Porter's Five Forces Model - Example: Airline Industry
Porter's Five Forces Model - Example: Commercial Airline Industry
In 1979, Harvard Business Review published How Competitive Forces Shape Strategy by a young economist and associate professor, Michael E. Porter.
The main purpose of Porters Five Forces is to find a position in an industry where a company can defend itself against competitive forces or it can influence them in its favour.
A strategist can analyse, any market by rating each competitive force as high, medium, low in strength and rate as follows.
If we look at the commercial airline industry worldwide, the five forces could be rated as follows.
Rivalry among existing competitors is high as key airline companies compete closely and strongly for global market share.
The threat of new entrants is seen as medium, since new entrants may be able to secure second hand aircraft to establish a budget airline. However, securing airport infrastructure, facilities and airline route access is difficult because of high Government regulatory barriers.
The threat of substitutes could also be seen as low with other transportation alternatives not having the same speed, convenience and flexibility as air travel.
The bargaining power of buyers could be rated as high as air passengers have a wide variety of airlines to choose from and shop for the best ticket price online to save money.
The bargaining power of suppliers is high. Just two suppliers can satisfy the average requirements of today's commercial airliners, Airbus and Boeing. These two suppliers control the market.
Overall, based on the above analysis of Porter's Five Forces, we can conclude that the commercial airline industry is characterised by intense rivalry among airlines, fluctuating profitability and little differentiation among competing airlines.
Reference: Porter, M.E. (March/April 1979). "How Competitive Forces Shape Strategy". Harvard Business Review.
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