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Air Industry: Porter Five Analysis
1.1. Rivalry among Competitors
Porter argues that in many industries, often short of true competition and innovation comes from long-established firms. These firms often resemble each other in terms of strengths that they have, and their weaknesses and problems. They then can only identify benefits with an aggressive competition for the margins of their activities. One sees this situation where major airlines have come face to face as competitors. In short range routes generally have flown the same aircraft (usually the Airbus A320 family), and have placed similar seat configurations. Frequency and time of departure and arrival were very similar, with very few airlines allowing their frequency advantages competitors. The products have been aboard comparable. And finally, and perhaps most telling, airlines have pursued a pricing policy almost identical. Very high fees have been charged for business class seats, and access to enabling full economy tickets flexibility (Barras, 1990).
1.2. Threat of Substitution
There are a number of threats of substitution for airlines in the present. Of these, the potentially more serious is the effect of the means electronic communications market in air travel business. Video conferencing, teleconferencing, and email, all pose a potential decline in business travel, thus satisfying their needs communication. This effect may be increased in future cyclical downturns. The surface transport, especially high-speed trains, means another threat of substitution, especially for short-range routes. To the Unlike airlines, trains can provide travel from downtown a city, the center of another, and have shown a severe impact on travel business. The industry of air cargo is also affected by phenomena substitution. The email is rapidly replacing the market movement urgent documents by air. The same goes for newspapers, a commodity which has been attractive as a product to be transported, each time loses its value faster, as publishers choose to publish the contents internet.
1.3. Threat of Entry
A first possible entry barrier may result from the limitations regulatory. It is true that there are still many regulatory barriers international markets, and airlines are restricted to enter the markets by limitations on ownership and control. In other cases, the resource may act as a barrier to entry. In the commercial aviation industry, the slots at airports constitute a classic appeal as an entry barrier. While the slots airports continue to be earned under the principle of “grandfather rights” will be very difficult for new entrants to gain access to the most attractive slots at congested airports (Collis, 1996).
However, markets in point to point that no protection incumbents. Economies of scale in areas such as pilot training and maintenance, are rapidly growing in size, and are counterbalanced by bureaucracy and lack of commitment of the workers, often characteristic of large organizations. There is a final point that is difficult to analyze, but mention may provide some lights regarding entry barriers. During the past 20 years, the list of airlines that have entered the industry and have come out after Bankruptcy is tremendously large. All the evidence is that one might require sight to see that invest and start an airline is a highly speculative activity, with a high probability of failure. Given this, one might assume that the threat of new competitors is a thing of the past as the dark panoramas for industry.
1.4. Power of Buyers
A number of trends in the industry have caused the customer base many airlines have fallen, which, according to Porter, tends to increase the bargaining power of customers. Apparently the airlines in this period tended to overlook this principle, with those serious consequences on their profitability. This decline was primarily the result of three factors. First, there has been a increase in the number of signatures that need business and that have used their bargaining power to conduct corporate contracts, in which some degree of loyalty was bought with substantial discounts in prices. This changed the nature of the business travel market. Instead those customers are business travelers that actually fly, began trading increasingly with a relatively small number of persons responsible for such purchases, who were responsible to negotiate corporate contracts. The industry structure of the travel agencies also changed during the 90 (Atkinson and Storey, 1993).
Another issue concerning the size of the consumer base refers to the sale of seats to leisure travelers, price sensitive. In the 90s, many airlines chose not to make a retail marketing of these seats. In However, this work was begun to leave the task of consolidators that airlines treated as providing cheap seats, which in turn could be sold at a premium, through their own outlets. Gradually began to take more power and dictate prices to some extent. The last six years have seen a revolution in the distribution channels used by airlines. Internet has become a very important channel. Internet enables airlines to increase their customer base and establish real contact with them.
