The Airline Industry and Porter Five Model Forces

The Airline is one of the major industries in the world today and is majorly affected by Michael Porter’s “Five Forces” model. The following write up conducts an analysis on how the model affects the airline industry today.

The central force of Porter’s model is Internal Rivalry within the Industry. In case of the Airline industry, this is the most important force today, especially since the market is completely saturated. There are more service providers than needed in both local as well as international markets. The various airlines are competing for the same customer, which also results in strengthening the buyer power, another of Porter’s forces. Moreover, a lot of airlines such as Qatar Airways and Emirates have a brand name which they have to defend so they compete in doing so. The airlines are continually competing against each other in terms of prices, technology, in-flight entertainment, customer services and many more areas. The net result of this competition between companies is an overall slow market growth rate.

One of the forces that Porter describes is Entry into the industry. In the world today, the airline industry is so saturated that there is hardly space for a newcomer even to squeeze its way in. The biggest for this is the cost of entry. The airline industry is one of the most expensive industries, due to the cost of buying and leasing aircrafts, safety and security measures, customer service and manpower. Another major barrier to entry is the brand name of existing airlines and it is really difficult to lure customers out of their existing brands. On the other hand, a newcomer could enter this saturated market easier with a completely new concept and/or technology. This was the case when Southwest entered the airline industry, with the new concept of budget or low cost travelling. The new concept was appealing to whole new universe of customers who previously would have thought multiple times before deciding to fly instead of driving or going by train. The best example of a low cost carrier in the Middle East region would be Air Arabia.

Another of Porter’s forces are Substitutes and Complements and how they can make or break a company in the industry. Specifically talking about the Airline Industry, the best substitutes that could be looked at would be Trains, Sea Travel and more trivially Roads. The best example where Trains outdo Airways would be Intra-Europe Travel. Europe has a well-developed network of Rail Systems and it much faster to travel by Train where there are no formalities such as Check-in, no major safety issues, the visa process is simpler and overall, Trains are faster. It would take around 6 to 8 hours for a London-Brussels flight whereas it you could travel the same distance by train in just a couple of hours (Example from class). One could counter the analysis here by talking about international travel spanning long distances for which there really is no ideal substitute to flying. On the other hand, complements help the Airline Industry