The five forces analysis of regional airline industry
- Consumer’s bargaining power
In this case, the major airlines are presumed to be the consumers for the services of regional airlines. In this respect, there is a strong competition flanked by the regional airlines for consumers due to small number and size of consumers available. Subsequently, the consumers bargaining power becomes high as a result of high supply.
2. Suppliers’ bargaining power
Basically, the regional airline industry suppliers are mainly the manufacturers of airplanes and other aircraft materials. Notably, the manufacturers available for regional airplanes are not many. Such manufacturers include Aeronautical SA and Bombardier among others. Subsequently, these suppliers have a greater influence in regional airline industry thus they can supply their products at a high price without reducing the demand of the regional airlines (Hitt, Ireland and Hoskisson 55). In other words, the suppliers gain a bargaining power as a result of low supply to a high demand of the airline industry.
3. Threat of entrants
The regional airline industry has barrier to the entry of new players in the industry. This barrier is greatly influenced by large capital investments of airlines in the industry in terms of large number of airplanes. Moreover, the industry is also well protected from the entry of new players by government through effective interventions and regulations, influenced by the extra costs incurred to airlines as a result of the 9/11 attack.
4. Threat of substitutes offering
Generally, the regional airline industry has various substitutes that may pose threat to its competitiveness. For instance, consumers may opt to use cars, buses, trains or ships instead of airplanes. In this regard, if threat emanating from substitutes offering is high, the regional airline industry may be affected negatively in terms of low profits potential. Consequently, the industry growth may stagnate if the threat from the substitutes offering persists.
5. Rivalry among competitors
The regional airline industry is characterised by intense competition among the players. As a result, competition and other factors such as low consumer demands lead to rivalry among the competitors in the industry.
After analyzing the five forces, the attractiveness of the regional airline industry is at stake. This is evident since four out of the five forces are not favorable for the industry to develop competitiveness.
Forces driving change in the regional airline industry
Technology and innovation
The strategic decision making of regional airline industry to adopt new technology has played a significant role of changing the industry. For instance, the players in the industry adopted new technologies in the procurement, supply and stock control. In addition, the players in the industry also automated their various system including distribution and sales processes, a move that facilitated faster transactions and services to the customers. Consequently, this resulted into greater economies of the scale among companies in the industry, facilitating a stronger barrier to entry of new players and favored the survival of small airlines in the industry. Basically, this contributed to eradication of threat of new entry to regional airline industry. Moreover, through technological innovations such as the internet, the industry was able to transact directly with the customers in terms of selling air tickets to them. As a result, the industry managed to reduce the bargaining power of suppliers through lowering the agents’ commissions. According to Doganis (123), technological advancements also play a crucial role of shifting substitute threats away. In this respect, through technological advancement, the regional industry has been able to improve efficiency of their operations thereby enabling them to offer affordable prices to the customers. This results into a competitive advantage over the substitutes offerings, thus maintaining customers and attracting new ones.
Government is also another major driving force of change in the regional airline industry. In this respect, government has intervened in regional industry through various policies and regulations. For instance, the patent policy has enhanced the barrier to entry in the industry. Similarly, following the 9/11 attack, the government intervened imposed strict regulations in the industry which also facilitated a stronger barrier to new players (O'Connell and Williams). On the contrary, some government policies facilitate union activities which in turn may increase bargaining power of the suppliers and reduce profits potential simultaneously.
In terms of analysis, these forces may contribute positively to the attractiveness of the regional airline industry. This is because these forces help to increase the industry competitiveness by strengthening the five forces of competition.