Porter 5 Forces Ryanair

2.3 Porter’s five forces

The threat of substitute products

The other substitute products for airlines are other means of transport like cars, trains or ships. They can pose a threat for a regional, short distance trips. However, with increasing distance, flights become a more popular option for many customers, so in this case the threat is moderate. Recently, the developing communication technologies like Internet and teleconferencing, that enable virtual meetings, lowered the need for business travels. We assess the threat of substitute products to be low.

The threat of the entry of new competitors

Although it may seem that the barriers of entry should block the industry from new competitors entering the market, the threat of entry of new carriers depends on the costs of access to bank credits and loans as this industry is characterised by high leverage. When borrowing is cheap, the likelihood of new companies entering the market increases. This market gets easily saturated so it is important to have a recognised brand name as well as having frequent flights on most of the routes. Having goods lots on the airports (hour and place) also lower the threat of new competitors. We assess that the threat of entry of new competitors is moderate.

The intensity of competitive rivalry

Because of the fact that the industry is highly fragmented, the intensity of competitive rivalry is high. The airline companies have high fixed costs and because of high competition in this sector they have relatively low returns. That leaves them in a vulnerable position during the times of economics lowdown or increasing prices of fuel. In order to survive and increase profits the companies need to have unique business models (outsourcing, maximising the use of aircrafts etc.) in order to gain higher profits then the average for industry and outrun the competition.

The bargaining power of customers

The bargaining power of customers is high as long as there are other cheap competitors on the route. In this situation customers will usually choose the cheapest option. However, having a strong brand can be of some help. If there aren't any competitors, and the company offers the only cheap connections, the power of customers decreases. We believe that the bargaining power of customers is moderate.

The bargaining power of suppliers

The power of suppliers is high as the returns are small and the two main costs for the airline companies are fuel and labour. The costs of fuel may depend on the efficiency of the carrier however: as the planes consume the highest amounts of jet fuel during take-offs and landings, short haul airlines have lower cost efficiency. Also the prices of fuel tend to fluctuate on monthly basis so companies need to have a business model that accounts for that. The airlines has to pay air pilots, flight attendants, customer relations and airport services such as baggage handlers and dispatchers as well as for the slot on the airport. Ryanair is outsourcing all its check-in and airport services to Servis air in all its locations. High airports fees move cheaper carriers to less popular hours or

...