INDUSTRIAL ANALYSIS

A PEEP THROUGH
Competitive Profile Matrix
 Competitive Profile Matrix

Critical Success Factors

Key areas which must be performed at the highest possible level of excellence if
organizations want succeed in the particular industry
Ideally 10-15 CSFs should be taken for analysis
They vary between different industries or even strategic groups and include both
internal and external factors
Weights
CSFs should be assigned a weight ranging from 0.0 (low importance) to 1.0 (high
importance)
The number indicates how important the factor is in succeeding in the industry.
Rating
Given to individual firms
4 - major strength, 3 minor strength, 2 minor weakness and 1 major
weakness.
External Factor Evaluation Matrix
 External Factor Evaluation Matrix

Key External Factors

Same as CPM, but they are external based on PESTAL analysis
Weights
CSFs should be assigned a weight ranging from 0.0 (low importance) to
1.0 (high importance)
The number indicates how important the factor is in succeeding in the
industry.
Rating
Given to individual firms
4 - superior response, 3 above average response, 2 average
response and 1 poor response..
 Industrial Analysis- Porters Five Force
Model

Potential Entrants
Rivalry among
existing firms
Threat of new entrants
Industry
Competitors
Suppliers Buyers

Bargaining Power of Suppliers Bargaining Power of Buyers

Threat of Substitute products

Substitutes
 Bargaining Power of Suppliers

Lot of monopoly and duopoly power upstream

The unions and the airports are effectively monopolists the unions
(especially the pilots) have used this power to keep wages and benefits
high and impose restrictive working practices that keep productivity
low.
Airplane manufacturers are duopolists how much supplier power they
possess depends critically upon the balance of supply and demand
When the plane manufacturers are suffering from excess capacity,
bargaining power is with the airlines
Boeing and Airbus focuses primarily on the price and financing
arrangements for new planestheir profits lie mainly in spares and
service contracts
 Industry rivalry

This is very strong look at the frequent price wars that break
out
The prime driver is excess capacity the airlines are always
willing to compete on price in order to fill empty seats
Because of the prevalence of fixed costs, airlines will, in
principle, be prepared to sell seats at any price that covers
average variable cost and makes a contribution to overhead
Excess capacity problem is perpetuated by the long-lived assets
(especially aircraft) and failure of bankrupt airlines to exit the
industry due to the protection offered by Chapter 11.
 Threat of New Entry

Barriers to entry are not especially high most capital equipment can
be leased, and so can pilots, crews, and ground facilities
While the capital costs of entry may be low, putting together the whole
range of resources and capabilities needed to operate an airline
(including gates and landing slots) tends to be difficult
Aggressive competition from established airlines increases the costs
and difficulties of entry
New entry has been a continuing feature of the industrys evolution
since deregulation, despite the industrys dismal profitability and the
short life expectancy for new airlines
Key feature of the industry is its ability to attract entrepreneurs who
have always longed to own an airline (e.g. Branson and Virgin America)
 Bargaining Power of Buyers

Biggest change during the past decade on the buyer side has
been the growth of online sales and the increased transparency
of airline prices made possible by the internet
More informed customers are also more price sensitive
customers
Some large corporate customers and major travel agencies
(both online travel agents such as Expedia and Travelocity and
more traditional travel agents such as American Express and
Carlson) have significant bargaining power
The major pressure that buyers are able to exercise is their
price sensitivity and low switching costs
 Threat of Substitutes

Generally weak for journeys exceeding 300 miles

After a long period of limited market penetration, by 2009,
videoconferencing was emerging as a viable alternative to face-
to-face meetings
 Other Factors

The industry is unprofitable because costs are high

In the airline business, rising fuel prices tend to result in rising
fares and they may be passed on directly in the form of fuel
surcharges
The problem is that higher fares mean lower demand resulting in
excess capacity and pressure on margins
Firms hedge their fuel purchases by forward contracts and
derivatives - Deltas decision to buy an oil refinery is a further step
in hedging fuel prices
Industrys profits are low because so many airlines are inefficiently
managed Could all airlines be as efficient as Southwest?
 Outlook for Industry Profitability, 2013-2017

Several factors will be especially important in determining

whether industry is able to achieve a more reasonable level of
profitability over the medium-to-long term
Capacity growth - discipline shown by the airlines during the recent recession:
if the airlines can show similar awareness of the need to avoid excess
capacity in the industry, then there is a chance that the past will not repeat
itself
Industry consolidation - major US airlines have been reduced to five:
American, United, Delta, US Airways, and Southwest
Certainly mergers and acquisitions offer the potential for cost reduction,
however, the attitude of government and the competition authorities is critical
The tendency for the airlines to build regional power bases centered on a few
hubs, has the potential to lessen rivalry on many routes.
 Outlook for Industry Profitability, 2013-2017

Several factors will be especially important in determining whether industry is

able to achieve a more reasonable level of profitability over the medium-to-long
term
Entry - prospects of any reduction in the number of airlines competing are offset by the
prospects for continuing entry into the US airline industry
New low-cost carriers is the possibility that overseas carriers might be permitted to
compete on US domestic routes
Supplier power - The airlines have done much to weaken the unions.
In certain segments of the aircraft industry, increased competition between plane makers
seems likely
In 70-120 seat planes, the bottom of the model ranges offered by Boeing and Airbus
overlaps with the top of the range planes made by Bombardier, Embraer and others.
Cost reduction - Cost reduction by the legacy airlines is reducing the cost gap between
them and the low-cost carriers.
This will reduce the competitive advantage of the budget airlines (Southwest, JetBlue,
etc.) - main beneficiaries will be customers rather than shareholders