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Porter's 5 forces model was proposed by Michael Porter.

The purpose of the model is to assess the


attractiveness of the industry by considering the interaction among competitors, potential new entrants,
substitute products, suppliers and buyers in the industry. If none of these five forces undermines profits
in the industry, then the industry is attractive and vice versa.

The application of this model can help WESTJET S NEW CARRIER ENCORE to determine industry
attractiveness and understand its competitive positioning in the market.

Threat of new entrants.

Refer to the perceived profit of the industry might attract new players and hence reduce the profit
potential of an industry by increasing its competitiveness. The threat of new entrants in the aviation
industry is low simply because of the high capital requirement for starting an airline. The new entrants
do not only need to finance the lease or purchase of aircraft, but also need to deal with other costs such
as insurance costs, skilled labor costs, airport fees, and fuel and maintenance costs. Another factors are
government policy and access to distribution channels. The industry is highly regulated by several
organizations resulting in longer processing time for new entrants to obtain carrier licenses while new
entrants may struggle to convince local partner to sell their tickets. Economies of scale are also high
since the industry is concentrated with few players, existing airline companies can temporarily reduce
their price to drive off new entrants.

Threat of substitutes.

Refers to offerings that differ from the goods and services provided by the competitors in the industry
but that fulfill similar needs to what competitors offer. Threat of substitute increases when the price of
substitutes is cheaper, the switching cost for buyers is lower and quality and performance of substitute
are superior to existing products. Examples of substitute are other transportations such as boat, ferry,
train and car, etc. However, the threat of substitute is considered moderate since the price of other
transportations are not necessarily cheaper than travelling by airplane. Switching cost is depend on the
context of buyers. Most of buyers consider their time more valuable and thus prefer airplane to
commute. Finally, airplane is more efficient way to commute than other transportation.

Bargaining power of suppliers.

Refers to the power of those provide the inputs for the companies in industry to create the goods and
services. When suppliers have strong bargaining power, they can increase their prices overtime. Thus, it
cost more for the company to product goods or services, increase competition and lower the profit. In
the aviation industry, bargaining power of suppliers is strong. Airplane manufacture is dominated by two
global corporations which are Boeing and Airbus. Companies in aviation industry rely heavily on the two
airplane manufacturer for supply and maintenance. Moreover, they would incur enormous cost if they
decide to switch since they have to train their employees to be compatible with new operation system
of other airplane supplier.

Bargaining power of buyers.

Refers to the power of people purchase the good and services that firms in an industry produce. The
power of buyers increases when they are concentrated, their purchase making up large portion of
company output and revenue, products are low commodity, they have low switching cost. The
bargaining power of buyers in aviation industry is moderate. Consumers scatter from student in gap
year looking for deals, people travelling for leisure reason and entry to middle level business travelers.
Furthermore, switching costs for customers to book with any one airline instead of another remains low.
Finally, the availability of online travel booking sites increase ticket price transparency and offer
customers the opportunity to compare pricing options.

Rivalry among competitors

Refers to competition among firms produce similar products and service. The power of competitors
depends on the numbers of players in the market, degree of differentiation, industry growth rate,
switching cost, the degree of fixed cost and whether exit barriers are low or high. The level of
competition in the aviation industry is high. Big airline companies acquire other competitors as a result
the industry becomes more concentrated. Customers have low switching cost due to the increase of
online travelling booking sites. They actively compare price and look for the best deals. Exit barriers are
high due to the huge amount of fixed cost on buying the airplane and airport fees.

Recommendation

- Focus on the implicit needs and expectations of its customers to strengthen the differentiation basis. It
should raise switching costs by developing long-term customer relationships. The organization should
also invest in research and development activities to identify new customer segments. In some cases,
collaborating with competitors can be mutually beneficial.

