Flying Too Low: Air India 2009 & Beyond
External Environment Analysis
Strategy analysis begins with an analysis of the forces that shape the competition in the industry in which a company is based. An important factor of the analysis is External environment analysis. The essential purpose of this analysis is to identify the opportunities and threats in the organization operating environment that will affect how it pursues its mission. Analysis the industry environment requires an assessment of the competitive structure of the company’s industry. It also requires analysis of the nature, stage, dynamics and history of the industry. Here, while analyzing the external environment of Air India according to the information presented in the case, we will concentrate on Porter Five Forces Model, PEST Analysis of the Air India, opportunity and threats to Air India. Finally, we will quantify all our analysis factors to come to a conclusion. Porter’s 5 forces model:
Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. Three of Porter's five forces refer to competition from external sources. The remainders are internal threats. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average. We will see how these five factors are working for Air India.
I. Rivalry among existing competitors:
Competition in domestic and international routes
On domestic front, private airlines like Jet Airways, Kingfisher Airlines *
On international front, major competition was from companies like Singapore Airlines, Etihad Airlines, Qatar Airlines and new entrants like JA 2.
Better performance by competitors
Rapid increase in market share of competitors
Poaching of employees by competitors
II. Threat of new entrants:
1. Possibility of liberalization of Aviation Industry will weaken the entry barriers and thereby will lead to increase in number of new entrants 2. Business was very lucrative to attract new entrants
3. Consistent and rapid growth of demand for airlines offering scope for profitable business and low cost carriers 4. Examples GoAIR, IndigoAir, Paramount Airways, SpiceJet
III. Threat from substitution:
Road and rail services posing a major threat by offering cheaper, reliable, convenient services. Travel. In case of higher Air ticket fares, Air India could lose potential customers to Rival airlines and Indian Railways. The possibility of loss of market share to Indian railways further increases by the fact that over a period of time the rail ticket fares have marginally varied compared to significant variation in air ticket fares.
IV. Bargaining power of suppliers:
1. Slow nature of aircraft sales, because the high value order placed by the industry can take several years to be delivered. 2. Labour unions are suppliers who have significant power. The performance and flexibility of the entire industry depends heavily on labour unions. 3. Aviation fuel is a commodity and its prices are decided by market forces and existing geopolitical...
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