Porter Five Forces of Air Asia Essay

1625 Words Mar 29th, 2011 7 Pages
Porter’s Five Forces
Threat of new Entrants
Threat of new entry is moderate, because it requires high capital to support and government barrier is high such as the air service agreement can build barriers to those new entrants.
The degree of barriers to entry depends on the strength of:-
• Customers have a little bit of brand loyalty.
If customers of AirAsia do not have brand loyalty, then the threat of new entrants will be very high. But the higher numbers of competitors in the industry also will decrease AirAsia’s customer loyalty. Due to most of the travelers prefer low cost. New competitors which want to come in the industry need to spend a little to compete with AirAsia.
• Higher Capital Requirement
The airline industry needs
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Monopolistic will use their power to extract better terms at the expense of the market.

• Suppliers concentrated in few hands
In airline industry, the power of suppliers is quite large because there were just only two major suppliers for aircraft, which are Airbus and Boeing, so that there is not much choice in airline industry. Other supplier like foods supplier and fuel supplier must be based on the market condition. Thus, the supplier cannot increase too much price, otherwise will take the risk of losing long term business with the aircraft companies.
• Switching costs is high
For example, the company used Airbus models, but previously the company used Boeing models which they phased out and replace with Airbus. If AirAsia is to switch to Boeing again, then the cost will be high, because the training cost for employees to suit the aircraft features must be provided and AirAsia must rely to the Airbus engineers to do maintenance of the aircrafts and seek advices. Therefore, the bargaining power of suppliers is strong.
• Lack of importance of buyers to supplier
Airbus is a UK based aviation company. Its customers come from around the world. So far 9,113 aircraft had been ordered, but out of 5,408 aircraft had been delivered by the company. AirAsia had ordered 200 aircraft from Airbus but only 54 aircraft had been delivered. The percentage less than 1%, 0.99% proves that AirAsia is not Airbus’s important buyer. Thus, Airbus had

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