PORTERS

FIVE FORCES
IN
SHAPING STRATEGY
-Michael E. Porter , 1979
Professor, Harvard University

AVIATION
INDUSTRY

A presentation by:-

Anindya Dasgupta
Devleena Mitra
Sayan Nag Das
Shilajit Sarkar
Debankur Ghosh

The Five Forces

INTRODUCTION TO THE FIVE FORCES MODEL

1. Porter developed his Five Forces analysis in reaction to the thenpopular SWOT analysis, which he found unrigorous and ad hoc.
2. Based on the Structure-Conduct-Performance paradigm in
industrial organizational economics.
3. Applied to a diverse range of problems -> more profitable
businesses to helping governments stabilize industries.
4. Helps in understanding both the strength of current competitive
position, & the strength of a position one is considering moving
into.
5. Possible to take fair advantage of a situation of strength, improve
a situation of weakness, and avoid taking wrong steps.

Indian Aviation Industry - Environment

Estimated Passengers: 117 million domestic and 43 million
international passengers
Global Ranking: 9th largest civil aviation market
Total Carriers at Present: 22 ( Including the branches of the parent
company)
First Carrier: Indian National Airways (1925-1945)
Total number of Airport: 125 Airports
First Airport : Juhu Aerodrome (1928)
No. of Domestic Airport: 81 Domestic Airports
No of International Airport: 11 International Airports
(Including , 8 Customs Airports, and 25 Civil enclaves at Military
Airfields)
Budget allocated : 8,865.40 Crore
Minister of Aviation in the Central Government of India: Ajit Singh

VALRY WITHIN THE INDUST

Many consumers look only to cost as
a determining factor in a purchase.
This creates an intense environment.
Switching costs are generally low,
even though companies have tried to
increase switching costs with the
use of frequent flyer programs.
Highly competitive industries
generally earn low returns because
the cost of competition is high.

1.Quality Competition

4.LCC

BARGAINING POWER OF
SUPPLIERS
Primary inputs to airplane industry are:
Airplane
Labour
Fuel

Bargaining power of
suppliers
Companies have long term
contract with the
manufacturer
Switching to another
manufacturer is costly
Have more favourable credit
terms when they dont switch

Bargaining power of airplane

suppliers
Few suppliers of this particular
product. In this case, major
suppliers are the airplane
manufacturer
Top two manufacturers are
Boeing and Airbus
Chances of vertical integration
of suppliers is very low

Bargaining power of labour

suppliers
Lack of infrastructure
is a hurdle to the flow
of new talent
in the industry
Rise of power of labour unions like
AEIG and NAG leads to labour unrest

Bargaining power of fuel

suppliers
Monopoly of PSU
oil companies.
Only 3 state owned
oil companies are the
suppliers.
Different sales tax rate
in different states in India
Result is High price of
Aviation Turbine Fuel (ATF)

THREAT OF
SUBSTITUTES
Market Share of the Domestic
Players

Market Share
Indigo
Air India

9
29.5

19.8
5.4

Jet Airways
Jet Lite

17.1

19.1
Spicejet
Go Air
15

Classification of Airline
Industry
The airline industry can be
classified into three types:
- International
- Domestic
- Cargo Carriers
16

Substitute for
International Flights
The Probable substitute for
International Flights is VIDEO
CONFERENCING or through simple
chatting over the internet.
Video Conferencing is the conduct
of a video conference by a set of
telecommunication technologies
which allow two or more locations to
communicate by simultaneous twoway video and audio transmissions.

17

Growth of Video Conferencing

in
India
2500
2139

2130
2000

1892
1562

1612
1471

1500
1263

1736

1209

Februa
ry

1112

1000

March
734

500

Januar
y

April

448

2011

2012

2013

18

Substitute for Domestic

Flights
No other product domestically
competes directly with Airlines in
terms of cost and speed of travel.
The probable substitutes for
Domestic Flights is a Train, a Bus
or cabs.
Services from other means costs
less but the traveling speed is
19

Substitute for Cargo Carriers

The probable substitutes

for this is Railways and
Ships.
Railways is used to carry
goods all over the
country.
20

Survey
Chennai to Bangalore
346.2 Kms

Mode of Transport

Calcutta to Bombay
1954.3 Kms

Mode of Transport
40

Railways
12 3
45

60

Railway
s
Airways

Bus
40

Personal
Vehicle
Airways

Calcutta to Chennai
1670.3 Kms

Mode of Transport
45

55

Airways
Railways
21

BARGAINING POWER OF
CUSTOMERS
Potential customers
Inadequate differentiation
Low switching costs
Price sensitivity

Potential
Comprises of individuals i.e. business as
customers
well as leisure travelers
Business to business buyers mainly
comprises of travel agents, travel
companies, and charter companies
Passenger output rose from 73 million
in 2006 to 144 million in 2011
As a result today many more new
airports coming up

Inadequate differentiation
With the entry of low cost carriers the sector
lacks product differentiation
Companies in the airline industry have many
different ways of differentiating themselves from
its rival companies are
Food, on board bars, and good quality flight
attendants
Provides more perks to the elite customers who
are willing to pay more for that extra comfort
during their course of travel

Low switching costs

Switching costs from one airline to another is
quite low in this industry
If the customer needs like flight destinations are
not sufficed by the airline then the customer can
easily switch from one airline to another
Customers are likely to shift from one airline to
another if the flight is delayed or the service is
unsatisfactory
Customers also gain due to the prevailing price

Price sensitivity
With the advent of low cost Airlines the
Indian Aviation industry was exposed to
intense competition
This sector was completely dominated by
full-service airlines but now it is dominated
by low cost airlines
However the sustainability of the low cost
airlines is to be seen due to rising fuel
prices and the high airport charges

THREAT OF NEW ENTRANTS

ENTRY & EXIT BARRIERS

PORTERS MODEL

INDIAN AVIATION INDUSTRY

Bibliography & References

http://reannz.co.nz/services/videoconferencing-monthly-statistics

32

THANK
YOU