Airline industry Assignment PDF

Competition/Rivalry
In the airline industry there is high competition and therefore an airline has low market power.
Competition is brought about through various characteristics held by the different players in the
market. One of the differentiating factors is capacity where increase in the number of fleet
reduces the marginal costs per customer. Another differentiating factor is the services that an
airline provides to customers on the plane. Also, airlines can choose to differentiate themselves
based on the ticket price. Due to high competition levels, the airlines may not be able to capture
customer value through certain systems such as fencing. Due to high level of rivalry, the profits
experienced are normal profits since they are spread across the industry (Belton, 2017).
The threat of new entrants
The airline industry experiences a high level of threat of new entrants which means that the
companies experience quite low market power. Market entry occurs regularly especially when
the existing airlines expand their services to the new markets also the barriers to entry in the
industry are low. For instance, with a strong brand, one is able to stimulate demand, on the
supply side, the economies of scale are limited if the airlines grow above 50 aircraft, there is ease
of access to distribution channels for new entrants and slots on congested airlines can be traded,
low customer switching costs, access to capital for financing purchase of aircraft and a less
government sanctioned industry. In this market therefore, the airlines have low market power
due to high threat of new entrants (The International Air Transport Association (IATA), 2011).
Bargaining power of customers
The airline industry has a high bargaining power of customers. Since the channels of customer
information have become concentrated for example, presence of internet websites and travel