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) Zebu Pacific, (2) Philippine Airlines / Airfoil Express, (3) Zest Airways, (4) Sear,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. 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. 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 illustrations of the business In relation to Philippines’ airline industry, Zest Airways is the newcomer that is currently competing with the two airline giants – Zebu Pacific and Philippine Airlines (PAL). As a starting company in this business, they offer low rates to the passengers. They also have promos to attract more clients.
The unique strategy of Zest Air from the other airlines is that it offers tour packages wherein tourists can set their travel Lana-more affordable and very convenient because they do not have to go to travel agencies. 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 hearten 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.