British Airways Porters Five Forces 2018
Magezi, K. Prudence (2018) "British Airways Porters Five Forces 2018" 123 Writing [Online] at https://www.123writing.com/free-sample/british-airways-porters-five-forces-2018
Analyse Britsh Airways using PORTERS FIVE FORCES 2018
Porters Five Forces is a popular business framework organizations used in assessing the attractiveness of an industry or sector as exerted on by the five forces. The five forces include threat of entry, threat of substitutes, power of buyers, power of suppliers and competitive rivalry among existing firms. According to Johnson et al (2008), if the five forces are very high, then the industry or sector will not be good to compete in as it will mean too much pressure and competition to allow reasonable profits.
Below is a competitive analysis of the UK airlines industry using Porters five forces. The report will examine the bargaining power of British Airways buyers and suppliers; the rivalry within the industry as the company tussles with low cost airlines such as EasyJet and Ryan Air for market share, threat of entry/barriers to entry and threat of substitutes.
1.0 Threat of entry
- According to Johnson et al. (2008), the ease with which any industry can be entered determines the degree of competition in the sector. This depends on the height of barriers to entry into the sector for instance legislation or government action. In the case of British Airways, the height of barriers is low mostly due to the EU laws which allow every airline by EU citizens to operate freely anywhere within the EU (Boffey 2017).This has increased competition in the UK airline industry with low cost carriers like Easy Jet dominating the market forcing premium airlines like British airways to reduce their prices and cut on their costs in order to compete in the market (The Economist 2017).
- The threat of entry can be evidenced by the successful entry of new low cost carriers such as Norwegian into the UK airline industry when it set up a base in London Gatwick in 2013 (Morris 2018). Over the last few years, air travel has increasingly become commoditized around low costs, made possible by aircraft leasing, and cheaper aviation oil prices, al factors that have lessened the barriers of entry in the industry with the prices encouraging new operators in the business. According to Maneghetti and Perrotta (2017), low fuel prices have also increased the purchasing power of older airplanes from the lower end of the market by new operators with the consent of desperate aircraft owners who are unable to liquidate their asset investments thus increasing the competition in the market.
2.0 Threat of substutites
- According to Johnson et al (2008), substitutes can be defined as services or products that offer similar benefits to an industry’s products. The more the threat of substitute, the less attractive the industry will be. With airline carriers such as British Airways, the substitutes can be cars, trains and buses as people can use them to travel to/from the same destinations BA offers. In the case of British Airways, the threat of substitutes is high as people on short haul flights can always opt for bus and train services which are cheaper and easily accessible. Such air travel substitute services in the UK include National Express (buses), Eurostar (UK-EU train service), and Eurotunnel now known as GetLink.
3.0 Power of buyers
- Customers or buyers are very essential for the survival of any business in that they could have so much power and leave the seller with slim to no profits (Johnson et al 2008).In the case of British Airways, air travel customers are increasingly price sensitive as no frills carriers increasingly help in the commoditization of air travel (Center of Aviation 2016; Morris 2018). Unless the customer is a BA loyal customer tied into their frequent flyer programs, there are multiple options providing different deals on both short haul and long-haul flights including low cost carriers like Easy Jet, Ryan Air, FlyBe and Norwegian. This gives air travelers extensive choice hence high bargaining power. It is little wonder BA has increasingly cut back on its costs including cutting back perks such as checked luggage on its lomger routes to compete with budget fares. This has ultimately led to customers accusing it of turning into a budget airline (Gulliver 2017; Salmon 2017; Morris 2018).
4.0 Power of suppliers
- According to Johnson et al. (2008), suppliers can be referred to as those who supply the company with what they need to produce their products or services. In the case of BA, suppliers include the two major suppliers, Boeing and Airbus; aviation fuel suppliers as well as suppliers of onboard meals. There are very few suppliers of large commercial airplanes considering they are not cheap to make and need lots of capital investment, which gives suppliers such as Boeing and Airbus very high bargaining power in dealing with BA since they are the two major plane manufacturers and are hard to be replaced. Likewise, the cost of aviation fuel gives suppliers high bargaining power since fuel is the biggest operational cost of airlines. In this case, supplier power in the UK airline industry is relatively high enough that they can even capture British Airways’ potential profits through raising their prices.
5.0 Rivalry among firms
- Competitive rivalry happens between companies or organizations with similar services or products aimed at the same group of customers (Johnson et al 2008). British Airways is faced with fierce competition from a vast range of carriers ranging from legacy carriers such as Air France, American and an aggressive onslaught from low cost carriers such as Norwegian Air, WOW, EasyJet and Ryan Air (Maneghetti and Perrotta 2017). The competition is dependent on different routes with airlines like Easy jet dominating short haul routes especially European city to city routes (Maneghetti and Perrotta 2017). In international long-haul routes, BA is also faced with major competition from airlines like Lufthansa as well as Gulf carriers which according to Maneghetti and perrotta (2017) are acquiring spots at Heathrow with their own alliances, hub connectivity, aggressive marketing and a wider range of destinations. So BA is facing fierce competition from both budget airlines on short distance flights and established carriers on long routes too (Salmon 2017). The intensity of completion has seen carriers such as Monarch go out of business as recent as 2017 (Calder 2017).
- Even on long-haul flights, BA is facing the rise of Norwegian Air UK, the low cost subsidiary of Norwegian, which is posing a genuine threat to BA’s dominance especially at BA’s second hub in Gatwick. Since 2012 when Gatwick became its base, Norwegian has steadily added new long-haul flights, launching seven new flights to the US alone, with a further four in the pipeline, on top of new routes to Argentina and Singapore (Morris 2018). This is without adding the 34 shorthaul routes it already serves from Gatwick (Bhaskara 2017). This is why BA has embarked on an aggressive expansion at Gatwick, paying more than £50m for the take-off and landing rights of slots formerly used by Monarch, a move that will increase its flight number by 28% (Calder 2018). It also explains why BA is keen to even buy up its low-cost Norwegian rival (Torvey 2018; Morris 2018).
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