Michael Porter’s Five Forces model explains the importance of how market dynamics can affect competitive rivalry. This model includes three forces from the ‘horizontal’ competition: threat of new entrants, threat of substitution products, and the degree of rivalry among existing competitors; and two forces from the ‘vertical’ competition: bargaining power of customers and the bargaining power of suppliers. These five factors make up the Porter Five forces.
These five factors represent what power a company has as a buyer verses the power it has as a supplier. This model also looks into how easily a product or service can be imitated by alternate companies; and additionally, how other companies could threaten the current stance of the existing firm. All aspects of this model influence how much a company will pay or receive for their certain products or services, represents the strength of your existing firm and to what degree you would have control over your current market competitors, and how viable it is to enter into the selected market.
Virgin Australia airlines have concerns with the rivalry with other airlines in their existing market or possible future markets. Rivalry is exacerbated by the microenvironments that the airline industry is based in, where competition is primarily based on price. This is due to basically all airlines offering the same service to their customers with little ability to differentiate. Additionally, with the added use of the Internet, customers have the possibility to compare prices prior to purchasing tickets. All these factors amount to why airline tickets are being driven down, and why they can hinder airline profitability.
Table 1 - Impacts on an airline service provider based on Porters Five Forces Model.
Threat of New Entrant| -Airline industry is completely saturated with airline providers and there is little room for...