The threat of new entrants presents the possibility that new firms will enter the industry and diminish industry returns by passing along value to buyers in the form of lower prices and raising the cost of competition. Factors that determine the threat of entry include capital requirements, economies of scale, switching costs, and brand value. In the airline industry, access to capital is plentiful. Banks extend credit to airline carriers, and the debt and equity markets provide alternatives for raising funds. Because it's relatively easy for weaker airlines to obtain credit, the industry has become saturated.
Brand identity is important in the airline industry, and benefits larger airlines.
Major carriers allocate considerable resources to marketing efforts. Frequent flier programs and other incentives have been successful in enticing travelers to fly with certain carriers. Barriers to entry are also heightened by the hub system in the airline industry. Carriers can offer travelers more choices while tying up less capital through their hubs. As a result, the hub system creates market power for large carriers.