Alitalia Value Chain, Five Forces, Swot and Pestel Essay

In terms of the threat of substitutes there are not a lot serious threats and alternatives to products within the aviation industry, therefore the threat can be rated as medium. However, private aircrafts can be seen as a substitutes within the industry. Within the transportation industry there are more alternatives for substitutes such as trains, buses, cars and boats.

The last part of industry analysis is about rivalry. In aviation industry, the rivalry is very drastic. This industry develops slowly or even stagnant and it is mature in recent period. There is no new company established in developed areas and also there is no major firm going broken. Most of survivals are big companies. All of them have abundant capital and ample operating experience and hold a relatively fixed percentage of market. In long run, the number of airline companies does not change. In another word, the cake is divided up. However, people define business with a ward, for profit. If airline companies want to share more percentage of market, they must seize other companies’ part.

Buyers are usually customers and customers if powerful have the ability to reduce prices, ask for high quality products and services. In the Indian airline industry, the bargaining power of buyers is high and is increasing as there are lots of airlines to choose from and there are hardly any switching costs. Moreover, there are lots of travel agents and customers can now buy ticket online from even intermediaries. Therefore, they do not really have to stick to one airline and this increases the power of the customers.

Opportunities - global market, global economy & steel market is growing, financial strength to acquire companies after an industry downturn after bankruptcy

The company has used the element of networking with the prospective marketers and ambassadors to market their products. The company has also used direct sales through fundraising to increase prospect of gaining more market.

One thing that I noticed in my reading of the case is the lack of advertisement. Even though the company has a great reputation, they need to advertise in papers and other media channels. This will let future customers

The risk of entry into the airline industry by potential competitors is low due to the “liberalization of market access, a result of globalization. According to the IATA (International Air Transport Association), about 1,300 new airlines were established in the last 40 years,” (Cederholm, 2016). The cost structure of businesses in an industry is a determinant of rivalry. In the Airlines Industry, fixed costs are high, because before the organization can make any sales, they must invest in air crafts, fuel and service employees. These items come attached with hefty price tags. Industries that require such enormous amounts of start-up capital as predicted by many analysts

The minimum efficient scale was not very high since airlines could choose to compete in a few markets, and costs were more or less proportional to the number of flights offered and the number of markets the airline wanted to operate in. The main consideration for profitable entry seemed to be the ability of airlines to fill their airplanes above the breakeven point. In an industry fraught with price competition, brand identity and reputation did not have significant value either. In the airline industry, exit costs are not very high either. Planes could be easily redeployed to other markets, or sold off, and gates and landing rights could be sub-leased to other carriers.

Particularly when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition like Apple did when it entered the music distribution business. The threat of new entry therefore, puts a cap on the profit potential of an industry. The threat to Air Asia is relatively less as the capital required to enter the industry is quite high. However, potential new entrants from full service carriers with a surplus capital could be threats in the future and long-term.

The supplier power in airlines is dominated by the world’s two largest aircraft manufacturers are Airbus and Boeing. The competition between the two manufacturers is neck to neck but that would prove to be a boon for Emirates as the prices would not rocket through the ceiling. A study shows that Emirates holds 93 Boeing aircrafts and 83 Airbus units (Planespotters, 2009). In 2007, Emirates purchased 81 Airbus flights, to extend it services- however, they chose Airbus over Boeing as the latter failed to deliver its latest aircrafts on time and moreover, Airbus had quoted a good price (Barryl, 2007). The changing oil prices also have an adverse effect on the aviation industry. In a nutshell, the bargaining power of suppliers is high.

The threat of new entrants in the airline industry is very low for Virgin Atlantic, this is because the barrier for both high entry and exit barrier is very high. These barriers can stop new airlines not to enter into the industry. The entry and exit can be difficult for Virgin because there are a number of regulatory factors. For new airlines to enter, there must be large capital investment human resources that are skilled

There is also a high level of barriers to entry. Before entering to the airline industry, a company will face high capital and operating cost. New entrants would need to invest tremendously as a substantial amount of money is needed to start up in the aerospace industry. Majority of the cost are operating cost like air service, fuel, labor, IT services and equipment, engines, spare parts, insurance, airport handling services, catering and training. Another problem to start up a new aerospace company is trying to market the new company and to create clientele with airline companies. If a company does enter to the airline industry, it is a long term project. Not all airlines are making profit and that is why many airline companies fail.

According to my research the power of buyers is medium to increasing within the airline industry. Over the last few years, buyers have been presented more choices when choosing an airline carrier. The internet has created a structure of easier pricing information and allows the buyer to more easily compare pricing. Buyers can sometimes find pricing discrepancies on the exact flight due to less fragmented pricing information at the buyers fingertips. The internet and it’s ability to compare prices has also allowed the emergence of a few budget airlines to be profitable. Much of the bargaining power of the power can still depend on where the flier is traveling. The “hub” system, mentioned earlier still allows the larger airlines to dominate certain cities and creates an environment of higher prices in that market. For example, a flight from Nashville to Santo Domingo, DR presents the flier with very low bargaining power. Unless the flier wants to fly through NYC or Newark, NJ, he/she must fly American Airlines via Miami. The price for this flight is typically very high due to no other airlines

It may be lower risk in in the aviation markets because of entry regulations that a high level of governmental barriers to open the freedom of flights, also the industry needs high fixed costs and assets of airline operation, but based on the increasing demand of travelers by air, it's given the high intensity of rivalry.

Within technology and the value system, this called for an emphasis on media relations to disseminate information to the local community and its leaders. Solid communication practices, i.e. strategic communications, was of the utmost importance to gain the respect and acceptance of the population.