Researching of Porter’s Five Force Model

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Introduction

Beating competition is a very important aspect of the business; this is because competitors often stand between an organization’s goals and objectives of becoming successful (Bryson p.54-62). Michael porter a guru in competitive advantage designed a five force model that can be used within various industries to explain to investors whether the industry is highly competitive or somewhat dormant ( Anderson p.133) The importance of using this model to analyze the actual situation on the ground is that once the data is gathered via research then business executives can use various parameters to formulate retaliatory strategies that will effectively counter competition within the industry in order to achieve commercial success ( Campbell p.22)

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Michael porters a five force model of industry competition.
Figure 1 Michael porters a five force model of industry competition.

Jet Blue is an American domestic airline that was founded in 1998, its headquarters are situated in New York. The airline is considered a low-cost model and is sometimes referred to as a Taxi, additionally, the Airline serves over 60 destinations across 22 states Inside the U.S.A and other countries within Latin America. The American Air travel industry has over 5000 paved airports and 200 domestic Airlines excluding international Airlines, this fact makes the county an attractive but highly competitive Air travel industry.

Porter’s five force model

Rivalry among existing companies

With the number of airlines operating both domestically and internationally standing at over 200 the American airline industry is expected to be highly competitive as the companies operate with strategies that aim to scramble and partition the American market with an aim of getting the highest market share. The relative size of competitors such as Delta Air Lines, American Airlines, United Airlines and US Airways and the level of product differentiation make it challenging for other participants within the industry to successfully realize their business goals (Worthington & Britton p.43-52). Over the last decade, the industry has been growing but the effects of the recession led to the profits of JetBlue to fall by 3% in the year 2009 to $ 2.3 billion. Due to the high number of participants that have entered the market over the last decade, existing companies have witnessed a drop in profit margins over the last decade. Furthermore, the high level of investments and financing involved in coming up with Airline companies has made it hard for companies to exit the industry thus making competition even stiffer (West p.87)

A threat to substitute products

Air is not the only mode of transport for moving across America. Some individuals particularly find it quite expensive and thus alternatively opt to travel by either means of road, water, or rail. Data from the Bureau of Transportation Statistics 2005 reported that passengers used the following modes to travel within the United States of America “Passenger vehicles, motorcycles 4,520,810, 82% Trucks 222,836, 4% Buses 162,908, 3% Air Carriers 583,689 10.61% and Railways — total 30,972 0.56% “.It is hence clear that substitute alternatives of moving across cities in the U.S.A have an impact on the business of the Airline industry. As the number of available substitutes increases within a given industry then the more likely the level of competition goes higher making business more challenging, this may force companies to realign their strategies in order to position their selves better and compete more effectively (Watershoot & Van den Bulte p.65).

Bargaining power of buyers

Due to numerous existing substitutes of inter-city travel options and also due to the high number of commercial Airline companies within America consumers have higher bargaining power and can, therefore, influence strategies such as of companies such as JetBlue (Wheelen & Hunger p.14-22). Consumers with a higher bargaining power will always opt to pay less for products or services, and if a provider such as JetBlue doesn’t respond to their demands then consumers may opt to switch to other airline companies (Boone p.133).

Bargaining Power of Suppliers

The alternative number of airlines that are in the same business as JetBlue is quite high, hence this reduces their bargaining power as suppliers because consumers can easily switch to the next best option if the need arises (Usunier p.99-112). Switching costs are low within the industry because there are other numerous low-cost airlines and other substitute modes of inter-city travel that consumers can use (Trott p.76-82). With the bargaining power of suppliers such as JetBlue and other airlines low this company is often forced to enter into price wars and product differentiation wars in order to please their clientele (Balmer & Greyser p.98-101).

The threat of new entry

New entrants always pose a threat to existing businesses and therefore investors prefer to venture into industries that other investors may find it hard to enter ( Ansoff p.156) The threat of entry by new participants is moderate in America simply because investing in a fleet of 161 aircraft like JetBlue is not easy. With such a fleet the company is able to operate efficiently and also realize economies of scale which other smaller Airlines cannot attain (Appelbaum p.62-77) To successfully operate in this industry cost advantages and specialist knowledge are highly important and since this is quite expensive and not easy to attain then it can be concluded that there many barriers to entry within the American airline industry (Thompson p.67-72)

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Conclusion

The level of competition and intensity of rivalry within the American commercial Airline industry can be said to be quite high and thus careful strategic planning is required for the currently existing operatives to successfully gain their desired market share and realize their business objectives.

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