1.5. Power of Suppliers
For airlines, the list of providers that currently have power monopoly or monopoly power potential is very great. Obviously providers of air traffic control and airport services would have it, with many airlines have no choice but to pay any right traffic or airport usage to be billed. Notably in the low cyclic industry, the losses are not equally distributed throughout the industrial chain. Many airports continue to show strong earnings, reflecting monopoly power that many have. Sometimes the airline fleet planning an airline may be affected by powerful suppliers. The Boeing 747 was added to the air service in the 1970, and it was matched by another aircraft for 25 years. If the requirement an airline was a long-range aircraft with 400 or more seats, the 747 was the only option available. Not surprisingly, this plane has become a very profitable project for Boeing. In future should give a similar situation to the 600-seat Airbus A380. Perhaps the most controversial example of supplier power in the industry aviation is the Global Distribution System (GDS) (Colombo, 1998). Since its emergence in the late 80s, the GDS have supplied the technology that allows travel agencies to make reservations on hundreds of airlines, hotels, car rentals and tour operators. They did this through an aggressive war prices, so aggressive that in some cases the travel agents were offered free services if they were changed from one company to another. The result of such a policy is that GDS costs ended up being disproportionate to the detriment of the airlines. Until recently it has been difficult for airlines to do much about it.
Most Important Factors for Airline Industry
The service provided by the airline industry has become a well increasingly essential in a globalized world, where everything happens in a so giddy and where connectivity is inherent to new trends economic, social and cultural. At present, the global airline industry is evident as a dynamic and cyclical business, which operates at the frontiers of innovation technology, with long-term marginal returns and characteristics instability by the constant blows of new developments and constraints, both internal and external. According to recent study by Doganis (Crèmer, 1993), for the past six years twentieth century, the global airline industry remained reasonable returns, with average levels reached USD 7 billion a year. with the arrival of the new century began a period of cyclical downturn, increased strongly with episodes of terror attacks in USA, in September 2001, after the invasion of Iraq and avian influenza in 2003, for deepened further with the increase in fuel prices in the year 2004. To this is added the liberalization and open skies, the impact of global alliances, new low-cost carriers, distribution and sale on-line and privatization of state airlines as an example of the crucial developments that have been impacting the business at a time of continuing declines rates and average yields.
Undoubtedly one of the greatest exponents of the theory of market expertise has been Michael Porter, from which many contemporary authors have sustained later writings. One of the texts that have marked a milestone inevitable reading college courses is competitive advantage to easily define where competitive strategies as offensive or defensive actions a company must take to create a defensible position within a industry actions were a response to the five forces one competitive than the author defined as determining the nature and degree of competition surrounding a company and as a result, sought to obtain a significant return on investment. Within this study Porter identifies three generic strategies that could be used individually or together, to create long-term defensible position that exceeded the performance of competitors in an industry (Filion, 1990).
- Cost leadership
- The focus.
However, out of the five the two most important forces that should be considered by the airline industry are as follows:
2.1. Rivalry among Competitors
Corporate managers traditionally have used two approaches air. The first is based on the original model of Porter’s generic competitive strategies, which tells us that the benefits derived from the creation of a defensible position on cost or differentiation, as it was when we reviewed each of the strategies, while the second approach was based on the benefits generated by airline resources, ie, assets and capabilities (resources) that have accumulated throughout their existence. Both approaches have been used to identify the advantages and that was done to achieve them, but do not indicate how to maintain them. It also confirms that a concept known and referred to the creation and maintenance of competitive advantage is a continuous cycle. Some of these resources, consisting of assets and capabilities, may be the same or lower than the competition, while a few others may be higher and they will reside in the source of competitive advantage. This position of competitive superiority has a significant effect on market share and profits, but both results are still continually subject to erosion due to the maneuvers of competition and market changes. Along these airlines invested in the nineties, billions of dollars in renovation fleets, infrastructure, branding, process technology, training of crews, security, new routes, mergers, etc., all oriented to maintain advantages over the competition and address new order imposed by globalization (Argyris and Schon, 1978).
2.2. Power of Suppliers
Strategic alliances are cooperative agreements between companies that go beyond the normal dealings between companies and made another but that either come to constitute a merger or a total society. A partnership may include joint research efforts, technology exchange, joint use of production facilities, and sale of finished products. Through strategic alliances, companies in the same industry located in different countries can compete on a more global scale, without losing their independence. Historically, companies with export in mind national industrialized sought alliances with companies in less developed countries to import and sell their products locally often needed to make such arrangements for market access to LDC. More recently, several leading companies worldwide have formed strategic alliances to strengthen their capacity to meet full continental areas and aiming for greater global participation in the market.
Companies suppliers as Airbus, was consolidating market with the 300 series aircraft with capacities over 50 tons maximum takeoff weights (PMD) (Barney, 1991).
