Porters 5 Forces in Airline Industry

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Porters 5 forces

Virgin Australia
Threat of new entrants – The airline industry has been around for over 100 years and due to large capital requirements and overhead (high cost of planes), the industry would not be greatly affected by new entrants and therefore the threat of new entrants is high. With low operating margins and high initial investment, a high market share is needed to ensure full flights (maximizing profits on each flight). This would be difficult for a new entrant. Industry is mature so is probably not attractive to new entrants and distribution channels are already focused on current competitors. Government policy restrictions are not great but airlines can not afford mistakes as this may have an impact on lives. The current brands in the industry are quite strong, supporting specific airline lounges. Business class customers may be a little more reluctant to switch to a new competitor unless a more premium service is offered, however leisure travellers may be more adaptable to new entrants if the price is right as that is their primary concern. The new entrant would therefore have to have a low cost strategy, and with such a big initial capital investment due to the cost of planes this would make it extremely more difficult. Intensity of competitor rivalry - lopsided two airline structure, open skies and multiple designations has created fierce competition among local competition on the domestic front between Qantas and Virgin There is a low differentiation factor as there is either a premium carrier, average carrier or low cost carrier. Barriers of exit are high and a lot of money and effort would need to be invested to start up the venture. It is a matured industry with low growth potential. Growth could only be achieved either through diversification or at the expense of the competitor. Bargaining power of customers – low switching costs. Price could be a factor for leisure travellers while business travellers may look into an...
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