Five Forces Analysis for the Airline Industry

Five Forces Analysis for the Airline Industry

Threat of Potential Entrants (3 0n 10)

The airline Industry is one kind of high cost industry, for the new entrants who want to break into this industry, they should own large amounts of money to buy the airplane, employee, develop the skills and to operate the whole company and deal with some emergencies as well. It is not an easy way to collect such a big amount money and also able to face all the problems and troubles. There are various reasons that the threat of entry is low. Firstly, there is a considerate demand in capital by operating businesses (www.web.mit.edu). A huge amount of capital will not only be required for pulling up the businesses but also in acquiring best technology and professionals for the development of product along with its marketing. Furthermore, ample time is required for the company to flourish and enhance. It spent number of operational years before becoming a multi-billion dollar organization.

Economies of scale serve as a critical barrier to entry: firstly, new entrants must install facilities such as putting up poles and digging trenches, which has high associated fixed capital and construction costs (www.tutor2u.net). Secondly, the fixed cost of setting up billing and operational support systems; thirdly, the cost of advertising and marketing campaigns in specific geographical regions, all of which make entry difficult. Governments influence significantly the height of certain barriers by setting rules and regulations concerning access to distribution channels, infrastructure and networks, thereby prohibiting seller concentration.

Threat of Substitute Products (5 0n 10)

For the airline industry, the main substitutes are car, train, and ship or any other means of transportation. Compare with these substitutes, airplane are more convenient and fast. However, the cost of these substitutes such as car, ...