The Porter’s five forces model, in this assignment, can be used to access the competitiveness of the airlines industry. It can review the competition within the industry plus checks for threat from outside.
Bargaining power of supplier-High- In every industry, there has to be someone to play the role of a supplier. It is important to know the power of the supplier as it will affect the industry. There are only two main suppliers in the airline industry, Airbus and Boeing, thus there isn’t much of an open option. Not forgetting the global economic catastrophe which has limited the new entry of competitor plus reducing the necessity of upgrading of planes in near future. However, both suppliers grant almost similar standard aircrafts; hence the switch to AirAsia is low. Furthermore, AirAsia places a bulky amount of order from Airbus in order to expand its routes internationally. Therefore, the authority of suppliers may weaken as Airbus’s profit may be influenced by Air Asia.
Bargaining power of customer-High- Customers are the main factor which influences the industry to either make a loss or profit. Nowadays, customers are much more knowledgeable and comparative compared to previous. Thus, they are very sensitive to the hike and drop of prices, regardless the product or service. In this assignment, AirAsia always provides the lowest price to customers, but the act of comparing between airlines still exist. AirAsia is not the only one providing an airline service thus, for a customer to switch between airline services is simple. For example, customer may still choose MAS, Tiger Airway or even Firefly.
Internal rivalry within the industry-High- In every business sector, there exist either a positive or negative tendency towards an industries rate of development. Result of a positive trend would be in companies not stealing the share market among them. Nonetheless in an airline industry, the rate of development is low by reason of the inadequate amount of consumers.
Hence, AirAsia has to steal the market share from its contenders to develop and succeed further. The main key advantage is its low operating overhead, this factor enables it to be the prime in the main field in price. Nonetheless, there are many other upcoming competitors or rivals immerging into the airline industry, who have key carriers as their backbone, which may direct to an ugly price clash in the coming years. There are few other minimal cost airline services such as Firefly, Tiger Airways and etc, making them possible competitors of AirAsia.
Barriers to Entry/Potential entrants-Low- there is a high barrier to emerge in the airline industry since the capital required is very high, such as the need to purchase airplanes, office buildings and hiring staffs. Hence this reduced the threat for AirAsia. Plus brand awareness is also a main leading factor. A new line of aircraft can’t make a mark so fast in the industry and it requires a lot of capital and time to build its name. Consumers always prefer a brand that has been there for an adequate amount of time, a brand that they can trust. This also reduces the threat. Not forgetting the governmental legislation also is a barrier by itself.
For example, MAS has got the backing and protection by the Malaysian government on the route to Sydney and Seoul, so AirAsia finds it tough in getting a new route from the government. This reduces the profit margin able to be made by AirAsia, but also has reduced emergence of new entries.
Power of Substitutes-Medium- Substitute are products or services which can replace the originals, and still able to provide almost the equivalent fulfillment to clients. In the airline industry basically, two types of substitutes are present, indirect and direct. Indirect substitute are ferry, bus and further forms of transportation except from airline, while direct substitute are the other rival airlines.
Consumers usually go for those that cost less. If the trip covers a short distance and mainly connected to the peninsula then forms of transport will include train, bus or air travel. However if the trip is budgeted the preferable choice would be by bus. Moreover the development in technology has highly contributed in this matter by making ticketing and pricing of air tickets available to travelers on the internet and also allowing them to compare the rates. Even if the travelers may prefer to take a bus or train to their preferred location such as travelling from Kuala Lumpur to Bangkok, it is still an undeniable fact that air travel is much more convenient and consumes less time.