Celta Airlines

To determine the profitability of the airline industry, we will do an industry analysis using

Porter’s five-forces framework

a) Rivalry among existing competitors

Concentration

Theconcentration and the number of competitors make very difficult any agreement about pricing.

Diversity of competitors

There are many competitors with approximately the same size,especially for the legacy carriers.

Product differentiation

Concerning the significant product differences and brand identities between the competitors, we have two types of competitors: thelegacy competitors and the low cost carriers. In this industry, we have an intense price competition, particularly since the coming in the market of the low cost carriers. Would customers incursignificant costs in switching to a competitor? The answer is no, indeed, there are no costs in switching to another competitor in an industry who almost one-third of customers are price concernedand then buy their tickets with looking at the price before anything else. This fact makes the price competition harder than ever in this industry. We are also dealing in this industry with a highfixed cost and a low marginal cost, excess Capacity, in an intense price competition environment, these facts contribute to low industry profitability. Indeed, the combination of high cost andexcess capacity led the major airlines to charge prices almost twice as high as they were before the deregulation act.

b) Threat of new entrants:

Capital requirements
Entry into theairline industry, given the price of the aircrafts is very high, and it needs knowledge in this domain to compete with the legacy carriers, but as we saw with the arrival in the market of the lowcost companies this knowledge can be learn quickly. To avoid the problem of the acquisition of the aircrafts, we can use the leasing.   Then, is a lot of capital needed to enter the industry? Is...