1. What is your assessment of today’s airline industry? Answer 2. Given your results, what are the main factors enhancing globalization in that industry and why? Answer
Porter’s 5 Force Analysis – Airline Industry
Bargaining power of Suppliers Bargaining power of Buyers Potential Entrants Threat of substitute services Competitive rivalry among airlines Easy access to finance has made it very easy for potential entrants to entre the airline market. In addition, airline industry still enjoys high class status in society, therefore entrance of big corporate houses in this domain is very much probable. Airline industry is mostly dominated by two suppliers Boeing and Airbus. Therefore, airline industry need to rely on these two suppliers for necessary supply. At the same time, on a positive note, there isn’t cutthroat competition among suppliers. The bargaining power of the customers in airline industry is not very high since willingness to purchase the airline ticket does not vary much with reasonably increased priced ticket. Therefore buyer does not put pressure on the airline or the prices of tickets. Airline industry is very competitive industry. This competitiveness in combination with rising fuel costs substantially affects profit margin for the airlines.
Threat of substitution by other transportation services (such as Train, Road services etc.) sector is very high in domestic region than international. In addition, consideration of time, cost, availability of medium also plays a very important role and creates threat to the domestic carriers.
PEST analysis – Airline Industry
• International strategic alliances • Bigger markets, reach to larger population • Demographics, population growth rate • Higher purchasing power of consumer • Higher living standard • Increased aviation based consumers and their flying frequencies
• Improving internal political positions • Steps towards making aviation sector competitive and better • Steps towards creating easy access to high class aviation facilities
• Visibility on international platform
• Government policies to raise employment level • Initiation of privatization • Marketing opening for international investment
• Steps towards creating good International political relationships
• New inventions and development in technology • Reduction in Energy costs
What were the changing roles of the state during the evolution of the worldwide aviation industry?
Air Boundary Remover Strategy Setter Nation Pride Guarder
Technical Innovation Supporter
Conservative Protector Policy and Regulation Maker
Conclusion: State has played a dominant role in establishing, boosting and controlling the evolution of the worldwide aviation industry
Question 5 Before searching a buyer for Alitalia, the Italian government engaged itself to neutrality in the Alitalia case and not to hinder or perturb any negotiation. Please comment on this promise.
privatization or not
keep the government operation Political •Need more state aid or loan ‐Couldn’t additional offers ‐Economic stagnation of the nation •No profit Social •Strong Labor Union •Still domestic •Keep the pride of national aviation •Labor flexibility •Cross‐border market expansion •(Risk of National Flag Carrier loss) Privatization •No Need to aid •Could sell stocks •Become a taxpayer
Conclusion Given the success of the Air‐France and KLM case, the government considered that to obey the market principle would bring more benefit than to keep the government operation.
Why can it somehow be considered as paradox from today’s point of view? Traditional State Roles Major Shareholder Today’s Point of Views Diminish state shares to make the airline companies more commercialized Airline company should be ...
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