Profitability

And profitability is defined by five competitive forces. Let's start with your buyers, or customers, who would always be happier to pay less and get more. In the airline industry, price competition is fierce, because so many travelers just want the cheapest flight. Then, there are your suppliers, who'd ideally like to be paid more and deliver less. Powerful suppliers will use their clout to raise prices or insist on other more favorable terms. A third source of competition comes from substitute products or services that meet the same basic need you do. These aren't always obvious rivals. The toughest competitors may come from different industries. New entrants can also create tension. For instance, Southwest Airlines challenged the industry by flying just one kind of airplane, reducing costs and allowing it to offer better ticket deals. This pushed other carriers to spend more to retain their customers. Finally, you still have to fight your existing rivals, and intense competition reduces everyone's profitability. The major airlines have been in this position for years, forcing them to defend increasingly narrow profit margins with fees for exit row upgrades, checked bags, even snacks.