American Airlines Five Forces Analysis
American Airlines Group Inc. (AAG) (parent company American Airlines), was founded in the year 1934. It operates an average of nearly 67,000 flights per day to nearly 350 destinations across more than 50 countries together with its wholly owned regional airline subsidiaries and third party regional carriers operating as American Eagle. The brand served around 199 million passengers in 2016 through its regional and mainline flights. The airline industry in US has grown highly competitive and dynamic. This is a Porter’s five forces analysis of American Airlines. These five forces are a part of every market and industry and affect the competitiveness of a business. This analysis will help you understand how competitive American Airlines is and how these forces affect its competitiveness.
Bargaining power of suppliers:
There is a large line of suppliers that cater to the American Airlines. However, apart from the aircraft makers like Airbus or Boeing, any other does not have any significant clout. The other suppliers have very little or hardly any bargaining power. It is because these smaller suppliers are always available in plenty. For American, there are no switching costs and it is in a position to demand quality and make them adhere to its own rules. Â Overall, the bargaining power of the suppliers is low. It is only the aircraft suppliers like Boeing, Airbus, Bombardier and Embraer that have some bargaining power because of their size, financial clout and technological innovation.
Bargaining power of customers:
The bargaining power of the customers in 21st century is grown very high. It is because while the customers have every little piece of information available at their fingertips, there is hardly any switching cost if they want to switch from one carrier to another. It is why every major airline is investing in quality and consumer convenience to ensure that its customers are happy. From offers and discounts to loyalty benefits all these things are aimed at raising customer loyalty. During the recession many of them dropped the prices to encourage the customers. Even after recession is gone, the level of competition is so high that the Airlines have kept prices low to remain competitive. So, overall the control is now in the hands of the customers and each customer is precious. It is why the airlines do everything to attract the customers. The overall bargaining power of customers is very high in this era. However, this bargaining strength of the customers gets moderated to some extent by the brand image and popularity of American Airlines.
Threat of substitute products:
The threat from substitute products is moderate for American Airlines. The main threat comes from the competing brands and some threat from the other source of transportation. The other transportation services compete mainly domestically with the Airlines brand. However, both domestically and internationally the brand competes with other airlines. Some of this threat gets moderated by the strengths of American Airlines including technological strength, customer convenience, popularity and brand image. The overall threat from substitute products remains moderate for American Airlines.
Threat of new entrants:
The threat from new players entering the market and eating into its market share is very low. It is because of the large investment involved in the making of a new brand. From technology to infrastructure and staff as well as marketing, everything requires a very large investment to run an airlines brand. Entry even at a small level locally requires very large financial investment and that is why the barriers to entry are very high. There are a number of geopolitical factors too that have raised the barriers higher. Since the 9/11 terrorist attacks, the legal and political regulation of the aviation industry has increased. This has also made the entry of new players difficult. So, the overall threat from the entry of the new players is very low.
Intensity of Competitive Rivalry between the existing players:
The intensity of competitive rivalry between the existing players is very high. It is because there are many large and small players competing for market share in the domestic and international market. The increase in the number of players has led to an increase in the overall competition in the airlines industry. Apart from American some of the major names in the industry are Delta, United, JetBlue and South West. These airlines too have a large fleet of aircrafts equipped with modern technology and a domestic as well as international presence. Some of the threat from competitive rivalry gets moderated by the brand image and the large infrastructure of the airlines brand. In this way, the level of competitive rivalry between the existing players is very high.