Airlines Strategic Competitive Analysis

Task 1: Mapping Competitive Advantage

• First, list a range of them - big and small

• Use 5 Forces to critically analyse the relevant industry wide factors faced by the airline industry today.

• Barriers to Entry – Low

• Due to strict industry regulations regarding air travel that is being imposed by the European Union, in addition to the cost to operate an airline vs expected revenue earned, the entry for new companies is relatively low.

• Customer Bargaining Power - Medium

• With the growing rate of the low-budget airlines and alternate modes of travel, Customers are finding switch over cost to be more attractive. However there is no feasible alternative (budget or substitute wise) for long distance travel.

• Existing Competition Rivalry - High

• The low budget airlines are forcing the European Airline Industry to lower travel cost, thus affecting revenue.

• Supplier Bargaining Power - High

• With limited aircraft and fuel suppliers available to the European Airline Industry, their collective power and demand for profit will affect the profitability of the European Airlines.

• Threat from Substitute - Low

• The High Speed Rail System in Europe will affect the Air Transport operation by providing a suitable alternate mode of transportation for passengers and cargo at a relatively high speed at a significantly lower fee. The European Union’s goal for this substitute is to implement further infrastructure in the near future that will facilitate this alternative travel across the continent.
• On the business side, rapid internet-based communication technologies are showing an indirect impact on Air travel by reducing business travels among the business class.
  

• Consider if they compete on differentiation or cost/broad or narrow focus

• Cost Leadership – The aim to become the low cost leader within the industry while operating on a broad scope. This strategy will provide a competitive advantage for an airline as the lowered costs would lead to revenue. This however would require drastic reconstruction of the company’s current operation and its associated overhead costs in order to realize returns.
• Differentiation – This strategy allows a company to provide products or services that are considered to be unique to an industry, while operating on a broad scope. Airlines operating on differentiation strategies are compensated for their exclusivity by charging premium rates.
• Focus – Airlines that utilized the Focus strategy, concentrates on a particular niche market by understand the dynamics of that market and the needs of the customers within that market.

• Provide a graph/chart summarizing the competition of the industry based on your analysis