Comapring Porters 5 Forces for the Airline Industry Essay

1. rate entirely(prenominal) competitive blackjack in the air hose pains and leave a brief rationale for your assessment. Rivalry Among Existing Firms (High)When unrivaled major ships company in an labor makes a change in be or go that could potenti whole in ally attach their clientele, a major enemy al more than(prenominal) or less ceaselessly follows suit. Price matching is a prime grammatical case of that, therefore the threat is high. West Jet is one company that offers flights at a discount and stuffd Air Canada to constitute new banners to contest with the discounted prices. All major companies and unbendables in an manufacturing watch each differents e rattling incline very cargonfully, and match any move with a countermove. During slow season in the airline fear constancy, a firm stub but grow by taking some of some other opponents market sh be and guests. When someone has to book a flight, they experience to book a flight. Most people t hese days wont the internet to book flights and compare services and prices from rival firms with relative ease. handiness and price are the key factors in driving rivalries. The deregulation of the Canadian airline pains in 1984 created a very intense emulation between twain of the magnanimousgest airline companies in Canada namely, Canadian Airlines and Air Canada. Canadian Airlines built its strength in the effort by making a few key acquisitions of companies in Western Canada. Air Canada recently became a exotericly traded corporate entity, building slap-up through public offering. When these cardinal mighthouse companies created a unwieldy situation, much(prenominal) as the offering of little expensive pick outions and discount flights, they both lost revenue and nearly halting them monetaryly.Relative Power of Other Stakeholders (High)Other stakeholders such(prenominal) as g oernment activitys give birth a relatively large occur of power over nigh national airlines in Canada, because they are partially owned by them. Taxes on flights out of Pearson International Airport are some of the highest in the arena and these taxes are regulated by the authorities. Taxes, policies and regulations are some efforts why the government has power in this assiduity. They notify limit the entry to the industry inside the region by restricting access to important things, like sensitive materials and licensing requirements. In Canada the government has foreign ownership limits in al or so all conveyancing services, and the government unceasingly has and always provide regulate the airline industry.The Canadian government has used its power in the past tense by protecting local companies in the industry, such as Air Canada, from companies found in other countries attempting to acquire them. Other regional stakeholders, in fussy those in the tourism industry, hit some indirect power over the airlines by creating and perpetuating the select f or flights. An example of this is when a tourism organization advertises outside(a) finishs and attractions. merchandise initiatives of those organizations are meant to whet the appetite of the consumer, thus increase the demand for flights to those destinations and, accordingly, the airline industry is then obliged to increase the leave for flights. little terror of Substitutes (Medium)In almost every industry the threat of substitutes are apparent. Marketing and R & D are a huge part in minimizing a companys threat of substitutes. The more the public sees, hears or reads about your company the better. The threat of substitution in the airline industry is inevitable. Substitute products book the potential of creating a strong competitive force when they enhance the value for the customers, especially in the airline industry. Also, substitutes improve the price-performances of each firm at heart the industry.When booking a flight to a destination close in proximity, people oft en compare their options. For example, the cost of a return flight to Newark, New Jersey from Toronto whitethorn exceed $ 1,500 per soulfulness the same trip via elevator carmobile would cost less than $500 for all occupants of the vehicle combined the trip by train would cost some $230 and, by bus the cost would be $125. Therefore, the threat of substitution is a signifi messt factor in the airline industry. However, if a customer has to voyage very quickly or a signifi fundamentt distance, that person would most likely choose the flight option instead of a cheaper alternative. negociate Power of Buyers/Distributors (Medium)Bargaining power is a tricky one because it can work both ways. Buyers have a certain level of power in any industry. A vendee may switch suppliers very easily if there are no penalties and it is cost effective for them. If a large firm makes a large purchase of goods from another(prenominal) firm, it may be mutually beneficial and if serviced well, have t he potential for repeat business. However, the buyer then has the power to use a substitute or competitor which would negatively imprint the seller.Buyers are always the more powerful of the two because some buyers have the ability to put pressure on get off costs from suppliers, while demanding an increase of the quality of products or services provided to them. Also, the bargain power in industries with high fixed costs like the airline industry can play a big factor. On the other hand, things like jet engines, tires and other key safety devices on aircrafts can cause severe consequences if this equipment malfunctions. For that reason, the buyer has a reduced amount of negotiate power with suppliers in this industry. The bargaining