Analysis of Air New Zealand Using Porter’s Five Forces Model
1.Suppliers’ Bargaining Powers
Suppliers refer to all input resources needed for the provision of goods and services. An aviation firm requires infrastructure and labor among other supplies. The suppliers’ powers influence this industry by influencing the prices of the materials with an intention of benefiting from the firm’s profit. For example, in New Zealand, there are many buyers such as Air New Zealand and two main suppliers- Boeing and Airbus (Air New Zealand, 2009). Therefore, the power rests in the hands of these two suppliers. Both Boeing and Airbus have strong brand images and are the main suppliers to major airline service providers such as Air New Zealand. However, the two companies have the ability to raise their prices despite the low profits realized by the industry due to a high level of competition. The suppliers can find new customers, but the companies are reluctant as entry into this sector is risky.
2. Buyers’ Bargaining Power
According to Porter’s five forces, buyers’ bargaining power refers to the pressure mounted on companies by consumers so as to provide quality services and at lower prices. Buyers are very crucial in influencing demand in the aviation industry. In New Zealand, the customers for the airline industry are derived from the entire population and foreigners. The number of customers is more than the number of airline companies in operation creating an excess demand for their services. However, the customers require a broad range of high-quality services at lower prices. Nonetheless, customers are known to be less tough on these companies as they can switch their loyalty to other companies since there are many airline companies currently operating.
3. Threat of New Entrants
In this case, new entrants refer to new companies that join the New Zealand’s aviation sector. These new firms are known to redefine the level of competition in the industry. New entrants are unlikely to compete favorably with already established firms since they are ignorant about the market survival. In this sector, the main barriers include brand loyalty, economies of scale and absolute-cost-advantages. According to the current state of this aviation sector, new companies may not survive in the market since the industry is saturated with many airline companies and the sector is subjected to many barriers to entry. Also, the industry is too risky due to high initial capital and fewer profit gains (Air New Zealand, 2009). Therefore, Air New Zealand does not feel severe effects of the threat of new entrants.
4. Threat of Substitutes
In the aviation sector, substitutes refer to options that are available in the market to the buyers. There are alternative substitutes in the airline sectors such as land and water transports. Even though trains and ships are slow compared to airplanes, they can equally be used for leisure purposes. Contrary, air transport still dominates in the international transport sector (Air New Zealand, 2009). Therefore, Air New Zealand being a major player in the aviation industry, …