Porter's Five forces - The Airlines industry

Extract

[...] They also try to put forward their network and their reliability and safety but in a lower measure. The thing is that they all have the same approach on how to get a competitive advantage, but they also know that there can only be one price leader, and also that they all offer more or less the same services. So it is a cut-throat competition among the competitors. All the companies see the low-cost rivals as their main threat. All this competition makes the market industry growth average and the customers are not very faithful to a particular company because of the different options they have in comparing prices. [...]

[...] For the low-costs companies, these substitutes are not so threatening because of the low prices of the tickets which enables them to have a better balance of power. Competitive rivalry Competitive rivalry describes the competition between the established firms in an industry. The airline industry is a very competitive market as it is very saturated. As a result, the companies are first of all searching to differentiate themselves from their competitors by offering good service qualities and low fares (according to a survey of the Copenhagen business school's students) (http://www.aea.be/aeawebsite/webrsc/resources/07_SURVEY_Model_Innovation.pd f viewed on 1st of December). [...]

[...] Furthermore, this model was created during the 30 years of great economic growth following World War II. Nowadays, the economy is not as prosperous. On one hand, today, some areas are deregulated, e.g. the airlines industry, energy industry (electricity in the EU for example with the opening of the markets). On the other hand, more and more are regulated such as the environmental issue, the taxation, the work legislation and so on. It appears quite interesting to add a new force in Porter's model which is the government. [...]

[...] In that case the rules are understood by analysing the leaders' strategies and practices. Alternative strategies are based on innovation in a certain way by going out of the usual frame as when we saw Dell going into the market with its innovative idea that people could have the computer they need for a cheaper price and without the useless elements we find in other computer brands. Its policy of reducing intermediaries, and the fact that people were paying transactions of the computer on the internet just after the order made the company very competitive with strong finances (its ‘configure to order' approach allowed it to reduce the inventory costs very effectively) which lead it to become the largest seller of personal computers in the United states in 1999. [...]

[...] But this model is inadequate to analyse other factors that can affect a company as environmental factors (for example, we now know that there will not be oil anymore within 30 or 40 years and this is a challenge for companies as airlines need this product to exist because they do not have any other substitute). It also does not explain social issues as for example the evolution of the mentalities regarding products such as four wheel drive cars which are consuming a lot of oil and with which people in some countries are very unhappy. That is why a model such as Porter's analysis model cannot be used alone for a company's strategy anyway. Any model is quite specific and it has to be used in link with another. [...]