Marketing economics

2. MARKET DEFINITION
• The Airline industry provides a very unique
service that cannot not be provided by any
other industry or substitute.
• It transports people with a high level of
convenience and efficiency.
• The geographic scope of the airline industry is
at a global level.

3. INTERNAL RIVALRY
The rivalry in the airline industry is very intense for many reasons.
• The service the airlines sell (air transport) is pretty homogenous,
and there is not much product (in this case, service)
differentiation.
• The industry is currently very stagnant.
• Buyers (both business as well as leisure travelers) have low
switching costs and there is very little relationship-specific
investment that travelers make.
• The airline industry is also characterized by very high fixed costs.
• Intense competition also lead to excess seat capacity in several
markets
• The competition is lessened by the brand identities of different
firms.

4. FOUR FIRM CONCENTRATION RATIO IS
CALCULATED BELOW ACCORDING TO THE
DATA IN CHARTS
(42.7+40.3+38.9+31.8)/727=21%
THIS SHOWS THAT THE MARKET IS COMPETITIVE

5. ENTRY AND EXIT BARRIERS
Entry has a low threat for the airline industry
• Existing firms have a large cost advantage.
• consumers tend to only chose well-known
names.
• economies of scale.
• low switching costs however raise the threat
level.
Exit barriers are high, due to long term
investment.

6. SUBSTITUTES AND COMPLEMENTS
SUBSTITUTES:
• DRIVING(CAR, BUS, TRAIN)
• MARINE TRANSPORT
• REMOTE VIRTUAL COLLOBORATION
COMPLEMENTS:
• HOTEL ROOM PRICES
• RENTAL CAR PRICE

7. SUPPLIER POWER
• THE MAJOR SUPPLIERS ARE 2 AIRPLANE
MANUFACTURERS, AIRBUS AND BOEING
• LABOR (POWER OF UNIONS)
• AVIATION FUEL(GEOPOLITICAL FACTORS)
POWER OF SUPPLIER INPUT IS HIGH.

8. BUYER POWER
2 GROUPS OF BUYERS:
• INDIVIDUAL FLYERS
• TRAVEL AGENCIES
• SWITCHING COSTS ARE LOW
• AIRLINES HAVE SOME PRISING POWER IN SELECT
MONOPOLY AND DUOPOLY MARKETS
• HIGHLY PRICE SENSITIVE CUSTOMERS HAVE ALSO SOME
POWER
OVERALLY, THE BUYER POWER IS LOW DUE TO LARGE
QUANTITY OF BUYERS.

9. RIVALRY
Intense price
competition
High price competition
High fixed costs
Homogeneous product
Excess capacity
Rivalry is high
SUPPLIER POWER
Few aircraft makers
Labor unions with
negotiating power
Aviation fuel
Supplier power is high
ENTRY
High barriers to entry
and exit
BUYER POWER
High quantity of buyers
Low power
SUBSTITUTES
Other transport
Virtual colloboration
Power is medium