Final Draft of Second Business Policy Group Case S-RP-SM

Final Draft of Second Business Policy Group Case S-RP-SM -...

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Strategic Management Project for Module Questions from Chapter 2 for Copa Airlines Team 7: Stephanie McLeod, Robert Peters, Luke Setzer, Jim Toepel, David Tumblin 1. Apply the five forces model to the airline industry. THREAT OF SUBSTITUTES: High Low There are a few substitutes for personal travel over long distances, such as automobile, bus, and train , but there are even fewer express travel services . However, this is mostly dependant on geographic location. For example, the Acela express train from D.C. to New York is the fastest method of travel between the two cities. In Europe, the extensive network of passenger-quality tracks make Eurorail a suitable substitute for air travel in many cases. However, in developing nations with little infrastructure and islands such as Hawaii, there are no true substitutes for moving quickly between metropolitan areas. . In general, it can be stated that the threat of substitute products is relatively low. Passengers always have other options for air travel. However, for some of their flights they have very few options. Competition can drastically reduce prices, especially with the advent of Internet ticket purchasing. THREAT OF NEW ENTRY: Low The most significant entry barrier in the airline industry is the cost of purchasing/leasing and maintaining aircraft. T here are also costs related to certification, securing space in airports, and obtaining qualified pilots and other staff that lowers the threat of new entry . In addition , many airlines have the barrier of government regulations that control their flight paths. The likelihood of new competitors remains low due to the fairly high cost of entering the market. The cost of new airplanes represents the single biggest entry barrier. However, because some of Copa's flights have few other options, it would take a moderate investment for a new competitor to compete on a small number of the flight paths. Cost, certification, securing space in airports as well as qualified staff make entry extremely difficult. BUYER POWER: Moderate Buyer power is highly dependant on the market segment and geographical location. For example, business travelers generally have stricter needs than their leisurely companions, and thus have less buying power. In the heavily congested northeast corridor of the U.S., lack of differentiation between flights and low switching costs give the buyer significant powe r. I n the case of Latin America and the Caribbean, buyers are significantly more fragmented and switching costs are higher (fewer substitutes and alternative 1
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airlines), and as such, the buyer power is lower. The airline industry as a whole can thus be considered one in which the buyers have moderate power. People who need to fly somewhere for business will most likely pay the demanded price to get
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This note was uploaded on 05/12/2010 for the course MAN 6721 taught by Professor Kraft during the Spring '10 term at University of Florida.

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Final Draft of Second Business Policy Group Case S-RP-SM -...

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