Question

What did you identify while conducting a value chain analysis of American Airlines?

What are your observations from a similar value chain analysis that you conducted for Walden University?

Answer 1

Porter's five forces analysis is a very useful methodology to analyse the external environment effect on any organisation or industry. By applying the external five forces we can easily determine the after effects of those forces on the specific organisation.

Five forces of porter's analysis are as follows.

Competition rivalry
Supplier Bargaining
Customer bargaining
Threat of new entrants
Substitute threats

Five forces analysis on the airline industry

Airline industry is a very big market and has been producing huge revenues as well as facing the huge competition in each and every aspect. As the new competence are entering the markets they are increasing the overall competition and affecting the structure.

Competition rivalry

Because there are so many operators available in the same region with the same route. As the low cost Carriers entered the market, start to find the most profitable way to surpass the safety regulations of the industry. This specific Innovation and ideation is driving extreme changes in the airline industry. Airline industry is mainly fuelled by the regulator and they decide what should airline industry do. Low cost Airlines are having their full authority over the domestic transportation but in international trade premium carriers are only id and they are driving the industry. By having extreme diversity in the field we can say it is one of the most competitive businesses in the country.

Supplier bargaining

As the Companies are increasing number of plane manufacturers @ the plane suppliers are also increasing. Everything from labour to the fuel has a supplier and the suppliers usually bargain with the companies for getting a better price and a better profit. Geo political factors also influenced the condition of supplying and labour is also fuelled by the power of unions who usually bargain for the costly concessions from the Airlines.

and Boeing both are the biggest companies in providing aircrafts to the different airline industry and plays a major role in bargaining with those industrial companies.

Customer bargaining

As the online ticketing has introduced, customer has power to compare multiple ticket fares from different Airlines which gives in the authority to choose between the lowest available fare. This is specific revolution in the Information Technology has bring a bigger problem for the airline Industries to be more competitive. This specific power of the customer is driving the industr, hence airlines are helpless to reduce their affairs and work accordingly to the customer.

Threat of new entrants

Airline industry is going very fast and multiple new companies are putting off their planes in the industry every day. By having different competitors in the same field the number of increased competition also produces a threat for the existing airline companies as well as the new companies who is entering the industry. New entrants also increase the competition by reducing their affairs and implementing new strategies to attract the customer.

Threat of substitution

In United States America there is no threat of substitution as people prefer applying rather than going into the buses are the trains for long distances. Has been in the culture for a long time that's why there is no threat from the substitution of the airline industry that's why the airline industry has been growing since then. Airlines are providing different services like Wi-Fi and free food which is also attracting the customer towards them and they don't go for any other substitute.

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