Analysis Of Porter's Five Forces In Aviation Industry

PORTER’S FIVE FORCE MODEL

Michael E. Porter n his book ‘’Competitive Strategy Techniques for Analyzing Industries and Competitors ‘’, came up with a model of five competitive forces based on the insight that a corporate strategy should meet the opportunities and threats in organizational external environment , the five forces identified by Porter are:-
- Suppliers Power
- Buyers Power
- Threats of New Entrants
- Threat of Substitutes
- Industry Rivalry
The forces determine the industry of competitors and hence the profitability and attractiveness of the industry. Let us now take a look at the impact of each of these forces on Indian Aviation Industry.
1) Threat of New Entrants: As of now it is very easy to enter into the aviation sector in India since there are Very few entry barriers. Government is also promoting the Local Players in the sector. Various low cost carriers, both domestic and foreign are entering the Indian skies with the increase in FDI limit to 49% from 40%. We need to look at whether or not there are substantial costs to access bank loans and credit. If borrowing is cheap, then the likelihood of more airliners entering the industry is higher. The more new airlines that enter the market, the more saturated it becomes for everyone. Brand name and frequent flier point also play a role in the Airline industry. An airline with a strong brand name and incentives can usually be enough to lure a customer (even if their prices are higher). Since borrowing is cheap due to falling rate of interest and the Airlines market is not saturated yet, an entry into market is quite feasible. Heavy expenditure regarding advertisements and incentives like frequent flyer points etc would be needed to be put in place aggressively.
2) B...

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...n services are generally less expensive than airplane and only have select stations/ stops. Generally charter planes are much more expensive than commercial airlines. Taxis are tremendously expensive for long distance and are constricted to speed limits and road layouts. Low cost carriers are mainly aiming to compete with Indian Railway's AC segment. So Advantage in terms of time, money, personal preference, and convenience can be thought of toward of threat of substitutes.
5) Competitive Rivalry: Competition among major players is extremely intense in many aspects. Switching costs are generally low, even though companies have tried to increase switching costs with the use of "frequent flyer" programs. Highly competitive industries generally earn low returns because the cost of competition is high. This can spell disaster when times get tough in the economy.