LABORATORY EXERCISE 8
Competitive Strategies of Domestic and Global Enterprise
MGT 1 X-2L
Alonzo, Angela Ruth
Badon, Laurene Mae
Layones, Donna Jan
Rosales, Annalie
Submitted to:
Prof. Faustino Arrienda
Submitted on:
February 9, 2012
Airline
Airline industry
Porter’s 5 forces
-factors affecting the 5 forces (commonly)
-relate to airline industry
Effect of globalization on airline industry
>what is globalization
In the Philippines, there are approximately 30 airlines which can be
classified into three main categories: scheduled commercial, charter, and
cargo airlines. There are five competing commercial airlines that have
domestic and international routes. These are the airlines which are ranked
according to their market share: (1) Cebu Pacific, (2) Philippine Airlines /
AirPhil Express, (3) Zest Airways, (4) SEAir,and (5) Spirit of Manila Airlines.
The most influential analytical model for assessing the nature of
competition in an industry is Michael Porter’s Five Forces Model. Porter, a
Professor from Harvard University, explains that there are five forces that
determine industry attractiveness and long-run industry profitability. These
five “competitive forces” are: (1) threat of entry of new competitors (or new
entrants); (2) threat of substitutes; (3) bargaining power of buyers; (4)
bargaining power of suppliers; and (5) degree of rivalry between existing
competitors.
Figure 8.1. Diagram of Porter’s Five Forces.
THREAT OF NEW ENTRANTS
The threat of new entrants to an industry can raise the level of
competition, thereby reducing its attractiveness. The threat of new entrants
largely depends on the barriers to entry. High entry barriers exist in some
industries whereas other industries are very easy to enter. The key barriers
to entry include: economies of scale, capital or investment requirements,
customer switching costs, access to industry distribution channels, and the
likelihood of retaliation from industry of existing players.
Airline Industry is a business which requires huge setup thus large
investment, in old times this industry might have a very less threat but
today banks has increased possibilities of new entrants through offering long
term loans on less interest to business sectors which obviously increased the
threat of new entrants for the existing airlines. There is always possibility
that another airline will be formed to service the existing market. The
likeliness of another airlines being formed, will depend so much on the
barrier to entry and the lucrativeness of the business
In relation to Philippines’ airline industry, Zest Airways is the
newcomer that is currently competing with the two airline giants – Cebu
Pacific and Philippine Airlines (PAL). As a starting company in this business,
they offer low rates to the passengers.
more clients. The unique strategy of Zest
offers tour packages wherein tourists
affordable and very convenient because
agencies.
They also have promos to attract
Air from the other airlines is that it
can set their travel plans-more
they do not have to go to travel
BARGAINING POWER OF SUPPLIERS
Suppliers are the businesses that supply materials and other products
into the industry. The cost of items bought from suppliers (e.g. raw
materials, components) can have a significant impact on a company’s
profitability. If suppliers have high bargaining power over a company, then
the company’s industry is less attractive. The bargaining power of suppliers
will be high when: there are many buyers and few dominant suppliers, there
are undifferentiated and highly valued products, suppliers threaten to
integrate forward into the industry, buyers do not threaten to integrate
backwards into supply, and the industry is not a key customer group to the
suppliers. In short, suppliers, if powerful, can exert an influence on the
producing industry, such as selling raw materials at a high price to capture
some of the industry's profits. Thus, lowers the profit of an industry.
In relation to airline industry, there are only two competing airline
manufacturing companies which supply airplanes to different countries.
These are Boeing and Airbus. Some airlines operate using a single type of
aircraft, for example Boeing only or Airbus only. The seller will have a
greater power over the airline. For that reasons, most airlines will opt for
multiple suppliers. It will also have the added advantage of getting a better
deal, because if Boeing has an unattractive deal, the airline will shift to
Airbus. Having more suppliers will decrease the price of the airplanes
considering that there are also various airlines. By 2020, China envisioned to
manufacture airplanes, making it a possible competitor to Boeing and
Airbus.
http://www.slideshare.net/joharahman/five-forces-in-airline-industry
http://tutor2u.net/business/strategy/porter_five_forces.htm
http://www.docstoc.com/docs/29471588/Competitive-Analysis-of-AirlineIndustry-using-porter-five-forces-model
http://www.quickmba.com/strategy/porter.shtml
BARGAINING POWER OF BUYERS
The power of buyers increase when there are few dominant buyers and
many sellers in the industry. Some companies have small number of
customers which purchase a high volume of the products. Taking the
example of Malaysian Helicopter Services (MHS) who has customer like
SHELL and PETRONAS, will acknowledge the power these two buyers have.
They can dictate what type of helicopter to operate and the price of the
tickets. For airline such as MAS, with multiple segments and without single
large customer, the power of the buyer is not too obvious.
Buyers dictate the demand in the industry. Like in airline industry, the
sales of the airline depend on the number of passengers who have reserved
tickets for a particular flight.
DEGREE OF RIVALRY
The intensity of rivalry between competitors in an industry depends on
six factors: (1) The structure of competition, rivalry is more intense where
there are many small or equally sized competitors; (2) - The structure of
industry costs, industries with high fixed costs encourage competitors to fill
unused capacity by price cutting; (3) Degree of differentiation, industries
where products are commodities (e.g. steel, coal) have greater rivalry; (4) Switching costs, rivalry is reduced where buyers have high switching costs;
(5) Strategic objectives, when competitors are pursuing aggressive growth
strategies, rivalry is more intense; and (6) Exit barriers, when barriers to
leaving an industry are high then competitors tend to exhibit greater rivalry.
In the airline industry, the competition among the airlines is quite high
especially between Cebu Pacific and Philippine Airlines. Both companies go to
the same destination for domestic flights. Cebu Pacific has promos that cut
the costs of the airline ticket. This promo encourages more
passengers/buyers to ride with them. One difference between PAL and Cebu
Pacific is that airfare for the domestic flights of PAL are inclusive of a snack
unlike in the flights of Cebu Pacific.
http://tutor2u.net/business/strategy/porter_five_forces.htm
http://www.slideshare.net/joharahman/five-forces-in-airline-industry