The five force analysis is key in establishing the competitive environment of any business entity. In this case, this analytical tool will help in shedding light on the nature of the business environment that China Airlines finds itself in-the airline industry.
Threats from existing competition within the industry: The China Airlines has in the recent past faced completion from various existing airlines within its regional airline industry. Taiwanese airlines (Eva airways) and Chinese Low-cost based carriers have over the years offered substantial competition to the China Airlines. The competition has made the airlines review its business model in order to survive in the regional airline industry. The China Airlines has been forced to diversify its products and adopt new strategies such as the introduction of e-ticketing, expanding cargo business, adoption of new routes in its flight schedule et cetera.
Customer bargaining power: The China Airlines customers have a high bargaining power due to the low costs associated with a switch to other airlines within the region. With the competitive package offered by Chinese Airlines competitors such as EVA Airways means that the customers can switch at will to other service providers. This has constantly made the Asia airline industry a competitive one globally.
Supplier bargaining power: The airlines continues to enjoy higher bargaining power over its suppliers due to the existence of many suppliers. The China Airlines, for instance, due to the nature of its business model swapped suppliers. It ceased incorporating more Boeing B747-400S at the expense of Airbus A330-300s. The switch ultimately affected the supplier bargaining power with the airlines having an upper hand in terms acquiring aircrafts with greater average fleet years. This conclusively means that the supplier bargaining power in the regional airline industry is relatively low citing the China Airlines case.
Competition from substitute products producers: The threats from substitute products in the regional airlines industry which Chinese Airlines belongs to is relatively low. The ultimate substitute for air travel is not yet in existence, but high-speed trains that are traditional substitutes are not yet fully advanced and also lack the relevant infrastructure in most areas. The fact that these substitutes lack expansive network and low-cost advantage over the airlines when it comes to long-distance travel means shows that there exist low threat of competition from substitute products. The threat of substitute services and products is not significant in China Airlines regional industry.
Competition from potential new entrants: The threat of new entrants in this regional airline industry is low. This is due to the major entry barriers that are linked to the airline industry. Some of these barriers are economies of scale that the likes of China Airlines enjoy due to the magnitude of its operations at the regional level. Others are capital requirements which are highly significant factoring the modern day advancements in infrastructure and economics. Distribution channels, too, poses a challenge to potential new entrants as existing airline companies have already dominated practically all major distribution routes.
