The Airline industry is a unique industry because it provides different services from other companies, such as those which deal in tangible products. The industry transports people with a high degree of efficiency and convenience, which is impossible in other industries or substitutes. Companies in the sector pride themselves with the way they serve their customers during the trip. They provide services, such as foods, drinks, entertainment, and welcoming employees. Although similar services are evident in other industries, aviation surpasses them in relation to timeliness. They have a global reach in terms of the geographic scope, but while some companies fly around the world, others have a local reach. Regardless of the differences in the scope of operations, the Airline industry accommodates numerous companies, private and commercial operators. Although many strategic analysis models could be used in analyzing the industry, one of the most interesting is the Porter’s Five Forces Analysis.
Porter’s Five Forces Analysis
The five forces model is an effective strategic management framework that answers five basic questions related to an industry or a company operating within it. The main question is: Why some industries are more attractive to businesses compared to others. The model was invented by M. Porter to determine the level of competition within an industry (Shaw, 2016). The model helps a firm to analyze the level of current competition within the industry, the level of threat of new entrants or rivals within the industry, the bargaining power of buyers/customers, the threat of substitute products, and the power of suppliers to companies within the industry. Each of the forces could have a low, moderate, or high impact on the industry. The analysis of the airline industry in India should focus on the five forces to help a company such as Kingfisher Airlines to make strategic decisions to remain competitive within the sector.
The five forces affect the dynamics of the Airline industry in India. Each of the forces has a unique impact on the industry and on the companies operating within it. Therefore, firms such as Kingfisher Airlines should understand the impact of each factor.
The Threat of New Entrants
The factor focuses on companies in the Airline industry that have not entered the industry but could be intending to begin operating. Existing companies, such as Kingfisher Airlines try hard to discourage and even stifle entry of new companies to reduce the level of competition (Ojha, 2012). Increasing competition could make it challenging for the existing businesses to flourish. The factor depends on the attractiveness of barriers of the industry to new businesses. Barriers to entry in the Airline industry in India are high and difficult. For example, entry into the Airline industry in the country involves high capital to invest in infrastructure and to buy aircraft. It also costs a considerably high price to attract and retain highly trained pilots and other maintenance staff. Besides, the regulation by the government in the Airline industry is high, which creates a barrier to entry.
The Threat of Substitutes
The threat of substitutes involves those firms that can provide goods or services that could be used in the place of what the business offers. The threat involves customers switching to other products or services instead of what the company provides (Rosenzweig, 2013). The Airline industry in India has a moderate substitute risk level. In the Indian Airline industry, customers can use other modes of transportation, such as cars, bus, trains, or boats to arrive at their destination. However, the industry has a cost to switch from one mode to another because some have a high cost compared to air tickets in terms of time. Planes are the fastest and most convenient modes. Customers can use other modes mostly for short distances within the country.
Bargaining Power of Suppliers
Suppliers are an important stakeholder group for companies in the Airline industry. Suppliers are organizations that supply inputs, such as materials, services, labor, to operators in the Airline industry. Suppliers are as important to the companies, such as Kingfisher Airlines, as their customers. They can put a business under pressure by increasing the price of inputs. The threat of suppliers in the Airline industry is considerably high because only a few exist, such as Boeing and Airbus. The industry has considerably standardized inputs which firms differentiate using amenities. Besides, aircraft are high capital products that companies could have long-term loans to finance their capital investment (Ojha, 2012). The threat is high due to the challenges in switching suppliers, who are few and with long-term contracts.
Bargaining Power of Customers/Buyers
Companies market their products or services to diverse customers, individuals and other organizations. The threat of buyers is usually low in an industry with relatively few buyers and can pressurize a company to change its pricing strategy. The Airline industry in India has a low threat of buyers because of the relatively high number of customers compared to available airlines. Besides, each company has a group of loyal customers and a niche that it serves. The industry has two groups of buyers: individual flyers and travel agencies and online portals. Individual flyers purchase tickets for personal or business-related travels. The second group works as a middle man between the company and travelers. The industry has low switching costs between companies because decision-making focuses on availability and cost.
The Industry Competitors
Companies within any sector face different levels of competition depending on factors, such as the attractiveness or barriers to entry into the industry. Besides, the level of competition depends on the level of maturity of the industry. For example, attractive and highly growing industries have intense competition. Competition in the Airline industry in India is high because of factors, such as the level of maturity in the industry. The level of competition, however, remains the same for a long time because of the high barriers to entry, such as the fixed cost of starting and maintaining the business (Ojha, 2012). The current competitors of Kingfisher Airlines include Indian Airlines, Jet Airways, Indigo Airlines, Spice Jet, Jetlite and Go Air. Thus, the company should decide strategically to overcome the threat of competition in the country’s Airline industry.
Kingfisher Airlines’ Balanced Stakeholder Strategy
Kingfisher Airlines has bought the Airline industry in India under scrutiny because of questionable treatment of stakeholders. Customers have had negative experiences with the company, included being stranded at odd locations and forced to use rivals to reach their destinations. Although the company’s management has indicated some attempts to change the situation, the past failure reveals a lack of proper balance of its stakeholder strategy. For example, the cancellation of its flights failed to consider the impact of the strategic decision on its customers who depended on the company to reach their destinations. However, although the company has failed in the past, the management plan was to consider and align the needs of all stakeholders (customers, employees, suppliers, and larger society, including government agencies, and finally owners) in its new strategic plan (Ojha, 2012). The company has failed to achieve an effective balance between the interests of various stakeholders.
Although it might be challenging to make all stakeholders happy when making a strategic decision, the company should strike a proper balance. For example, although it intends to save on the cost of operating to attract customers, it should consider the effect of decisions, such as uninstalling its in-flight entertainment system because it could lose loyal customers to competitors. Because of the capital issues, the company should review its relationship with suppliers and consider lower cost, but quality supplies to remain afloat. The management could also consider alternative sources of finances for supplies. The company should motivate employees to avoid losing them to competitors (Rosenzweig, 2013). For example, the management should seek alternative sources of funding to prevent salary delays in the future. Improving services to attract and retain customers will help the company to serve the society, such as through charity and taxation and gain more income for owners.
Although the five forces in the Airline industry in India continue to change with time, such as the changes in the level of maturity, the analysis provides critical information for a company, such as Kingfisher Airlines to make strategic decisions. For example, considering the high level of competition in the industry, the company should improve its services to attract and retain customers. A high number of customers will provide the company with necessary capital investment to continue operating profitably, such as through purchasing new and improved aircraft. The company should also continue investing in ecofriendly planes to overcome the threat of suppliers and attract customers. The approach would differentiate its services to attract new groups of buyers and improve the speed at which they purchase flights. Following the analysis, Kingfisher Airlines should prioritize dealing with the level of competition by changing its business model to attract more.
Ojha, A. (2012). Kingfisher airlines: Managing multiple stakeholders, Bangalore: Indian Institute of Management
Rosenzweig, P. (2013). What Makes Strategic Decisions Different, Harvard Business Review
Shaw, S. (2016). Airline marketing and management. Routledge.