power of buyers is both high and low, so I ranked it medium.Bargaining Power of Suppliers (Medium)Suppliers or sellers do not have a vast amount of power in the Canadian airline industry. Aircraft manufacturing is a highly specialize industry with a special(a) customer base. If a supplier raises costs or their quality decreases, they have the potential to lose a customer, which may be extremely thorny to replace that lost revenue in such a narrow industry. Compare the market for aircrafts with the market for automobiles Aircrafts are unique and there are proficient over 18,000 commercial aircrafts traveling the skies when the number of automobiles just breached the 1 billion mark a few years ago. Compared to the suppliers in the auto industry who have an increased amount of power, the suppliers in the airline industry dont have nearly as more. Buyers have only a minimal amount of options in this industry, therefore sellers or suppliers can be more demanding in regards to their prices, scheduling and other key components of the industry. This force is both high and low as well.Threat of New Entrants (Low)The threat of new entrants is low because there is already a large amount of emulation on a very big scale. Air Canad a is a prime example of an airline company that offers flights and services on a globalized level, which would be hard to match without massive capital. A second reason I believe the threat is low is because of the high cost of break into this market, the airline industry is one of the most expensive industries to get into. For example, Boeings cheapest commercial aircraft is just less than $80 million costing upward of $350 million. The aforementioned economic threats and entry barriers are far greater than most potential market entrants would want.The brand name factor is a big one here too, as a consumers selection process has much to do with brand recognition and pricing. Society gets comfortable and used to embarkation certain airlines and receiving what they have to offer such as good customer service. The security, health and safety aspect of the industry are very difficult to observe and maintain, as those fields of the industry are subject to jumpy regulations which can be tough for a new entrant in this industry to maintain and comply with.2. Which of these forces are changing? How provide this affect the overall level of competitive fervor in the airline industry in the future? Would you invest or look for a bloodline in this industry? What do recent financial results of Canadian airlines paint a picture about the attractiveness of this industry? Industry evolution is a neer ending process, especially in the airline industry. The power of other stakeholders volition change in years to come because of the industry harvest-festival pass judgment in the next decade and a half. The number of aircrafts is expected to look-alike by the year 2025, which is great evidence that all forces provide acquire and change with the business. With the expected growth in the Canadian airline industry all of these forces are due to change and as the industry grows, so does the threat of new entrants as more corporations and firms will see the succeeder of the current ones in the industry and want to break into the industry. With enough capital and a great group or process of strategic grooming and environmental scanning the threat of new entrants grows.The rivalries will become more intense with the globalization of corporations. The high exit barriers will be a big factor for larger corporations as the smaller organizations will have extremely difficult decisions to make on whether or not to opt out of the industry. The threat of acquisitions and company takeovers will increase and larger firms with more capital will have an advantage here, while the smaller firms will stay small without achieving great levels of success through analyzing and strategic planning. Therefore, the competition and rivalry will increase immensely between both happy and less successful firms. The struggle for bargaining power between purchasers and suppliers in this industry will likely bear upon, with that power shifting back and onwards due to v arious market conditions. Factors such as the cost and supply of fuel, the availability and quality of supplies, ever-changing government regulations and fluctuating consumer demand can cause variances in the flow of bargaining power.Other stakeholders such as unions, the government, creditors, shareholders and other key groups involved with the industry, can change and play a big factor in the near and extended future. Power of the government will increase exponentially, creating higher taxes, greater measures of safety, security and regulations, as the industry adapts and evolves. The level of intensity will grow rapidly and the rivalries will always be there, but they will be different with each rival. The competitiveness will intensify greatly in the future, because of the expected boom in the industry. More flights mean more aircrafts, employees, security and security measures, prices and innovative thinking. just about firms have been known to scout some of their future and current associates and team members, hence the rivalry among experienced employees in the industry. another(prenominal) reason the intensity will grow, is because the internet is macrocosm used more, and more often by customers booking flights, future employees seeking new positions and marketing techniques.The hyper competition of the industry will affect the intensity and moving forward, new strategic tools will need to be used to keep up. The key success factors such as, booking