BU481 Lecture Notes - Lecture 6: Product Market, Predatory Pricing, Air Canada
BU481 Lecture 6
Business Strategy & Competitive Advantage: Porter Airlines
The Market
• North American, Toronto specifically
• Short haul
• 8M / year fly out of Toronto
• 30K x 70 = 2.1M & 70% of that = 1.5 M
o Of the TL 9.5 = 15 – 16% of the market share
Industry Value Chain
• Short haul airlines
o Can divide into business or leisure
• Airline –
o Suppliers: Aircraft manufacturers (Bombardier), Pilots, Terminal/Airport (food, fuel,
maintenance)
o Buyers: passengers
• Buyers: limited options within Canada but lots of options trans-border
o low buyer power for those with limited options but high when there are many
o Fixed costs are high
• Supplier power:
o High for aircraft manufacturers
o High for airport
o Pilots have a high union power in general with an especially skilled job
• Substitutes:
o Driving
o Taking a train
o Separate for business and leisure – segmentation is important
o You a’t get the sae speed
• Barriers of Entry:
o Cost of entry is expensive
o Pre-existing contracts with airports
o Crazy HIGH
• Rivalry:
o Pretty intense
o Air Caada’s predator priig
• The industry:
o Difficult to enter
o Profitability questionable due to fixed costs, especially for a new entrant
o Profitability an issue because of competition
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