Demographics. Technology and younger generation of travellers. The change in demographic pattern shows that air travel is becoming more appealing to younger generations. It is because of the integrated technology to airline services such as wifi, social media and mobile features. An example of this trend is the increasing number of South Floridians flying to Caribbean, which prompted expansion plans for the industry (Satchell, 2011, web).
Economic Segment. Continued Growth. The effects of the economic crash back in 2008 is slowly wearing out. As a result, more and more people are now turning to air travel. In fact, the growth rate of the industry is averaging at 5% every year with slight variation due to the changes in economic condition.
Socio-cultural. Changing Policies. One of the issues that the industry is facing today is the change in policies when it comes to seat restrictions. Overweight passengers are being charged by some airline companies. This policy is creating a stir among the passengers, which brings up issues about discrimination. The industry is also composed of employees from different cultural diversity, which results to eventual communication barriers and differences.
Global. Global consortium. New challenges are threatening the aviation industry with issues regarding security, air traffic and airport management. Partnership with research institutes such as the Massachusetts Institute of Technology enables exploration of better opportunities and growth.
Political/legal. Deregulation and its effects. The industry has been a subject of controversies when it comes to service quality and efficiency. Since the industry has been deregulated back in 1978, there has been debates regarding the effects of the decision. The result of the deregulation is the commercialization of the industry, therefore, creating a tighter competition in the market. This also led to erosion of service efficiency and new regulations put limit to capital spending for new planes.
Technology. Paperless Cockpit. Apart from equipping each airplane unit with wireless internet to provide passengers with connection while on board, new technological integration enhanced flight operations. One example is JetBlue's implementation of paperless cockpit. Instead of bringing flight manuals during flight, pilots were equipped with laptops with access to manuals with real-time updates from the headquarters. This technological integration allowed pilots to accurately calculate weight and balance instead of manually calculating from printed manuals (Case 3, JetBlue's Growth, p. 153).
Market Structure
Suppliers. Low threat. There is a limited number of suppliers of aircraft for the industry which also limits the bargaining power of suppliers. The contributing factors in their bargaining power is labor union negotiations and fuel cost. It resulted to higher cost of aviation turbine fuel or ATF which takes up 80% of the airline company's operational cost. In terms of spare parts, suppliers like Boeing and Airbus are less likely to integrate with each other, which is causing monopoly and higher cost imposition.
Buyers. Increase in power with limited switching cost. The Buyer's bargaining power in this industry is being dictated by the duopoly market, therefore, making the buyers to monopolize in terms of buying power. There are two types of customers in the airline industry, one is the luxury market that is willing to pay higher cost as long as the supplier is meeting their demands. On the other hand, the common market is the main contributes to the growing demand for used air crafts making them highly sensitive to price and in return provides a stronger buying power.
Substitutes. Very low threat. The degree of threat coming from the substitutes such as cars, buses and shipping lines is very low to almost none. This is because the market for those substitutes are different from the airline industry. Like for example, cars can meet transportation requirement, but not in terms of distance, which is an advantage for air travel that is capable of long distance travels.
Complementary Products. Complementary products provide a stronger marketing initiative. Airline companies use complimentaries as part of their extra services. However, the power of product suppliers are decreasing because of the increase in other operational cost. It resulted to airline companies charging passengers for products being served on-board instead of providing them as complimentary service.
Rivalry. High. Competitions in the industry is very stiff considering the number of extreme marketing measures of other players in the industry. Several strategies were employed in the price wars among companies. There are coupons, discounted amenities, accommodation packages, earned miles and off-season price drop. As more and more small airlines entering the market, the pressure in the competition becomes more extreme.
Potential entrants. High entry. There are few barrier in the industry that would hinder a new player to enter the market. Apart from the number of airport facilities available to house all the incoming and outgoing air crafts, the airline industry kept on growing in terms of number of players in the market making the competition even stronger.
Industry Attractiveness. Very Low. The airline industry, although growing in number of market players is not a very attractive industry. It is because there are a lot of airline companies, closing down due to the cost of operation and unstable price of fuel. The stiff competition is keeping the ticket price low while keeping up with the cost of operation (fixed and variable expenses) is difficult. As a result, new entrants end up filing bankruptcy and closure.
References
Jet Blue Case 2 (2008). Case 3: Jet Blue Airlines: Is the Blue Fading?. Strategy Management, 153.
Satchell, A. (2011, November 28). Airlines see potential in Caribbean flights from Fort Lauderdale. Sun Sentinel. Retrieved November 2, 2012, from http://articles.sun-sentinel.com/2011-11-28/business/fl-caribbean-flights-grow-20111128_1_jetblue-airways-caribbean-flights-three-daily-flights