accessibility, diverse classes of service offerings and aircraft type and seating space, will create loyalty and repeat customers. This will intensify the industry as it spreads in the future in a very positive way. Also, successful financial management of each corporation may enable airlines to increase their entrance and power. The high fixed costs of the industry, force corporations to offer cheaper standby fares when a flight has not reached its capacity. The flight still needs to get to its destin ation, so cheaper flights are offered just to fill the seats in this case. This will always create an intense rivalry. I would invest in this industry because I believe the overall growth of airlines and aircrafts in Canada and globally will be tremendous.A company like Bombardier would be a great one to invest in. They have been expanding rapidly by acquiring top firms and companies in the industry with the goal of being the market leaders in all aspects. There are 18,000 commercial aircrafts traveling the skies and that number should double within the next 12 years. In addition with the price of purchasing aircrafts revolt and the need for them in the near future, moreover, companies outside of Canada in the aircraft manufacturing industry such as Boeing and Air Ambulance would be successful ones to invest in. With the projected heights of the industry, it would be an intelligent idea to invest in what the general public rated the top airline company in North America, Air Canada , because, the larger they become the greater their revenues increase. Air Canada is involved in all transportation categories of the industry, such as internationally, nationally, regionally and the transportation of cargo for other corporations.As the global population increases at an extremely intense rate, additional customers will be using their services and in turn expanding a businesss potential. The more firms in the airline industry grow, the more flights and services will be offered. This means better rates because of the increase in airports, flight times and options, accessibility and many other aspects. WestJet is currently looking for at purchasing 40 new aircrafts, with the top two competitors being Italian based company ATR Aircrafts and Bombardier. Bombardier will be leaning heavily on the fact that they are a Canadian based shaper with the hope of winning this extremely lucrative and positive contract. Economically, this may have a large affirmative influence on the Canadian industry, another key factor in why I would invest in the Canadian airline industry.After reviewing the financial results of some airline companies in Canada, I found that the net earnings have been rising for the past 2-5 years on a consistent and large scale. The revenue and uncommitted seat miles (ASM), are increasing quite rapidly, however, the costs of aircrafts, other specialized equipment and fuel are increasing almost as rapidly. A recital made by Gregg Saretsky, President and CEO of WestJet, contained in the companys recent financial statements outlined that profitable growth continues as they expand their reach. I interpret this as a very positive sum from an important stakeholder in the Canadian industry. It means that as the company expands more and more, so do the profits, brand name and other large factors in any successful business in the second largest country in the world. This is a very attractive industry to get involved with because of the growth potential. Expert analyst and great strategist have predicted the airline industry to be one of the top grossing and earning industries in the world.There are over 230 different airline companies in Canada with less than ten dominating forces in the industry. The larger the company, the larger the profit, so the attractiveness is more appealing with larger companies or firms. Porter Airlines is a small company that launched in 2006, however, the come downoff year they recorded financial gain was 2011. This company has been steadily expanding since they set to the air. The founders of Porter airlines spent five years building their business plan. With the hairsplitting and meticulous environmental scanning and strategic planning, they have grown their company in a great way, with greater expectations in the future.The most ugly aspect of this industry is the cost of fuel and according to the Air transport Association (ATA) is an airlines second largest expense. According to the financial discover of Air Canada, they spent $723 million on fuel in 2011, an increase of about 27% from the previous year. Right now, jet fuel intake is exceeding 6 million barrels daily and with that number increasing in the future, demands will increase even more then they are now, driving the cost of this essential commodity in the industry. Air Canadas operating income in 2011 was more than $50 million down from the year prior. They reported a decrease in net loss of just less than $250 million.The cause of their loss was from foreign exchange and internal investigation. Another unattractive aspect is that globally, the level of carbon dioxide and other emissions is expected to set up 50% by the year 2050. Aircrafts emissions contribute to climate change trio times as fast as they do from cars, which is extremely unhealthful to the environment. Most companies in the industry are putting enormous localize on their environmental scanning, trying to find options to decrease and minimize this major factor.Overall, the financial results suggest that the Canadian airline industry will continue to grow on exponential levels in the future and will be extremely beneficial for the Canadian economy in many ways.