PORTERS
FIVE FORCES
IN
SHAPING STRATEGY
-Michael E. Porter , 1979
Professor, Harvard University
AVIATION
INDUSTRY
A presentation by:-
Anindya Dasgupta
Devleena Mitra
Sayan Nag Das
Shilajit Sarkar
Debankur Ghosh
The Five Forces
INTRODUCTION TO THE FIVE FORCES MODEL
1. Porter developed his Five Forces analysis in reaction to the thenpopular SWOT analysis, which he found unrigorous and ad hoc.
2. Based on the Structure-Conduct-Performance paradigm in
industrial organizational economics.
3. Applied to a diverse range of problems -> more profitable
businesses to helping governments stabilize industries.
4. Helps in understanding both the strength of current competitive
position, & the strength of a position one is considering moving
into.
5. Possible to take fair advantage of a situation of strength, improve
a situation of weakness, and avoid taking wrong steps.
Indian Aviation Industry - Environment
Estimated Passengers: 117 million domestic and 43 million
international passengers
Global Ranking: 9th largest civil aviation market
Total Carriers at Present: 22 ( Including the branches of the parent
company)
First Carrier: Indian National Airways (1925-1945)
Total number of Airport: 125 Airports
First Airport : Juhu Aerodrome (1928)
No. of Domestic Airport: 81 Domestic Airports
No of International Airport: 11 International Airports
(Including , 8 Customs Airports, and 25 Civil enclaves at Military
Airfields)
Budget allocated : 8,865.40 Crore
Minister of Aviation in the Central Government of India: Ajit Singh
VALRY WITHIN THE INDUST
Many consumers look only to cost as
a determining factor in a purchase.
This creates an intense environment.
Switching costs are generally low,
even though companies have tried to
increase switching costs with the
use of frequent flyer programs.
Highly competitive industries
generally earn low returns because
the cost of competition is high.
1.Quality Competition
4.LCC
BARGAINING POWER OF
SUPPLIERS
Primary inputs to airplane industry are:
Airplane
Labour
Fuel
Bargaining power of
suppliers
Companies have long term
contract with the
manufacturer
Switching to another
manufacturer is costly
Have more favourable credit
terms when they dont switch
Bargaining power of airplane
suppliers
Few suppliers of this particular
product. In this case, major
suppliers are the airplane
manufacturer
Top two manufacturers are
Boeing and Airbus
Chances of vertical integration
of suppliers is very low
Bargaining power of labour
suppliers
Lack of infrastructure
is a hurdle to the flow
of new talent
in the industry
Rise of power of labour unions like
AEIG and NAG leads to labour unrest
Bargaining power of fuel
suppliers
Monopoly of PSU
oil companies.
Only 3 state owned
oil companies are the
suppliers.
Different sales tax rate
in different states in India
Result is High price of
Aviation Turbine Fuel (ATF)
THREAT OF
SUBSTITUTES
Market Share of the Domestic
Players
Market Share
Indigo
Air India
9
29.5
19.8
5.4
Jet Airways
Jet Lite
17.1
19.1
Spicejet
Go Air
15
Classification of Airline
Industry
The airline industry can be
classified into three types:
- International
- Domestic
- Cargo Carriers
16
Substitute for
International Flights
The Probable substitute for
International Flights is VIDEO
CONFERENCING or through simple
chatting over the internet.
Video Conferencing is the conduct
of a video conference by a set of
telecommunication technologies
which allow two or more locations to
communicate by simultaneous twoway video and audio transmissions.
17
Growth of Video Conferencing
in
India
2500
2139
2130
2000
1892
1562
1612
1471
1500
1263
1736
1209
Februa
ry
1112
1000
March
734
500
Januar
y
April
448
2011
2012
2013
18
Substitute for Domestic
Flights
No other product domestically
competes directly with Airlines in
terms of cost and speed of travel.
The probable substitutes for
Domestic Flights is a Train, a Bus
or cabs.
Services from other means costs
less but the traveling speed is
19
Substitute for Cargo Carriers
The probable substitutes
for this is Railways and
Ships.
Railways is used to carry
goods all over the
country.
20
Survey
Chennai to Bangalore
346.2 Kms
Mode of Transport
Calcutta to Bombay
1954.3 Kms
Mode of Transport
40
Railways
12 3
45
60
Railway
s
Airways
Bus
40
Personal
Vehicle
Airways
Calcutta to Chennai
1670.3 Kms
Mode of Transport
45
55
Airways
Railways
21
BARGAINING POWER OF
CUSTOMERS
Potential customers
Inadequate differentiation
Low switching costs
Price sensitivity
Potential
Comprises of individuals i.e. business as
customers
well as leisure travelers
Business to business buyers mainly
comprises of travel agents, travel
companies, and charter companies
Passenger output rose from 73 million
in 2006 to 144 million in 2011
As a result today many more new
airports coming up
Inadequate differentiation
With the entry of low cost carriers the sector
lacks product differentiation
Companies in the airline industry have many
different ways of differentiating themselves from
its rival companies are
Food, on board bars, and good quality flight
attendants
Provides more perks to the elite customers who
are willing to pay more for that extra comfort
during their course of travel
Low switching costs
Switching costs from one airline to another is
quite low in this industry
If the customer needs like flight destinations are
not sufficed by the airline then the customer can
easily switch from one airline to another
Customers are likely to shift from one airline to
another if the flight is delayed or the service is
unsatisfactory
Customers also gain due to the prevailing price
Price sensitivity
With the advent of low cost Airlines the
Indian Aviation industry was exposed to
intense competition
This sector was completely dominated by
full-service airlines but now it is dominated
by low cost airlines
However the sustainability of the low cost
airlines is to be seen due to rising fuel
prices and the high airport charges
THREAT OF NEW ENTRANTS
ENTRY & EXIT BARRIERS
PORTERS MODEL
INDIAN AVIATION INDUSTRY
Bibliography & References
http://reannz.co.nz/services/videoconferencing-monthly-statistics
32
THANK
YOU
