Most airlines have reduced prices and upped the level of customer service to remain competitive. Regulations are also a reason that competition has kept growing intense. Apart from the increased number of airlines brands, the entry of low cost carriers has intensified the competition. The level of competitive rivalry in the airlines industry is high. So, the overall threat is low to medium from substitute products. However, airline companies are offering lower prices to attract passengers in higher numbers in these regions. While trains do not provide the same speed, they are still less costly as compared to airplanes and therefore the preferred mode of transportation in the developing world. In the developing world however, there is some threat from other modes like trains. The threat of substitutes is low in the developed countries where people mainly use airlines for both short and long distance travel. There is a big investment in purchase, maintenance and running of aircrafts. Overall, the bargaining power of the suppliers is high. Airlines focus on hiring as well as retaining the best talent. Similarly, the labor force in the aviation industry mainly consists of well-paid high level professionals.
Two leading names of aircraft manufacturers are Boeing and Airbus. The craft and technology suppliers are limited in number and aviation brands depend upon them to supply fuel efficient, fast and well-designed aircrafts. The prices of fuel are subject to fluctuations based on economic and political reasons. The key inputs include aviation fuel, craft and technology and skilled labor. The bargaining power of suppliers in the aviation industry is high. Overall, the bargaining power of customers is moderate. All these factors have given customers sufficient power which is moderated only by pricing and customer convenience. Customers can easily check and tally prices online and buy from their preferred airline.
Prices become important basis of gaining customer loyalty and market share. Customers have several options, as there are several players in the industry which provide matching experiences. To acquiring customers to building customer loyalty, Airlines have to focus a lot on creating a great customer experience and managing prices. Moreover, the law is tilted in the favour of the passengers and their safety and convenience are important concerns for the aviation brands. Apart from technological innovation, economic factors have also allowed huge power in the hands of customers. The bargaining power of the buyers following recession has risen. There is a big investment in marketing and building customer loyalty too. Brand loyalty to existing airlines is also a reason that restricts new players. Overall, the barriers are too high which keeps the threat from new layers minimized. Moreover, aviation companies gain from economies of scale, and so operating on a large level is generally considered more profitable. So, only the determined players enter the market, which know they would be forced to bear major losses if they ever decided to exit. All these factors act as big barriers deterring nay new players.
Entry requires large capital investment apart from skilled human resources and technical knowhow. Apart from economic factors there are regulatory factors that make both entry and exit difficult. These barriers deter new entrants from entering the industry. The threat of new entrants in the industry is low which is mainly because of the high entry and exit barriers. Five Forces Analysis of Aviation Industry Threat of new entrants:
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