Porter's 5 Forces on Airline Industry
The budget airline industry in Singapore presents an interesting situation for analysis. It has 3 main local players plus a foreign player, namely Valueair, Tiger Airways, Jetstar Asia Airway and Airasia but Jetstar Asia Airways has effectively merged with Valueair. There are also possibilities of more foreign budget airlines operating in Singapore, and big airlines may also slash their prices to compete with the budget airlines. The higher fuel price, terrorist threat and restrictive govt policies regarding open air travel right are some of the challenges in this industry. Use Porter's five forces model to critically analyse the budget airline industry. (100 marks)
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For example, Jetstar's Australian operations is wholly owned by Qantas airways and Qantas is the majority shareholder (49%) for Jetstar's operation in Singapore. The introduction of a new airline can be less of a threat, however, due to limited gatespace, high capital costs, reservation system costs, and the need for a recognizable "trustworthy" name could prompt potential entrants to reconsider their entry into the highly competitive industry. The potential threat of retaliatory action by existing airlines (eg.Malaysia Airlines) also serves as a barrier to entry. If Malaysia Airlines chooses to launch a LCC version, then competition in the industry would intensify.
The threat of substitute is moderately low. There are several substitutes available like cruises, buses, cars, trains or not traveling at all. Switching cost between air travel and it's substitutes isn't great. However, the archipelago geographical structure of Asia has made air travel the viable, efficient, and convenient mode of transportation. This is because other modes of transport like ground transportation lose its appeal as a substitute due to its journey-length.
4. Bargaining power of suppliers
Employee expenditure constitutes a significant portion of an airline's total cost.
Employee power will vary according to the type of employee and whether or not they are unionized. Though pilots can cause chaos for an airline in the short-run by