Too often, we see companies examine their profitability and potential as if their company is the only player in their industry. In reality, characterizing the industry-specific dynamics among competitors is easily one of the most powerful tools available to reveal insights about the way profit is generated (or not generated). Consider the following contributors to Porter’s Industry Competition force, as they relate to the airline industry:
1. How many competitors are there in the field? The airline industry is very crowded, and Internet-based sales means that even small carriers are on a fairly equal footing with their largest peers on a given route, both of which introduce challenges to profitability.
2. How fast does the industry tend to grow? The air travel industry is quite mature, and there is a lack of new business to compete over, which places additional pressure due to fierce competition for existing customers.
3. Are the fixed costs associated with the industry high? Aircraft are very expensive, and they have a long lifespan, making it difficult for airlines to rapidly expand or contract their business in response to changing market cycles.
These characteristics leave airlines little to compete on other than price. Loyalty programs provide some stickiness with the consumer, but mainly with consumers who travel very frequently and can hope to earn enough points for them to ultimately matter. When an airline does something to add value (wi-fi on flights, lounges, prominent power outlets in gates, etc.) these are easily copied by competitors, resulting in value to the consumer, but little profit to the airline.
By Sean Campbell
By Scott Swigart