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Porter's Five Forces Analysis

Essay by   •  March 14, 2012  •  Case Study  •  771 Words (4 Pages)  •  4,102 Views

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Porter's Five Forces Analysis:

This theory starts with an investigation of the macro-environment of the industry. This model introduces five forces; which influence the industry and it is illustrated in the model below:

Bargaining power of customers

The buyers got the opportunity to make their own decision which airline company whom they want to choose. Since there are many providers of the same product, it pushes the prices down enormously and this is an advantage for the customer. According to IATA Intl Sched Passengers 2010 , RyanAir is the leading airline when it comes to passengers. 71.1 million passengers flew with RyanAir.

The cheap fares continue to be the key factor in most passengers' travel decision because RyanAir beats every other airline on price.

The suppliers' bargaining power

Low bargaining power:

RyanAir strategy consists in removing all the on-board services and other auxiliary services that provide an added value for the passenger; they attempt to reduce all cost to be able to keep the price low. Suppliers bargaining power is low because it is harder to sale food or offer other kind of service due to short distance flights. Switching costs from one supplier to the other can be extremely high because all mechanics and pilots 
would have to be retrained. Regional Airports have little bargaining power, as they are heavily dependents on one 
airline.

High bargaining power:

Larger airports, where Ryanair's competitors operate, have greater bargaining power because they have other carriers to rely on so their policy is to try and avoid these airports. . Another aspect is fuel price, this is a direct relation to the cost of oil which RyanAir has no bargaining power at all.

Threat of Substitutes:

Every time a new carrier is come into market, there is a threat. There are other means of transportation to substitute flying from point A to point B such as buses, ferries, and cars. RyanAir operates in Sturup airport risks high competition from other low cost carrier from nearby airport - Copenhagen. There are a few other airlines that operate in Copenhagen Airport such as EasyJet or Norwegian Airways. In order to attract more passenger from the other side of Øresund bridge, RyanAir must offer a very competitive price because passenger who lives in Copenhagen must travel to Sturup airport and pay additional train or bus ticket to cross the bridge and it is time consuming, which can result in creating a reluctant attitude among customer and higher tendency that

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