Why do airlines make so little profit (and such big losses)? There are several factors, including:
Very intensive competitor rivalry – mainly on price
Low barriers to entry – lots of new airlines who want to set up
Suppliers of aircraft & equipment are powerful – can charge high margins
Customers have lots of substitute options – e.g. rail, car
High fixed costs – airline losses rise significantly if revenues fall only slightly since it costs roughly the same to fly half-empty planes as full ones
By contrast, why are profits so high in the soft drinks market? The answer is mainly that:
Customers and suppliers have little power – Pepsi has many millions of individual consumers, and thousands of retail distributors none of whom has much influence over the business
There is high brand awareness & loyalty = less consumer desire for substitutes
High barriers to entry – how do you enter a market dominated by Coca-Cola and Pepsi?
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