Airline Industry Analysis: Porter's Model and New Entrants Insights

This report analyzes the airline industry through the lens of Michael Porter's Five Forces model, addressing why the industry is often considered unprofitable and why new companies still enter the market. The report breaks down each of the five forces: competitive rivalry, threat of new entry, threat of substitutes, bargaining power of consumers, and bargaining power of suppliers, applying them to the airline sector. The analysis highlights the intense competition between major players like Airbus and Boeing, the high bargaining power of consumers, and the significant barriers to entry, such as high investment costs and specialized knowledge. Despite the challenges, the report suggests that the industry's potential for growth and profitability motivates new businesses to overcome these hurdles. References to academic sources like Dobbs (2014) and Belobaba et al. (2015) support the analysis, offering a comprehensive view of the airline industry's dynamics and strategic considerations.

Running Head: AIRLINE INDUSTRY
AIRLINE INDUSTRY
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Answer to question (a):..............................................................................................................2
Answer to question (b)...............................................................................................................3
References..................................................................................................................................4

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Answer to question (a):
Michael E Porter a five forces model which was commonly termed as porter five
forces was used to understand the nature of the company, competition in the industry the
company is operating and developing strategies post the analysis. It was one of the most
effective model that helped various businesses in determining and analysing various forces
and helped the companies in increasing their profitability. The effect or impact of each force
of the porter five forces is dependent on the nature of each industry and hence, it is vital to
prepare a different analysis for each industry specifically.
The five forces of the porter model was divided into two categories, horizontal forces and
vertical force. Horizontal forces included threat to substitute, threat to new entry and
competition whereas vertical forces included bargaining power of the consumer and the
suppliers (Dobbs 2014). A brief description of all the forces are as follows:
1. Competitive rivalry: This force determines the magnitude of competition or rivalry
between various firms operating in an industry. The magnitude of the rivalry is highly
dependent and directly proportional to the number of firms operating in the industry,
2. Threat of new entry: This threat occurs when entry of new firms are frequent and easy
in the industry. It also depends on the nature of the industry.
3. Threat of substitutes: This implies to the loss a particular company has to occur
because of the substitutes present in the market.
4. Bargaining power of the consumer: The bargaining power of the buyers are directly
proportional to the number of suppliers present in that industry.
5. Bargaining power of suppliers: the bargaining power of the supplier is inversely
proportional to the number of suppliers present in the industry.

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In case of the Airline industry, the industry had a fierce competition between the two
main producers or companies named, Airbus and Boeing. The power of buyers that is the
bargaining power of the consumers was considerably high and the industry was free from any
threat of new entry as the entering this industry required high professional knowledge and
investment, which was often the hurdle for new entrants. As both Airbus and Boeing had the
largest market share in this industry it hardly faced any threats from substitutes (Belobaba
etal. 2015). However, in case of advertising the threat of substituting pinched hard in this
industry as there were various forms of entertainment available in the market. Besides, the
power of suppliers always remained high as supply was one of the most vital input.
Answer to question (b)
Although the airline industry requires the new firms to have high investment ability
and an exceptionally good proprietary knowledge, it is observed that the industry has new
entries. This is because of the nature of the industry. The airline industry is one of the most
profitable sector all across the world with a good estimated growth in the future. This
motivates new business minds to overcome the hurdle like high investment and be a part of
this industry.

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References
Dobbs, M.E., 2014. Guidelines for applying Porter's five forces framework: a set of industry
analysis templates. Competitiveness Review.
Belobaba, P., Odoni, A. and Barnhart, C. eds., 2015. The global airline industry. John Wiley
& Sons.