Porter Five Analysis of the European Airline Industry

The European Airline industry has gone through a lot in the past century since the establishment of the first public airline after the World War I. Until a few decades ago most of these airlines were national and at least partially state owned, and most of the European countries had at least one, with direct government control. Significant change in this only came in the 1990’s with the appearance of the low cost airlines. While the business model existed for some time (first such in 1973 US), the appearance of these in the European market needed the liberalization brought forth by the EU, implementing the „Freedoms of the air” in three stages. In 1997 the first LCC (Low Cost Carrier), the Ryanair began its operation, and in a few years a few more followed, which gave the national and network airlines a new problem to the existing economic problem, shrinking market and others such as 9/11. By today the changes in the past two decades have shifted and diversified the industry, which was once a mature and to some level declining in structure. The new regulations, companies, investors and consumers have brought new life, the industry once again mature with fragmented characteristics.
The ideal tool for the assessment of the airlines industry is Michael Porter’s five force model. It aims to find and demonstrate the forces in the microenvironment which influence the industry, internal and external as well.
Threat of new entrants (barriers to entry)
• High capital investment ˇ
• Capital intensive ˇ
• Airport slot availability ˇ
• Predatory pricing ˇ
• Brand loyalty/frequent flyer ˇ
• Economies of scale ˇ
• Limited number of routes ^
The threat of new entrants, due to the barriers mostly set by the nature of the industry and by the existing companies, are very low. Yet sometimes when the possibility arises, new companies start: in the past few years many national companies went bankrupt leaving a market to take by the existing companies or new upstarts.