Evaluation of the competitiveness in the Airline Industry using the five forces framework
The five forces framework is a model created by Michael E. Porter and it explains how five important forces influence an industry’s profitability and attractiveness. These forces can be used to investigate the competitiveness in the airline industry (Dobbs, 2014). Some of these forces are the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes, the threat of new entrants and rivalry among existing firms (Dobbs, 2014).
The bargaining power of suppliers and buyers is low for the Airline industry because most airline companies are large enough to survive any attack on their prices or they can retaliate against the supplier. There is a drastic reduction in the bargaining power of suppliers as it can be very expensive for the supplier to change their prices or endanger that they won’t provide any supplies to the airline industry (Dobbs, 2014). The threat from substitutes is low for this industry because flying can’t be replaced by another mode of transport easily and quickly. Airlines also do not face much threat from substitute services because there are not many.
The threat of new entrants is high because of the increased cost of start-up. This threat can be reduced by the large size and experience of existing firms. The airline companies have a long history and they have brand loyalty as well as a reputation as per their company values. These factors contribute to reducing the risk of substitution for airlines (Baxter, 2019).
Rivalry amongst existing competitors is very high which leads to cut-throat competition. Airlines are offering various discounts on tickets in order to attract more customers. The threat of new entrants is also very high because it’s very costly for them to enter the airline industry (Baxter, 2019). Entry into this industry requires huge investment, most of the time they have to receive approval from government authority and they have to purchase aircraft.
How does Emirate’s approach to competing in the airline industry influence the competitive forces it faces?
Emirates approach to competing in the airline’s industry influences the competitive forces it faces. Emirates has a market share of about 3% in the air transport industry and they are very profitable. Emirates has their own fleet which reduces the cost of operation. One of the most important aspects of Emirates is its exceptional customer service (trust me I fly with them a lot). Customer service is the key factor for them as they compete with other airlines on price.
Porter has five forces that influence the attractiveness of an industry and these are threats from new entrants, bargaining power of suppliers, bargaining power of buyers, rivalry amongst existing firms and the threat from substitute products. Emirates have a few competitive advantages which also influences the competitive forces in the market. First, it has its own fleet which reduces the cost of operation and they achieve this advantage by owning its fleet, buying in bulk and not hiring pilots or crew from other companies (Chidambaranathan & Regha, 2016). Emirate’s airline does what is called “employee self-leasing” which means that its employees are registered as a company and the airline leases them from their own company. The bargaining power of suppliers is very low because it has a strong relationship with its suppliers as they have been working together for a long. They have signed contracts that guarantee that no supplier can increase prices or decrease the quality supplied to Emirates. Customers are loyal to the airline company because of its service which also influences buyers to be less powerful compared to the supplier’s power. Finally, even though there are new entrants in this industry, price reduction strategies make it very difficult for competitors to enter this market.
How has Emirates benefited from the broader changes in the External environment and what should it be concerned in the future?
Emirates has been benefiting from the broader changes in the external environment because it added about 50 new aircraft and they also increased their destinations to be more than 200. Emirates forecast that their income would exceed $3 billion by half way through the year which is a 10% increase compared to last year, this is mainly due to high passenger demand (Chidambaranathan & Regha, 2016). The main threats for Emirates are the strengthening US dollar because it would affect their profitability. Also, if another terrorist attack happens at airports, it will lower demand because passengers will be concerned about travelling by air.
In future, Emirates should make a plan for the next five years and not only focus on the short term. In order to maintain its competitive advantage, Emirates needs to continue with customer service because it is what customers value. They need to consider reducing the cost of operation by purchasing new aircraft as an option. They also need to consider expanding the fleet because it will increase their market share (Chidambaranathan & Regha, 2016).
Conclusion
In conclusion, the nature of forces is low which leads to high profitability and attractiveness for the airline industry. It is a very profitable sector with increased demand as per customer preferences as well as the availability of new opportunities. The five forces model helps organizations understand how attractive an industry would be to various potential competitors and help them invest accordingly.
References
Dobbs, M. E. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness review.
Baxter, G. (2019). A strategic analysis of Cargolux Airlines International position in the global air cargo supply chain using Porter’s Five Forces Model. Infrastructures, 4(1), 6.
Chidambaranathan, K., & Regha, V. S. (2016). Diagnosing the Organizational Culture of Higher Education Libraries in the United Arab Emirates Using the Competing Values Framework. LIBRES: Library & Information Science Research Electronic Journal, 26(2).
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