Topic 1 Discussion Answers Bharathi Sriram

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Compare and contrast the five forces affecting the airline industry, the fast food industry, the beauty products industry, and the pharmaceutical industry (i) on a worldwide basis and (ii) in your country. Which industry holds more promise for earning higher returns? Why?

Airline Industry (globally/Australia)

According to a study generated by IBISWorld on the Annual Global Airline industry revenue for 2014, figures were indicated at $745bn with over 9,000 businesses worldwide. From such figures we can infer that global competition in this industry is inevitably high. Such competition is present and can be seen in examples like existing Airline companies such as Etihad and Emirates which offer similar services, packages and prices to its customers. What can be noticed however with the Airline industry is that the threat of new entrants is quite low - this is in large part due to the fact that the Airline business involves a billion dollar investment and high capital (Porter, 2008). It is also a service which although used frequently, in one customer’s life-time; the extent of use may vary depending on many situational factors such as seasonality, business or leisure purposes and so forth. In Australia, the same notion holds in terms of new entrants to the marketplace. Major players in the Australian Airline network include Qantas, Virgin and Jetstar.
In terms of threat of substitutes, the risk level here is medium-high. Many forms of substitute exist to air travel including travel by sea, light rail and car. These often are less expensive options and require less pre-planning. However, switching costs may be high and the added convenience and speed of air travel cannot be substituted for. In Australia, airlines such as Virgin offer services particular to domestic travel. Travel by air from Sydney to Melbourne can take as short as 1 hour, whereas travel by coach or car may take up to 14 hours, with the added inclusion of fuel costs.
Regarding the bargaining

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