American Airlines Porter Five Forces Analysis
Five Forces analysis of American Airlines covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
American Airlines is one of the leading airline companies based out of USA. The threat of new entrants in the airline industry is extremely low due to various factors such as the extremely high cost of capital investment as well as the infrastructure investment. Some other factors are a high level of knowledge and technology required to develop a sustainable business, and as the whole market is based on exploiting the economies of scale, any new entrant who is not able to utilize this would soon fail and would not be a profitable company. With companies like American Airlines, Southwest, and Delta owning a significant chunk of the market share, the threat of new entrants in the market is low; any new entrant would soon face substantial threats of hostile takeovers by these major players. With highly high capital investment, high barriers to entry such as knowledge and technology required, and the presence of extremely high competition and big brands like American Airline’s, southwest, and Delta, we can safely say the threat of new entrants in the airline industry for American Airlines is really low.
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This concludes the threat of new entrants in the American Airlines Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of American Airlines:
The threat of substitute for an airline industry as well as any significant player in the industry such as American Airlines is low; air travel has become an essential mode of travel and cannot be avoided, especially when traveling internationally, even though a bit costlier compared to its counterparts such as roadways or Seaways, the airway industry is highly efficient in its working, and helps the travelers reach their destination in for shorter time compared to its substitutes, with a highly dynamic world and an increasing amount of international travels due to corporates going multinational the use of airlines has only increased, and due to the rush in today’s world the USP of the airline industry, that is, fast and safe travel, is extremely important and hence there’s no significant threat of any substitute. However, with the development of technology such as international video calls, conferences, and remotely operated businesses, the use of the airline industry has seen a slight decline, as these products provide an alternate solution to the problem solved by the airline industry, they are a viable substitute, and hence the airline industry must consider them as one.
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Bargaining Power of Customers:
In the American Airlines Porter Five Forces Analysis the bargaining power of the customers can be explained as:
The bargaining power of the customers in the case of an airline industry, especially for American Airlines, is moderate; this is because of the dynamic prices of the airfare that the companies charge. With a high fixed cost, the company needs a significant amount of Flyers to ensure that it is recovering enough amount from them; the company fluctuates the price. This is in accordance with the demand as well as the cost associated with it. This gives the customers some amount of bargaining power where if a considerable amount of players in the market are offering the same travel plan exact cost, the travelers can choose to negotiate the price.
However, this usually does not happen because the demand for air travel has only increased in the last five years; due to constant need and high volume of international travelers, it is rare that the flight is not fully booked and hence the costs associated with traveling is fixed this allows the company to further reduce the negotiating power of the customers.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of American Airlines:
The bargain palace suppliers for an airline industry giant like American Airlines that dominates the air industry is low to moderate, with a common practice in the airline industry being renting the planes instead of purchasing them. With the maintenance of airports by the country’s authorities, there is very little that American Airlines need to put in, with the same raw material being used by all the players in the market. No one player has a monopoly over the market the bargaining power of suppliers is moderate, for example, take the case of fuel with the changing prices of energy, the supplier can influence the entire airline industry, and even a mammoth airline company must buy the power at a higher cost, however, since this impact is on the whole sector a not just one player like American Airlines it is still low. Hence after considering all the factors, it is safe to say the bargaining power of suppliers in the airline industry is low to moderate, especially for American Airlines.
Competitive Rivalry:
The impact of key competitors in the American Airlines Porter Five Forces Analysis is as follows:
The competitive rivalry in case of the airline industry and with American Airlines is high; even though the mark in airlines dominates the American airspace, its primary competitors like Southwest Airlines, called the delta airlines are very close and similar in market share as compared to American Airlines. Still, its competitors are not far behind with significant market share. With the power of dynamic pricing and almost similar fixed costs, these players are always fighting for more and more market share and capturing each other’s market, with almost an insignificant switching cost within the brands for the customers the competitive rivalry is further increased. There is almost no significant loyalty towards a brand in customers enhance they are not very much concerned about the airlines that they travel with this makes it much easier for the competitors to poach a client from one another.
Hence, we can say that the competitive rivalry in the airline industry for American Airlines is high.
To conclude, the above American Airlines Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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