To answer this question I will briefly lay out some key findings from my Five Forces analysis below:
1. Threat of New Entrance: Low. It is not easy for new companies to enter the market of manufacturing large commercial aircraft. The need to invest large financial resources in order to compete deters new entrants.
2. Substitutes: Low. There are several substitutes available like cruise, buses, cars, trains or not traveling at all. However, these options can’t compete with flying because the price-performance trade-off in this case is not attractive.
3. Bargaining Power of Suppliers: Low – Moderate. The supplier group in this industry is fragmented, so it is relatively easy for the aircraft manufacturers to switch suppliers. However, some parts require a high degree of specialized knowledge and are differentiated from others (like the engine), thus increasing bargaining power of this group.
4. Bargaining Power of Customers: High. There are relatively few buyers of large commercial aircraft. In addition, the airlines that purchase aircraft earn low profits thus making them more price sensitive. Also, each customer represents a large portion of the manufacturer’s orders.
5. Competitive Rivalry: High. Boeing and Airbus compete intensely in the large passenger jet aircraft market. Boeing was the market leader for many decades, but recently Airbus has challenged its position. Since industry growth is slow, both companies fight for market share.
Issues the 787 will address: Bargaining power of the airlines that place huge orders and the competitive rivalry between Boeing and Airbus have the largest impact on profitability in the aircraft industry. With the introduction of the 787 aircraft,...