Porter Five Forces of Air Asia Essay

Threat of entry is low because it requires large capital investments for a firm to startup and thus it can impede the entry of new firms into the industry. Lastly, it would be hard to break into the industry because the other firms already have economies to scale, are further along learning curve, and may have certain airspace leases that blocks out the new company from potential routes.

Suppliers generally have a moderate to high bargaining power within the industry due to the limited number of suppliers which forces aviation companies to choose from the number available and accordingly to accept their prices. In fact, fuel is the second highest cost for aviation companies. There are highly depended on supplier’s prices and the availability which indicates on a relatively high bargaining power of suppliers. In addition, there are high switching costs which are strongly in favor of the suppliers and means that the company experiences an increase in operating costs when switching to another supplier as flying another type of aircraft leads to additional costs (maintenance, training etc.).Aircrafts are vulnerable to delays due to the location of gate locations which leads to a decrease in utilization and therefore to an increase in costs.

Threat of new entry is low because the barriers to entry are high. Newcomers to the industry would require an enormous amount of up front capital to set up the distribution networks and infrastructure, such as establishing hubs, and acquiring aircraft and a large amount of ground transportation vehicles (vans, trucks, ect). Economies of scale are significant and would deter new firms from entering because initial sales volumes would be low do to the fact that existing brands already have strong brand identification, and there are no cost advantages to entering, like government

a) Economies of scale—the top three carriers (Federal Express, UPS, and Airborne Express) serve slightly more than 85% of the domestic express mail market. All three carriers deliver a high volume of packages, and thus, are able to spread fixed costs over more units. Also, each carrier has integrated technological systems that improved operational efficiency. In addition, intensive training programs of employees increase service and delivery efficiency.

Power rests with the suppliers in the form of price and quality of supplies. Suppliers can increase the price or lower the quality of their goods and services. The power of supplier in the Indian airline industry is immense because of the three major inputs from the supplier are all affected by the external environment. These 3 factors and the power of supplier for each component is explained below.

Threat of New Entry: Overall there is not a great barrier to new entry but because of the stiff competition at the top new entrants have had struggles.

Suppliers have less power because there are a lot of suppliers and they all willing to accommodate and provide discounts for their customers (economies of scale).

Various important approaches like engineering driven approaches and selection of supplier processes lead to the number of suppliers at premium prices. It reduces cost of

The threat of new entrants is measured by the level of entry barriers, brand reputation and customer loyalty, potential for existing competitors to expand, growth of buyer demand,

The domestic US airline industry has been intensely competitive since it was deregulated in 1978. In a regulated environment, most of the cost increases were passed along to consumers under a fixed rate-of-return based pricing scheme. This allowed labor unions to acquire a lot of power and workers at the major incumbent carriers were overpaid. After deregulation, the incumbent carriers felt the most pain, and the floodgates had opened for newer more nimble carriers with lower cost structures to compete head-on with the established airlines. There were several bankruptcies followed by a wave of consolidation with the fittest carriers surviving and the rest being

Rivalry: The market is very competitive and the threat of competition is high. Many companies are present and they are more successful than Brita. It seems to appear a rivalry both in terms of product and location

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.

Supplier Power: This highlights that it is easy for suppliers to rise up their prices. This is determined by the number of suppliers, the uniqueness of their product, their control over the buyer, and the cost of changing from one buyer to another. The scarcer the supplier choices you might have, and the more you need the help and that

Weaknesses that Airbus has, is that due to their structure, and having a multi country consortium, they were slow to make decisions. In the 1980’s Airbus experienced difficulties in financing the A-320 project, since all the Airbus partner governments had not approved the program (Carpenter, M. A., & Sanders pg. 613). Airbus was slow in its decision making process because the partners of the consortium tried to safeguard its own interests rather than make decisions that would benefit them as a whole (Carpenter, M. A., & Sanders pg. 613).

AirAsia focused on ensuring a competitive cost structure as its main business strategy. It has been able to achieve a cost per average seat kilometer (ASK) of 2.5 cents, half that of Malaysia Airlines and Ryanair and a third that of EasyJet. AirAsia can lease the B737-300s aircraft at a very competitive market rates due to the harsh global market conditions for the second-hand aircrafts because of the September 11th event in 2001.