Both Japanese and American companies formed strategic alliances with European companies in preparation for Europe 1992 and the opening of Eastern European markets.
Airlines have formed alliances strategically beneficial for several reasons. The three most important are: get an economy of scale in marketing and services, fill gaps in their technical expertise and service delivery, and primarily to get access to the local market. The Allies learn much from each other to perform joint research, exchange of technological knowledge and study their methods based process management for service delivery, safety standards, and fleet maintenance crew. Often, companies use foreign partnerships to meet government requirements to have local ownership, the Allies can share facilities and systems. In addition, alliances affect competition, not only can they compensate for competitive disadvantages, but can also result in allied companies direct their competitive energies towards mutual rivals and less to themselves. Many companies placed second, trying to preserve their independence, have resorted alliances rather than mergers as an attempt to close the competitive gap with leading companies.
However, the alliances have their dangers. Effective coordination between independent companies, each with different reasons and perhaps conflicting objectives is a challenging task that requires several meetings of many people over a period of time to define what is to be shared, which will continue to belong to each company and how cooperative work arrangements. The Allies may have to overcome cultural and language barriers, mistrust and susceptibilities. After a promising start relationships can be cool, and probably never realize the benefits that were expected. However, the most important is the danger of relying, in time, experience and capabilities of the other company. To be a serious competitor, a company must develop its own capabilities in all areas that are important in order to strengthen its competitive position and create lasting competitive advantage. If this is not feasible, the merger is a better solution than the strategic alliance. Strategic alliances are useful as a way to transition to combat competitive disadvantage in international markets is rarely if ever, can be taken as a basis to create a competitive advantage.
However, since 1998 several airlines have been joining in strategic alliances in order to access new markets or the passenger, in a new concept of code-sharing services, among which stand out the Oneworld alliance, which gathers lines like, Air Lingus, American Airlines, British Airways, Cathay, Finnair, Iberia, Lan Chile and Qantas and codeshare partnerships on Iberia and British among others (Colombo, 1998).
Outside -in approach to strategy formulations
Concept of Strategy: This refers primarily to the basic formulation of Mission, Vision, aims and objectives, policies and programs to implement them, and methods to ensure that the implementation meets its aims.
Concept of Strategic Planning: The process by which the organization determines and maintains the relationship of the organization with its environment, through the setting of targets and systematic effort to generate a desirable for the future relationship, allocating the resources that will lead to that end.
Concept of Strategic Management: Deals with issues within the administrative process that is involved with ensuring organizational viability and that the resources of the entity, are adapted to the environment such that allow the efficient discharge of its corporate objectives, using courses action with an acceptable risk. The SM is a plan describing an organization and its environment at a point specific future time. This SM describes the environment and forces that will impact the organization from the outside in and inside out. It outlines what the organization would choose to do and if he eats these objectives.
The SM consists of two elements, the Strategic Plan that describes the conditions desired future and the tactical plan, necessary for the present desired future state. The SM is the way to consider risk, options and impact forces the means to increase the odds of success. The SM is due work with regard to the technological, social and political rather than consider the economic. In SM there is always the challenge and risks for the decision making, where administrators have the ability competent understand these risks and think creatively, imaginatively and initiative to new challenges.
The study of strategic management offers basically two distinct levels of analysis: the formulation that is the logic underlying the way in which strategies are formed, and the content, ie the study of options that allow the company to organize resources held in order to achieve its key objectives. The strategic problem of any business is to seek the highest level of consistency (consistency) three basic components: i) the Environment sector, ii) the Strategy iii) Configuration Inside. Given the impossibility of simultaneously managing the three levels of analysis, studies on training strategies have essentially fluctuated between two opposing tendencies
i) Investigate the consistency assuming “given to” Environment and, therefore, as a point of starting the detailed analysis of the structural trends (Scenario, Industry, Competitors, Market) with an approach that we call “Approach # 1 Outside-Inside”;
ii) Investigate the consistency taking “by date” Configuring and, therefore, as a point of starting the analysis of the internal dimension (Organization, Resources, Systems, Values) with an approach that we call “Approach # 2 Inside-Outside.
