How did Porter Airlines take advantage of a transitory business opportunity in an otherwise difficult market to mitigate several critical forces that could have prevented its success?
Porter Airlines’ approach to the unique post-2008 situation in the North American airlines industry was to offer value for money. To fully understand this aspect, the post-2008 period was one of the worst periods for the global and the North American airline industry. A decade-long highest price in core inputs like oil and jet fuel was combined with the deepest economic recessions since the 1930s. The recession ensured that passenger count and market size declined considerably, irrespective of the type of market an airline catered to. Lower incomes and layoffs meant lower tourist counts, and for a business airline like Porter, it also meant lesser numbers of business customers. In this backdrop, Porter focused on key dynamics such as maintaining profitability by cutting costs and rationalizing operations, and improving customer experience and customer perception. The core aim of this programme was to avoid complexity, prioritize customer experience and profitability over temporarily large revenue-earning.
Identify Porter Airlines’ target customer market(s) and the desired customer outcomes.
The main target customer market for Porter Airlines is business passengers within Canada who are on a tight budget as well as a tight schedule. Porter’s tries to place a high value on the customer’s time and money, something which is often criticized about the airlines industry in general. The airline industry depends to a large extent on unknown external factors – which are outside the control of the company, mainly weather and security. Porter Airlines tries to minimize this by focusing on short-distance flights for mainly mid-level business customers, executives and frequent travelers, who need to save on both time and money.
According to the five forces of competition,
In terms of bargaining power of customers, the critical force faced by Porter Airlines is substantial. The airline market is saturated with low price competition, and with falling oil prices in the future, price wars are likely to escalate. This automatically increased the bargaining power of the customers.
In bargaining power of suppliers, the critical force faced by the company is low and stable. The company has an advantage on this factor. The suppliers are few but the demand is constant from the airline industry because of the relatively high life cycle of the products. This means that the suppliers cannot leverage much of their advantage, especially since one crucial supply – crude oil and jet fuel – has more supply than demand.
Threat of substitution is relatively high, as this is relevant with the high bargaining power of consumers. This means that the company cannot afford to lose too many customers, as there already are a variety of other options of short-distance high-speed travel, such as the train and local buses.
The threat of new entrants is also relatively low, because the airline industry has pretty high barriers to entry. The high barriers to entry include an incredibly high requirement for initial capital investment, loan overdrafts, existing healthy finances and assets in order to gain financing and investment, and high security requirements. This makes it a difficult industry for a business to enter and makes the threat of new entrants pretty low.
Combining all of the above, the threat of competitive intensity can be said to be moderate.
Critical resources and activities that are leveraged to meet desired customer outcomes:
Porter Airlines uses rationalized fare structuring that cross-subsidizes some flights while gaining a high profitability on others. Extra surplus from some high-value passengers can be used for purposes of enlarging the market size and customer base by flying to less-profitable destinations at first. Moreover, the company also routinely structures flights at 2-hour intervals so as to enable some flights with lower number of passengers to be cancelled and scheduled at the next flight – thus increasing profitability. This ensures that customers have a good experience and are attended to by a full roster of staff and flight attendants. Cabin crew is trained to speak several languages – apart from English and French, each flight also has a number of multilingual staff.
References
Aaker, D., & McLoughlin, D. (2010). Strategic Market Management: Global Perspectives. Hoboken, New Jersey, USA: John Wiley & Sons.
Grant, R., & Jordan, J. (2015). Foundations of Strategy. Hoboken: John Wiley & Sons.
