Porters 5 Forces and the Domestic Aviaition Industry in Australia

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There are only two major airlines in the Australian domestic aviation market, Qantas and Virgin Blue. Qantas has introduced a subsidiary, Jetstar, to compete directly with Virgin Blue in the ‘low cost carrier’ market and Qantas still hold the majority of the market share with 65%. Virgin Blue continues to increase their presence in the market holding the remaining 35%. At the end of March 2003 Virgin Blue posted a profit before tax of $158 billion, $58 billion over their budget and over $100 billion on last year’s results. Virgin Blue also received the best EBITDAR per plane for any airline in the world, beating Qantas by $900,000. This means that the challenge for Virgin Blue is to continue to offer the cheapest flights in the market and maintain their margin. Virgin Blue is renowned for their tough negotiating skills and so are able to keep costs to a minimum compared to Qantas and are therefore able to achieve greater margins even when charging lower prices for flights. Virgin Blue flights are also considered no frills, meaning there are no on board meals, the headphones must be hired, there is only economy travel and there are no special waiting rooms or frequent flyer programmes. The biggest challenge facing the market is the introduction of Jetstar, as having two discount airlines will offer the consumer greater choice and cheaper options when they are deciding on to fly with. This will increase the competition in the market creating better and prices, something that Virgin Blue always wanted. The airline industry is a hard market to break into and Jetstar will the backing of Australia’s largest domestic airline to help ensure their success.


Industry Analysis3
Porters Five Forces Analysis4
The Threat of New Entrants4
The Bargaining Power of Customers5
The Bargaining Power of Suppliers5
The Availability of Substitute Products5
Jockeying for Position Among Industry Rivals6
Kotler’s Marketing Position Theories6
Porter’s Generic Strategy7
Porter’s Value Chain Analysis8
Outbound Logistics8
Inbound Logistics9
Marketing and Sales9
Key Concerns, Challengers and Trends10

The airline industry is an integral part of the Australian tourism industry. The last four years have seen many changes in the industry with newcomers such as Virgin Blue, Impulse and most recently Jet Star and the failure of Impulse and Ansett closing their doors. When Virgin Blue entered the market they were faced with high fuel prices, the Australian dollar was at an all time low and fierce price wars from Qantas, their biggest competitor. This however did not deter them and they are celebrating their fourth year in the industry. Ansett was not able to continue to compete in the market and was forced to close the business. This has created a great deal of strain on the industry, as all passengers are now required to pay an Ansett levy whenever they fly in order to help pay the workers their entitlements. This combined with all the other taxes and levies that passengers have to pay can increase the cost of flights by up to $100. The Australian domestic airline industry currently consists of two operating airlines, Virgin Blue and Qantas. The “discount” subsidiary of Qantas, Jet Star, has recently been introduced into the market. Although not a direct competitor, Qantas has put a great deal of pressure on Virgin Blue and now that Jet Star has been introduced the customer will continue to benefit from price competitions between the airlines. Qantas controls approximately 65% of the domestic market including all their rural subsidiaries and Virgin Blue makes up the remainder 35% but is rapidly expanding their position in the market place.

The Threat of New Entrants
The airline industry...
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