Porters Five Forces On Aviation Industry

Porters Five Forces On Aviation IndustryThe Indian aura assiduity is maven of the fastest growing aviation industries in the world with private respiratory tracts accounting for more than 75 per cent of the sector of the domestic aviation. It is stated that the Indian aviation sector leave become one of the top five civil aviation markets in the world oer the next five years. Currently, India ranks ninth in the global civil aviation market. The Hyderabad International Airport has been ranked amongst the worlds top five in the annual Airport Service Quality (ASQ). With the egress in the sedulousness, airport retailing has also gained pace in the recent times. Development of new terminals and airports such as the recently inaugurated T3 in New Delhi has provided added impetus to this segment. The highest mete earners in this segment are food and beverages, beauty return, electronic items, apparel etc. It has been predicted that airports would provide around 300,000-400,000 sq uare feet retail space by 2015. legion(predicate) companies are also planning to leverage on this growing segment by launching specific products for air travelers.In addition, the emphasis on modernization of non-metro airports, fleet expansion by airlines, service expansion by state owned carriers, development of the maintenance, repair and overhaul (MRO) industry in India, porta up of new international routes by the Indian government, establishment of new airports and renovation and restructuring of the existing airports have added to the growth of the industry.Present Indian ScenarioIt is a figure of quick growth in the industry due to huge build-up of capacity in the LCC space, with capacity growing at approximately 45% annually. This has induced a phase of intense price competition with the incumbent full service carriers (Jet, Indian, Air Sahara) this- counting up to 60-70% for certain routes to match the new entrants ticket prices. This, coupled with cost pressures (a f all upon cost element, ATF price, went up approximately 35% in recent months, while staff costs are also rising on the hold up of shortage of trained personnel), is exerting bottom-line pressure.The growth in supply is overshadowed by the extremely strong demand growth, led primarily by the conversion of train/ pot passengers to air travel, as well as by the fact that deplorable fares have allowed passengers to fly more frequently. There has, therefore, been an join on in both the comprehensiveness and depth of consumption. However, the regulatory environment, infrastructure and tax policy have non kept pace with the industrys growth.Enactment of the open sky policy between India and Saarc countries, increase in bilateral entitlements with the EU and the US, and aggressive promotion of India as an attractive tourism spot helped India attract 3.2 million tourists in 2004-05. This market is growing at 15% per annum and India is anticipate to attract 6 million tourists by 2010. A lso, increasing per capita income has led to an increase in disposable incomes, leading to greater spend on leisure and holidays and business travel has risen sharply with increasing MNC presence. Smaller cities are also well connected now. Passenger profession has increased and over 21 million seats have been sold, resulting in a growth of over 50%. The Indian travel market is expected to triple to $51 billion by 2011 from $16.3 billion in 2005-06.Application of Porters Five Forces strategy in the Aviation IndustryThreat of New EntrantsA lucrative industry is always a target for investors looking at investment. One of the foremost factors in consideration while looking at the attractiveness of an industry is the holy terror of new entrants. In the airlines industry, this was a major threat a few years ago. The airlines operating in the industry were hold backed and the industry had few players worry Indian Airlines and Jet Airways. However, as the industry had scope for accommo dating more players many players joined the fray. The airlines industry however comes with its fair share of barriers. The investment in the airlines is truly huge and acts as a major barrier to entry. Bundled with it were different permits for running an airline go with from the civil aviation company and FDI limits. Factors that rout out limit the threat of new entrants are known as barriers to entry. Some examples includeExisting loyalty to major brandsIncentives for using a particular buyer (such as frequent shopper programs)High fixed costsScarcity of resourcesHigh costs of switching companiesGovernment restrictions or legislationPower of SuppliersThis is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a companys margins and volumes, then it holds substantial power. In the airlines company there is certain amount of bargaining power the suppliers have. Firstly, suppliers in the form of aircraft builders, who very often exceed the time limits. Adding to it are suppliers of oil who hold the key to running of the airlines. Here are a few other reasons that suppliers might have power.There are very few suppliers of a particular productThere are no substitutesSwitching to another (competitive) product is very costlyThe product is extremely important to buyers cant do without itThe supplying industry has a higher profitability than the buying industryPower of BuyersThis is how much pressure guests can place on a business. If one customer has a large enough impact to affect a companys margins and volumes, then the customer hold substantial power. Predominantly, in the airlines industry, it has been seen that the civil aviation ministry has been in favour of the customer and buyers thus have reasonable power. While most airlines companies are running with wafer thin margins, it is pretty difficult for companies to increase prices as the capacity utilization will be soberingly affected. Here are a few reasons that customers might have powerSmall matter of buyersPurchases large volumesSwitching to another (competitive) airline is simpleThe airline is not extremely important to buyers they can do without the same brand for a period of timeCustomers are price tenuousAvailability of SubstitutesWhat is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses a serious threat. Most airline companies have similar facilities and are listed on website such as makemytrip.com, yatra.com where customers choose from the cheapest available tickets. This shows that the customer has a lot of options and wouldNot intelligence shifting to a new service. Here are a few factors that can affect the threat of substitutesThe main issue is the similarity of substitutes. All low cost airlines have similar facilities.If substitutes are similar, it can be viewed in the same light as a new entrant.Competitive RivalryThis describes the fervor of competition between existing firms in an industry. Highly competitive industries generally earn low returns because the cost of competition is high. The competition in the airline industry is cutthroat and each player is trying to gain an upper-hand based on non price factors. A highly competitive market might result from many a(prenominal) players of most the same size there is no dominant firmLittle differentiation between competitors products and servicesA mature industry with very little growth companies can only grow by stealing customers away from competitorsSWOT ANALYSIS OF THE AVIATION INDUSTRYStrengthsGrowing tourism due to growth in tourism, there has been an increase in event of the international and domestic passengers.The estimated growth of domestic passenger segment is at 50% per annum and growth for international passenger segment is 25%Rising income levels Due to the rise in income levels, the disposable income is also higher which are expected to enhan ce the number of flyers.Growth potential Liberalization of sector.Modernization of non metro airports.Rising share of low cost carriers.Fleet expansion by state owned carriers.The opening up of new international routes by Indian government.Establishment of new airports and restructuring of old airports.WeaknessesUnder penetrated grocery store The total passenger traffic was only 50 million as on 31st Dec 2005 amounting to only 0.05 trips per annum as compared to developed nations like United States have 2.02 trips per annum.Untapped Air Cargo Market Air cargo market has not yet been fully taped in the Indian markets and is expected that in the coming years large number of players will have dedicated fleets.Infrastructural constraints The infrastructure development has not kept pace with the growth in aviation services sector leading to a bottleneck.Huge investment requirement for physical infrastructure for airports.Shortage of qualified instructors due migration to schedule opera tion.Pressure on quality standard of inducted pilots.Infrastructural constraints.OpportunitiesExpecting investments investment of about US $30 billion will be made.Expected Market Size Average growth of aviation sector is about 25%-30% and the expected market size is projected to grow up to 100 million by 2010.Economic GrowthVibrant middle class Increasing Consumerism and Affordability third estate manUnder-penetrated marketsGrowth in TourismCurrently domestic passenger market is growing at 50%ThreatsShortage of trained Pilots There is a shortage of trained pilots, co-pilots and ground staff which is severely limiting growth prospects.Shortage of Airports There is a shortage of airport facilities, parking bays, air traffic control facilities and takeoff and landing slots.High prices Though enough number of low cost carriers already exists in the industry, majority of the population is still not able to fly to other destinations.Security and safety.Low profit margins and high operat ing costs.