Colette3010's Blog

Week 5 – E-Business Strategy

“Porter’s five forces” develops and determines the competitive intensity between similar companies i.e. easyjet and ryanair and their attractiveness in a market. Developed by Michael E. Porter of Harvard Business School in 1979, his five forces were designed for businesses to reflect upon their ability to serve their customers and make a profit.

1. The threat of substitute products

In a company such as easyjet, their main threat of a substitute product is other forms of transport. These include travelling on the road by car/bus, using trains or even boats. As a budget airline, easyjet faces low rail substitution threat as the majority of their domestic flights cost less than the train and are less time consuming for the customer. However, some passengers who are perhaps travelling to France for example, may wish to use the Eurostar which I personally feel would be easyjets main threat to their London to Paris route. This service offers various advantages such as;

• Railway stations can be accessed easier than an airport as they are local

• More convenient for customers who may have to travel miles to get to an airport

• Customers can enjoy the scenery whilst they are travelling

The only disadvantage to customers is that it is more time consuming to travel by train than it is to travel with easyjet.

2. The threat of entry of new competitors

Anyone can set up an airline company however a good credit rating is needed to lease some of the planes or else good capital to purchase the aircraft. The cost of entry to the business however is high and this can cause setback to anyone wishing to start a new airline. Due to this, easyjet have little threat of new competitors. Nevertheless, if and when any new airline comes to light, they would have to operate as a low cost airline and compete with the likes of easyjet and ryanair. Easyjet revealed that on a regular basis they review the routes on which they fly and don’t fly and consider which are and could be profitable opportunities. It is important that easyjet fulfil this task as their competitors also carry out this research.

3. The intensity of competitive rivalry

Easyjet has a huge competitive advantage over its competitors due to their strong financial status. With a rise in fuel prices, many airlines are struggling to make a profit whereas easyjet is earning enough money in order to sustain a profit and still pay for the fuel costs. If the airline industry cannot pass on these soaring fuel costs, we are going to see a lot of weaker competitors disappearing. There are many factors which easyjet must incorporate into their business in order to make it successful against its rivals. For example;

• Taking note of how many competitors they have and not only taking note of changes they must make to improve their business but seeing out they can out better other airlines.

• Being aware of the growth in the industry

• The diversity of its competitors

• The level of expense as to what easyjet are prepared to go to in order to make people aware of their company

• Being aware of the routes that they operate and do not operate on. Easyjet cater for the majority of routes however I do feel that there are some routes which could be added to their schedules that would make them a profit.

• Easyjet’s main concern when it comes to competitive rivalry is the cost in what they sell each of their seats on the flights. If another airline i.e. ryanair are selling seats for £29.99 and Easyjet are flying the same route, on the same day and charging £49.99, easyjet will lose a significant number of customers, therefore it is important that easyjet operate with cheaper or the same prices.

4. The bargaining power of customers

Easyjet’s most important aspect of their business is their customers. Without their customers, easyjet would not make the profit that they do. Nowadays, customers are not flying with airlines because of their name and who they are, but because of the price and the routes on which they fly. Customers bargain with airlines without the realisation that they are actually doing so. Airlines are highly aware that price discrepancies can be easily found and exploited by the consumer, meaning that the operator must keep a regular check on prices. If easyjet do not keep their seat prices at a low and reasonable fare, customers will not avail of their service and will take their custom elsewhere. Many airlines tend to fly the same routes however easyjet do fly more routes than the likes of BMI which is a great advantage to easyjet who are more likely to snatch the custom.

5. The bargaining power of suppliers

Again, due to the price of fuel being directly related to the cost of oil, Easyjet as a company are unable to alter this in anyway due to our current climate. Boeing and airbus are the 2 main manufacturers in the industry providing the easyjet’s planes. Until recently, easyjet only operated with Boeing and their new deal with airbus shows that constructive decisions can still be made. If a problem ever rose between easyjet and the suppliers, this would cause great concern to easyjet if they ever lost their contract with the manufacturers. Without their suppliers they have no planes. However, the more easyjet expands, the more power it has over its suppliers, and it is very unlikely that the manufacturers would want to lose easyjet’s business or any other airline for that matter. There is very little room to bargain with the two suppliers as they are both in immense competition with each other.

“With many organisations competing in a fiercer commercial environment – driven by many factors such as global competition, currency strength, commoditisation of their product or great buying transparency brought about by the internet – the issue of supplier management becomes of greater concern to many organisations.”

The image below shows the five forces working in conjunction with one another.

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