Five Forces

Five Forces Analysis (M. Porter, 1980)

1. The rivalry among established companies that is a function of three main factors: industry competitive structure; demand conditions, and, the height of exit barriers in the industry.

2. The threat of new potential entrants that is a function of the height of barriers to entry that depend on three main sources: brand loyalty, absolute cost advantages, and economies of scale.

3. The pressure of substitute products that can limit the price a company can charge for its products and services.

4. The bargaining power of buyers. Buyers are able to force down prices or they may demand higher quality and better services which may increase a company's operating costs.

5. The bargaining power of suppliers. Suppliers are able to force up the price of their products or reduce the quality of products supplied which may decrease a company's overall profitability.

Industry Rivalry

Organized Travel Agencies (members of Travel Agency Associations) barely obtain 15-20 percent of market share of Leisure Travel Services. Most of the organized players are located in Metro areas and major cities. Large disposable income and mid-income families come from Metro Manila and Metro Cebu. They are serviced by small-scale travel agencies which operate mainly from small shop and online shops in which they offer budget travel packages.

There is an intense rivalry in the leisure travel industry because of low switching costs, low levels of product differentiation and diversity of rivals. However, rivalry is not yet cut throat because of low exit barriers, fixed costs are not high and the market growth is good.

Threat of Substitutes

The Philippines is witnessing a growth of discretionary spending as percentage of income. According to a CLSA Asia-Pacific study, the discretionary spending will increase to 50 percent by year 2020. Leisure travel, being a discretionary spend, is seen to expand. Furthermore, travel has moved up the list of household buying priorities. Leisure travel is also unlikely to be substituted by durable purchases and investments.

The Philippines Department of Tourism is expected to become more aggressive in its marketing of the Philippines as a travel and tourism, with the aim of attracting ten million visitors per year by the end of 2017. The increase in availability of direct flights and budget fares to popular points of interest and ongoing improvements in infrastructure and tourism-related facilities are also set to increase travelers.

Buyer Power

There is a diverse profile of retail buyers and corporate buyers. While these buyers are fragmented, their diminishing brand loyalty and ability to switch gives them reasonable power. There is also