Airline Industry Essay

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What are the forces driving competition in the airline industry? Using this approach to industry analysis discussed in this chapter, evaluate each of the six forces in the task environment to ascertain what drives the level of competitive intensity in this industry. Threat of New Entrants – Low Larger, and more established airlines can achieve economies of scale since they can spread costs among a larger fleet of airplanes and more routes. Smaller firms and new entrants will have to make do with specific routes; otherwise, they can run into logistical problems if they take on a wide variety of routes while they are still starting up. Most airline customers travel for vacation or holiday, and plane fares are a more important criterion rather than product/service differentiation between the airlines. New entrants may be not be able to provide customers with lower rates. Established airlines are also able to provide better fare discounts for regular passengers (mostly geared towards retaining loyalty from business travellers). The huge capital needed to enter into the airline industry is a high barrier to clear for new entrants. The computerized system for online reservations that are used by travel agents or ticketing offices was developed by the already established airline companies. Ticket sellers are provided more incentives if they stick with the larger companies versus the newer, smaller firms. The Canadian and American airline industries do not allow cabotage (the transport of goods or passengers between two points in the same country by a vessel or an aircraft registered in another country*). Foreign airlines would not be able to fly the domestic routes therefore minimizing potential competitors within the local airline industry. Rivalry among Existing Firms – High The two major airlines in Canada are: Air Canada and Westjet. Competition is high

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