Virgin Atlantic Porters Five Forces 2018
Porters five forces model is an environmental analysis tool that says that the structure of an industry and the ability of firms in that industry to act strategically depend upon the relative strength s of five forces: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and the rivalry among existing firms. The discussion below shows how each of the five forces of completion have shaped the US Airlines industry and impacted on the behavior of the various Airline companies operating in this market.
1.0 Rivalry among existing firms
Current competition in the industry greatly affects companies’ behavior. Firms in a highly competitive market structure might be unhappy with the lack of power to they have over various factors like pricing and may through their strategic actions try to change the situation. If they are successful, there will be a change in the level of current competition and therefore in market structure. The US Airlines industry is a contestable market in which there are few or no barriers to entry or exit, as long as a company satisfies the Civil Aviation Authority and proofs its readiness and capacity, and then it can enter into the market. Such is the market in which Virgin Atlantic Operates in, it is a fragmented industry structure with a number of firms each commanding a given share of the market for example American Airlines commands 22.8% of the market share, Southwest Airlines 21.5%, United Airlines 15.8%, Alaska Airlines 4.6% among others.
2.0 Threat of New entrants
3.0 Threat of substitutes
The threat from substitute services largely depends upon the nature of the service being traded in the market and the extent of service differentiation. It has a clear impact upon market structure, because if there are no substitutes for a service, the producer of that service will face less competition and have a great deal of market power. However, as was seen earlier even industries which appear to be monopolies face competition from substitutes. Therefore the US Airlines industry in which Virgin Atlantic operates in is not an exception. It faces competition from other ways of travel like by bus, electric rails and water.
4.0The bargaining power of buyers
The level of buyer power could be measured in the same way as seller power as it will be discussed later, but no data are collected centrally on the level of buyer concentration. It is clear, however, that there are many markets in which powerful buyers can and do exert a great deal of control over suppliers and this power is an important source of marketing economies of scale. For example in a market which consists of a single buyer and a single seller will have quite different characteristics from a market which has many buyers and sellers. The existence of strong buyers might have beneficial effects on the market as they could offset the power of strong producers or it could lead to a higher seller concentration as sellers can come together to counteract the power of the buyer. This can partly explain why virgin Atlantic, delta Airlines and Air France entered into a partnership.
5.0 The bargaining power of suppliers
The power of suppliers over the firm is likely to be extremely important in certain markets, depending upon the nature of the product being supplied. For example: is the product highly specialized? Is the same or similar product available from elsewhere? How important is the product in the production process. Another important factor is whether or not the firm itself can produce the components it needs in the production process. If it can, the power of suppliers is greatly reduced. However in the Airlines industry, companies have no capacity to produce their components, they acquire aircrafts from companies such as Airbus and Boeing.
Conclusions and recommendations
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