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PORTERSFIVE FORCES INSHAPING STRATEGYMichael E. Porter , 1979Professor, Harvard University

AVIATIONINDUSTRYA presentation by:-

Anindya Dasgupta

Devleena Mitra

Sayan Nag Das

Shilajit Sarkar

Debankur GhoshThe Five Forces

Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he found unrigorous and ad hoc.

Based on the Structure-Conduct-Performance paradigm in industrial organizational economics.

Applied to a diverse range of problems -> more profitable businesses to helping governments stabilize industries.

Helps in understanding both the strength of current competitive position, & the strength of a position one is considering moving into.

Possible to take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps.

This makes it an important part of the planning toolkit.INTRODUCTION TO THE FIVE FORCES MODELIndian Aviation Industry - EnvironmentEstimated Passengers: 117 million domestic and 43 million international passengersGlobal 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 AirportsFirst 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 CroreMinister of Aviation in the Central Government of India: Ajit SinghMany 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. This can spell disaster when times get tough in the economy.

RIVALRY WITHIN THE INDUSTRYBARGAINING POWER OF SUPPLIERSPrimary inputs to airplane industry are:Airplane LabourFuel

Bargaining power of suppliersCompanies have long term contract with the manufacturerSwitching to another manufacturer is costlyHave more favourable credit terms when they dont switch companiesBargaining power of airplane suppliersFew suppliers of this particular product. In this case, major suppliers are the airplane manufacturerTop two manufacturers are Boeing and AirbusChances of vertical integration of suppliers is very low

Bargaining power of labour suppliersLack of infrastructure is a hurdle to the flow of new talent in the industryRise of power of labour unions like AEIG and NAG leads to labour unrest

Bargaining power of fuel suppliersMonopoly of PSUoil companies. Only 3 state owned oil companies are the suppliers.Different sales tax rate in different states in IndiaResult is High price of Aviation Turbine Fuel (ATF)

Market Share of the Domestic Players15THREAT OF SUBSTITUTESClassification of Airline IndustryThe airline industry can be classified into three types: - International - Domestic - Cargo Carriers16Substitute for International FlightsThe 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 two-way video and audio transmissions. It has also been called 'visual collaboration' and is a type of groupware.17Growth of Video Conferencing in India18Substitute for Domestic FlightsNo 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 extremely slow.19Substitute for Cargo CarriersThe probable substitutes for this is Railways and Ships.Railways is used to carry goods all over the country.Ships is used to carry goods all over the world.20Survey21Chennai to Bangalore 346.2 KmsCalcutta to Bombay 1954.3 Kms

Calcutta to Chennai 1670.3 Kms21BARGAINING POWER OF CUSTOMERS Potential customers

Inadequate differentiation

Low switching costs

Price sensitivityPotential customersComprises of individuals i.e. business as 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 upInadequate differentiationWith 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

The flight destinations the airline company offers rom this article, I get the idea that a big way airline companies are differentiating themselves from other companies is the fight destinations that they offer. This is a key concept when determining what airline you would want to take and how much extra traveling you would have to do when your plane arrived in the country you were headed to. Also, this article illustrates that the American airline corporations dont control the entire airline industry. It is a good thing that there are large competitors out in other countries, because they are all fighting for the customers to fly with them.24

Low switching costsSwitching 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 warsWith 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

Pricing of the airline industry is seasonal, price of air travel goes up on festive seasons and vacationsPrice sensitivity

THREAT OF NEW ENTRANTS ENTRY & EXIT BARRIERS

PORTERS MODEL

INDIAN AVIATION INDUSTRYBibliography & Referenceshttp://reannz.co.nz/services/video-conferencing-monthly-statistics32

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