Five Forces Analysis of Cathay Pacific
Muhammad Zeeshan Khan (Date: 10.06.2013)
The five forces model, presented by Mr. Michael Porter, is used for analysing the attractiveness of an industry and assessing the level of competition exists within the industry. The five forces analysis examines the industry’s competitiveness through analysing five important competitive forces, new entrants, substitutes, suppliers, buyers and rivals (Appendix 5) (Johnson, Scholes and Whittington, 2005). The competitive analysis of Cathay Pacific has been performed with five forces analysis, which have shown following trends of competitiveness in airline industry.
(a) Threat of New Entrants:
In the airline industry, the huge level of regulations and investment reduces the threat of new entrants. The Cathay Pacific doesn’t face much competitive pressure from new entrants because the airline industry is already captured by many players. However, the level of high technology, specialized workforce, governmental support and high level of complexity restricts the new comers to enter.
(b) Threat of Substitutes:
The threat of substitute is moderate for airline industry because although customers have the option to travel by car, train or ship, but due to time constraints and distance limits them to use substitutes. However, the threat of substitutes is high for domestic travelling, but low for international routes.
(c) Bargaining Power of Buyers:
The threat of buyers is high in the airline industry because of availability of competitors. Actually, the buyers are having the power of economy (cash), choice and loyalty, which they often use to affect the company’s offerings. The Cathay Pacific has focused towards a high level of customer services, frequent flyer program (Asia Miles Frequent Flyer) (Marcho Polo Club) (loyalty program) and attractive packages for reducing the power of buyers. However, there are other competitors available and buyers find a lower switching cost to shift in case of price or bad service quality.
(d) Bargaining Power of Suppliers:
The suppliers power is highest in the airline industry, because no company can afford all of his operations in-house and suppliers play vital role in logistics, IT operations and service delivery. Cathay Pacific has outsourced 65% of its operations, which increases the threat from supplier power, which often resulted in high prices, unacceptable conditions and shortage of supplies. The threat of supplier’s power in Cathay Pacific is more because of high dependency, so risk of service failure is also high.
(f) Threat of Competitive Rivalry:
The threat of competitive rivalry is also high for the airline industry as the major global airlines and domestic airlines have captured the airline industry. The market offers, loyalty programs and attractive packages, offered by different companies, are creating an intense level of rivalry in airline industry, which has created price war, affecting the all airlines including Cathay Pacific
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