Two approaches to Fundamental Studies of Strategy
This dichotomy, however strongly simplifying, is also used, although with different formulations, in several studies on the evolution of strategic thinking, such as “opportunity driven vs. technology driven “(Rispoli, 1998),” rationalist vs. strategy. Incrementalism strategy “(Pavitt et al., 1997), “approach vs. Quota, Proactive approach”, “Outside-In vs. Inside-Out “(Invernizzi, 1999),” strong conception vs. weak concept of strategy”. Nevertheless it is evident, in many cases, the attempt to harmonize the two extremes, assuming methods of formulating strategies intermediate, or based on the joint use of concepts and techniques from the two approaches above (Quinn, 1980). Even in these cases it is believed that, as aimed at combining the ‘”optical lens” with 1’ “optical process, also these contributions show a degree of membership more or less blurred to one rather than the other approach. Although most definitions converge on the concept of strategy as a summary of the relationship between the firm and the competitive environment in which it dynamically acts, from a conceptual point of view is, therefore, possible to imagine two different conceptions of strategy identified as two “extremes” of a “continuum” along the at the main schools of thought. On the one hand a conception of “mechanics” of strategy as a set of analyzes, goals, decisions, policies and control instruments connected to sequential, the other a concept “behavioural” strategy as a guide for the bottom of the business decisions that evolves over the course of the enterprise and, therefore, does not result in a sequence of analysis-decisions, but rather a complex evolution of the organization the company and its learning mechanisms.
The evolution of the studies of strategy allows identifying historical Four Schools, for which there is a list of only a few key references:
i) The Planning School (Ansoff, 1965, Andrews 1971, Hofer and Schendel, 1978, Lorange 1980);
ii) The Entrepreneurial School (Norman, 1977, 1984);
iii) The Learning School (Mintzberg, 1987, 1990);
iv) The Competence-Based School (Prahalad and Hamel, 1990, 1994, Sanchez and Heene, 1996, 1997).
The four schools are divided into “schools as well,” which is explicit belonging to one rather than the other approach and the underlying economic theories of reference, and “mixed schools” where there are elements of integration between the different approaches. In fact, the contributions that based on an attempt to contaminate elements of both proposing a dual approach attention to the analysis of the external environment and the importance of resource-house expertise are significant and, accordingly, in the table are remembered some “key contributions” that have strongly influenced studies strategy without characterize itself, with the exception of Porter, for a full employability in the diagrams of the four schools identified. Interdependencies between different contributions are analyzed in detail in
The Planning School, developed within the tradition harvardiana, dominated the scene teaching management, it proposes a deterministic approach and highly rational in which, starting from the detailed analysis of a substantially predictable external environment, are the objectives defined in the first place and, subsequently, the different levels of plans and programs that are assessed based on the different probabilities of success.
Moreover, the approach ” analytical rationalist ” takes into account the influence of the internal dimension since it is based, by On the one hand, the attention to the relationship between strategy and structure (Chandler, 1962), on the other hand, the foundations of contingency theory such as relations between environment, strategically and organizational configurations (Miller and Friesen, 1984). In the ‘business’, which in the work of Norman the most complete description is waiver of a detailed analysis of environmental trends and policy options and is placed at the core of the strategic vision of the entrepreneur, or the ability to make the most of the opportunities that come from the environment through the planning tool of the business idea.
In the ’emerging’ Mintzberg (Chandler, 1962) is already emphasized the role of present in Entrepreneurial School, identifying the process of formation of the strategy as a series of moves apparently inconsistent with each other, but in fact guided by the combination of strategies “deliberate” strategies and “emerging”.
The Competence-Based School renounce emphasis on the analysis of the external and proposes the concept of “strategic intent” (strategic intent), as emotional energy and intellectual who purposely breaks the harmony between “internal resources” and “environment”, focusing attention on how to “tension” (stretch) and “leverage” (leverage) of resources and development process of internal expertise.
According to Rispoli, (1998) the strategist sees business activities as developed in the competitive market, not as understood by management. The strategist sees the company from the outside, as if their internal activities were projected on a large screen by a magic lantern at its center. This, in contrast to the operations manager, tends to see the company from the inside out.
Strategic thinking can be defined as a process applied by the leaders of the organization, who become a strategist, seeking a definition of where you want to go according to the activities and the market in which it operates. This kind of thinking is characterized by seeing the outside in an organization.
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