Essay Porter Five Forces Analysis of KLM

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Essay Porter Five Forces Analysis of KLM

Essay Porter Five Forces Analysis of KLM

KLM is the national airline of Netherland established in 1919. It covers almost every nation of the globe. In 2003, it decided to merge with Air France and in May of 2004, Air France-KLM was born. Now, it is a part of this group and not an independent entity. Since then, Air France-KLM has great progress. It has introduced many new carriers into the fleet including an Airbus A330 and A380. After the merger, it became the largest European Airline with 25.5% of the market share. It also became the world’s largest airline in terms of revenue with revenue of 15.414 billion Euros. Air France-KLM flies to 204 destinations and has a fleet of 225 jets. It is one of the most competitive airlines today continuously working on innovation to make the experience of its passengers better.
Following is a detailed Porter Five Forces Model Analysis of KLM:

Competitive Rivalry – High

The airline industry is a very competitive industry with more than 150 registered airlines as per IATA. It is also a stagnant industry as a result of decreasing trends of tourism. The profits in this industry are also large. There is also a high diversity of competitors ranging in their offers based on product differentiation or cost leadership. Some airlines focus on providing the best and the most remarkable experience to the passengers while others focus on being known for the lowest airfares. Some of the competitors of KLM are Qatar Airlines, Emirates, and British Airlines etc. Another reason for the intense competition is the high exit barrier (Fondeur, 2015). A player once in the industry finds it difficult to leave the industry without suffering a loss. Thus, the competitive rivalry for KLM is high.

Threat of New Entrants – Low

The airline industry is a very premium sector. In every country and at the international level, there are very strict safety and operating regulations that are to be followed; any misconduct easily leads to with drawl of permission to operate. The license fees are also very high. Entry into this industry required large capital investment, a strong customer database, experienced crew and pilots, and license from the aviation authorities. Also, access to airports is not easy as already established airlines have dedicated airport spaces making it difficult for new entrants to get space. Another entry barrier is the brand image of the established airlines. Customers also develop a trust on the performance of an airline over time making the entry barriers even higher. Thus, the threat of new entrants is low for KLM.

Bargaining Power of Suppliers – High

For the airline industry, the suppliers include the manufacturers of the jets, the suppliers of the spare products, and fuel. There are very limited companies that are working as suppliers of these required products. Since the suppliers, as well as the airlines, are under strict regulations regarding quality of the products; the suppliers hold a high level of bargaining power. Usually, there are long-term agreements with suppliers. This makes the switching cost for KLM very high (Immonen, 2012). The suppliers of KLM include Boeing and Airbus. Thus, the bargaining power of the suppliers against KLM is high.

Bargaining Power of Buyers – High

The number of buyers in the airline industry is very large. The buyers include the customers who are the passengers of KLM. For the buyers, there is no switching cost. The emergence of low-cost airlines has made it easier for customers to get low fare tickets. There are many airlines flying on any given route providing a greater array of selection for the buyers. However, many airlines have introduced loyalty programs for their customers. This helps ensures return customers. Thus, the bargaining power of buyers over KLM is high.

Threat of Substitutes – High

The substitutes of KLM include the low-fare airlines, high-speed trains, boats, and even cars. The factors of time consumed in the journey and the cost of the journey are considered for this. The other alternates may take longer but are much cheaper. Buyers who are not in a hurry can make use of these substitutes. The switching cost for these substitutes is also low. New technologies such as Skype are also decreasing the requirements of business clientele to travel (Right, 2009). This all makes the threat of substitutes high for KLM.

References

Essay Porter Five Forces Analysis of KLM