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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: External Environment

A regional Indian airline competes with a dominant rival. A strategist maps industry analysis: entry requires large aircraft investment and slot approvals, fuel suppliers are few, passengers can shift to high-speed rail on key routes, and fare comparison sites make switching easy. Which statement best reflects a correct reading of the forces?

The correct reading is that entry threat is low to moderate because of capital and slot barriers, supplier power is high as fuel suppliers are few, rail is a genuine substitute on some routes, and easy price comparison raises buyer power. The other statements reverse these relationships.

  1. AEntry threat is high because airlines can easily lease aircraft, and substitutes are irrelevant
  2. BEntry threat is moderate to low due to capital and slot barriers, supplier power is high, substitute threat is real on rail-competing routes, and buyer power is raised by easy price comparisonCorrect
  3. CSupplier power is low because fuel suppliers are few, and buyer power is low because comparison sites help the airline
  4. DSubstitute threat is nil because rail is a different industry, and buyer power is low because passengers are numerous

Explanation

Capital needs and slot approvals are entry barriers. Few fuel suppliers raise supplier power. Rail is a substitute performing the same function, and low switching costs with price transparency raise buyer power. The other options misread these links, for example treating few suppliers as lowering their power.

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