- Strengthen its position against suppliers by decreasing the dependency on one or a few suppliers.
Developing the long-term contractual relationships with suppliers from different regions not only lowers
their bargaining power. Product redesign and diversification of the product lines can also help the
organization reduce the suppliers’ power in the market.

- Manage the bargaining power of buyers by increasing and diversifying their customer base. It can be
done by introducing new products, targeting new market segments and adopting the product
diversification strategies. Marketing and promotional strategies can also be helpful in this regard.
Building loyalty by embedding innovation and offering excellent customer experience can raise the
switching costs.

- Raise switching costs by working on loyalty. It can improve the quality, maximize value for money and
set strong differentiation basis to discourage customers from using the substitute product.

PESTEL ANALYSIS

Pestel analysis is a tool for executives to assess the external environment and to identify how these
factors influence the industry and the firm. Pestel involves 6 factors: Political, Economic, Social,
technological, environmental and legal.

Political refers to the role of government in shaping the business including elements such as tax policies,
trade restrictions, tariffs and the stability of government. The aviation industry is operated in strict
regulation due to the risk associated with death or accidents. Political issues like war, terrorism and
outbreak of disease require government intervention and affect airline routes, airfares, entry and exit of
commercial airlines. Finally, the airline industry is heavily taxed due to environmental taxes for air
pollution. The taxes are passed to consumer and reflect in airfares.
Economic refers to the economic conditions within which organization operate. It includes elements
such as interest rates, inflation rates GDP, unemployment rate and levels of disposable income. The
increase in minimum wage is a good signal for Canada market because it may positively influence
consumer disposable income and thus improve purchasing power. Unemployment rate also decrease.
Hence, consumers will likely spend more on leisure travel. Business and industry growth will have a
positive impact on the demand for business travel and freight transportation.

Social refers to trends in demographic such as size, age, lifestyle, attitude and culture. Factors such as
the increase of women in workplace, aging population, green lifestyle and change in family structure
may influence consumer’s decision on method of transportation. The post effect of recession influences
Canadian attitude toward saving. It means consumer extensively look for value deal. Lower birth rate
also signify lower future demand for travelling. Finally, travel preference differs between millennial and
non-millennial.

Technology refers to improvement of products and service that are provided by science. The
penetration of smartphone, the increase of online sharing platform such as traveloka and yelp, and the
rise of AI has change the way customer interacting with company and making decision. Technologies are
embraced at faster rate and have shorter life cycle.

Environmental refers to the physical condition within which the company operate. It includes factors
such as climate change, natural disaster and pollution level. Environmental regulations can affect cost
structure of company. Nowadays, company must search for method of doing business that are
sustainable and minimize the impact on ecosystem.

Legal refers to regulations such as employment laws, health and safety regulations and discrimination
law affect the business activities. For Canadian employment laws, a full-time employee can work
maximum 40 hours per week. Airline industry must strictly follow the environmental regulation act and
Canadian aviation act.

Value chain analysis

Describe the way company creates products and services and sold to customers. It helps to determine
company strategic advantage and disadvantages. The value chain is divided into primary and support
activities. Primary activities are actions directly involved in the creation and distribution of goods and
services. Support activities provide the assistance necessary for conducting primary activities.

Primary includes 5 activities: inbound logistic, operation, outbound distribution, sales & MKT and service
& follow up. Inbound logistic refers to the arrival of raw materials. Operation center on the production
of good & service. Outbound refer to deliver goods & service to customer. MKT & sales focus on
attracting and convincing customer. Service the extent firm provide assistance to customers.

Support activities are Finance, Firm infrastructure, HR, Technology & procurement.

Inbound: use Q400s on short hauls which is more fuel efficient, low operation cost, enhance frequency
of flights and reach more business travelers.

Operation used share service model to control general and administrative cost
Outbound: ticketless check-in, electronic ticket, direct booking thru website & no agent commission,
extra amenities for extra fee.

Sales & MKT: focus online only thru easy navigate website

HR: longer work hours with less pay