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ACCA Applied Knowledge · Business and Technology · Competitive factors

A regional airline faces competition from a new high-speed rail link that offers similar city-to-city journeys at comparable prices and with greater comfort. In Porter's Five Forces analysis, this is best described as an increase in which force?

The rail link is an increase in the threat of substitutes. It satisfies the same need, city-to-city travel, through a different product from outside the airline industry, with comparable price and better comfort. It would be rivalry or new entry only if another airline were competing on the routes.

  1. ACompetitive rivalry among existing airlines
  2. BThreat of substitutesCorrect
  3. CThreat of new entrants

Explanation

Rail meets the same customer need (travel between cities) using a different type of product from outside the airline industry, so it is a substitute. It would be new entrants only if another airline began flying the routes. Rivalry concerns firms within the same industry.

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