Porters 5 Forces and the Domestic Aviaition Industry in Australia
EXECUTIVE SUMMERY
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.
TABLE OF CONTENTS
Industry Analysis 3
Porters Five Forces Analysis 4
The Threat of New Entrants 4
The Bargaining Power of Customers 5
The Bargaining Power of Suppliers 5
The Availability of Substitute Products 5
Jockeying for Position Among Industry Rivals 6
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.
TABLE OF CONTENTS
Industry Analysis 3
Porters Five Forces Analysis 4
The Threat of New Entrants 4
The Bargaining Power of Customers 5
The Bargaining Power of Suppliers 5
The Availability of Substitute Products 5
Jockeying for Position Among Industry Rivals 6
Bibliography: Boxwell, R.J.(1994) Benchmarking for Competitive Advantage, McGraw-Hill, New York Bradmore, D Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, New York Walters, D