Assignment # 1
Strategic Practice Exercise: (page #81)
1. Score each competitive force in the airline industry and provide a brief rationale for your assessment.
· Rivalry Among Existing Firms: (High)
When one major company in an industry makes a change in costs or services that could potentially increase their clientele, a major competitor almost always follows suit. Price matching is a prime example of that, therefore the threat is high. West Jet is one company that offers flights at a discount and forced Air Canada to create new banners to compete with the discounted prices. All major companies and firms in an industry watch each other’s every move very carefully, and match any move with a countermove. During slow season in the airline…show more content… Aircraft manufacturing is a highly specialized industry with a limited customer base. If a supplier raises costs or their quality decreases, they have the potential to lose a customer, which may be extremely difficult to replace that lost revenue in such a specialized industry. Compare the market for aircrafts with the market for automobiles: Aircrafts are unique and there are just over 18,000 commercial aircrafts traveling the skies; when the number of automobiles just breached the 1 billion mark a few years ago. Compared to the suppliers in the auto industry who have an increased amount of power, the suppliers in the airline industry don't have nearly as much. Buyers have only a minimal amount of options in this industry, therefore sellers or suppliers can be more demanding in regards to their prices, scheduling and other key components of the industry. This force is both high and low as well.
· Threat of New Entrants: (Low)
The threat of new entrants is low because there is already a large amount of competition on a very big scale. Air Canada is a prime example of an airline company that offers flights and services on a globalized level, which would be hard to match without massive capital. A second reason I believe the threat is low is because of the high cost of breaking into this market, the airline industry is one of the most expensive industries to get into. For example, Boeing's cheapest commercial aircraft is just less than $80 million costing
