094759/largest-airlines-in-europe-based-on-passengers/
Statista. (2021). Total revenue of International Airlines Group (IAG) from 2011 to 2020. Available at: https://www.statista.com/statistics/1094693/iag-group-revenue-europe/