Porter’s Five Forces of Airline Industry 

Activities and processes relevant to mechanical flight and aircraft make up the airline industry. They offer services like passenger travel, freight, and air transport. Being a profitable and productive industry, it deals with a lot of threats and challenges that impact the profitability and performance of the aviation industry. Today, we’ll discuss Porter’s five forces of airline industry; competition, threat of substitutes and new entrants, and bargaining power of suppliers and customers.

Speaking of Porter’s Five Forces analysis; it comprises of 5 main competitive factors that allow businesses and companies to analyze and evaluate the position of their products and services in the competitive market. It offers them key insights to make adjustments in specific areas to improve their profitability based on the analysis. Michael Porter founded this model in 1979, and companies have been using it ever since; it would analyze the following;

• Bargaining Power of Buyers in Airline Industry
• Threat of Substitutes in Airline Industry
• Bargaining Power of Suppliers in Airline Industry
• Threat of New Entrants in Airline Industry
• Competition in the Airline Industry

Airlines vary in scope, and some of their main types are as follows;

• Regional Airline
• National Airline
• International Airline
• Mainline Airline
• Low-cost Carrier
• Business Class Airline
• Charter Airline
• Flag Carriers
• Legacy Carriers

Porter’s five forces of airline industry would various factors impacting the aviation industry, and they’re as follows;

• Landing and Maintenance cost
• Fuel pricing
• Operating expenses
• Passenger traffic
• Low-cost carriers
• Price competition

Porter’s Five Forces of Airline Industry 

Some of the main elements of Porter’s five forces of airline industry are as follows;

Bargaining Power of Buyers in Airline Industry

The bargaining power of buyers in airline industry is the key element in the Porter analysis. Hundreds of thousands and millions of passengers are traveling by air daily, weekly, monthly, and annually. However, it offers them a huge bargaining power while procuring tickets, because they could switch to other airlines if one doesn’t satisfy their budgeting needs and requirements.

Before finalizing any ticket, passengers keep on comparing the fare and ticket prices of different airlines. It offers them a huge bargaining power when there is no cost of switching. Usually, customers and passengers don’t visit the official websites of airlines to book the flight. Rather, they book flights with the assistance of 3rd part service providers to receive the best possible price.

Some of the main factors involved in the bargaining power of buyers in airline industry that would help customers to make the purchasing decision are as follows;

• Direct access to fares and schedules
• Distribution system
• Online ticketing

Threat of Substitutes in Airline Industry

When it comes to traveling, passengers have different modes of transportation and travel available to them. It makes the threat of substitutes in airline industry very high. However, some of the main substitutes available to customers for traveling are as follows;

• Train
• Car-sharing
• Self-driving
• Buses
• Other public transport by road

Many Americans want road trips because they want to enjoy the natural beauty while traveling; the luxury of stopping anywhere they like, and taking anything whatever they like. Some of the other reasons that compel many Americans to avoid air travel are as follows;

• Cramped cabins
• Airport security checks
• Flight delays

Bargaining Power of Suppliers in Airline Industry

I-Aircrafts Suppliers

Boeing and Airbus are the two main aircraft suppliers and it gives them huge bargaining power of suppliers in airline industry. In order to receive favorable terms and conditions and decrease the bargaining power of suppliers, many airline companies establish long-term contracts with them.

II-Fuel & Labor

Oil prices keep on fluctuating due to various external environmental factors like currency exchange rates, political factors, and clean energy trends. Access to the skilled workforce and labor market is always very challenging for aviation companies. Both of these suppliers have significant bargaining power.

Threat of New Entrants in Airline Industry

The threat of new entrants in airline industry is very low due to the following factors;

• High government regulations
• Extensive operational cost
• Capital requirements

The new entrants always employ the latest tech innovation and low-price strategies to exert pressure on the airline industry. It is not easy to offer both these things, and that’s why the competition is low to moderate. However, when a new competitor enters the market, then it has to compete with the top competitors and brands of the airline industry.

Along with cost, the new entrants have to deal with the following factors from the top industry competitors;

• Market share
• Brand loyalty
• Brand image
• Infrastructure
• Efficiency
• High-quality service

Competition in the Airline Industry

The rivalry among competitors is very strong and high in the airline industry due to various reasons and factors like high business investment. The airline industry has strong barriers to entry and exit. For instance, companies would require huge capital investment to enter the aviation business. Exit is even more difficult due to long-term agreements and commitments that you have made with stakeholders.

Some of the top competitors in the airline industry are as follows;

• United Airlines
• Delta Airlines
• Southwest Airlines
• American Airlines

The market size and market share of all the airlines are almost the same, and their fares are more or less the same. Aviation companies significantly depend on the increasing fares and profitability to take new steps to deal with the competition.

Conclusion: Airline Industry Porter’s Five Forces Analysis 

After an in-depth study of Porter’s five forces of Airline industry; we have realized airline industry is a highly profitable industry with low entry. If you are learning about the bargaining power of suppliers and buyers, threat of entrants and substitutes, and competitors; then you should keep in mind the abovementioned elements and factors.