Question

The Railway service industry in Andaleland is categorised into groups according to the areas of operation and revenue. International rail services are offered by firms who own large and luxurious trains that travel to just about anywhere in the continent. Companies in this segment typically have revenues in excess of $1 billion. National trains have revenues between $100 million and $1 billion and travel domestically only. Regional rail companies have smaller trains with revenues below $100 million. Cargo trains do not carry commercial passengers. They specialise in the transportation of goods.

The suppliers to the railway industry are caterers, railway stations, train manufacturers and security firms which are oligopolies, meaning that the railway companies are in a less advantageous position. Key suppliers include manufacturers of trains Zanzi and Taraget who dominate the market and are able to garner significant profits at the railway companies’ expense by virtue of their specialised position. Another key supply for the industry is fuel, the price of which is currently proving a very problematic issue for companies.

The top three competitors are Virgin, Bota and Dannes railway companies. Other competitors include TubaTran, Canker Rail, Andale West, Continental Rails, Jama Rail, Atlantic Rail Northwest Rail, Southwest Rail and Una Railways. Most rail companies make extremely low returns; indeed many are currently losing as the industry is characterised by many price wars. Most railway companies also compete with non-price competitive tactics such as frequent traveller programs.

The customers of the industry can be categorised into three groups; business travellers, leisure travellers and buyers of large blocks of seats known as consolidators, who buy excess seat inventory at large discounts. Switching costs are very low and buyers are price sensitive.

Communication technology has proven to be a viable substitute for some form of business travel. Also, alternatives such as auto travel and bus transportation exist for leisure travellers who frequent regional and national train travel.

The capital intensity of the railway industry would appear to pose a formidable entry barrier. However, Atlantic Rail, TubeTran and other entrants have proven that financing is available when there is a convincing business plan and when economic conditions are conducive to the business. Brand name and frequent traveller plans would also seem to be deterrents to entry however, Atlantic Rail’s success demonstrates that customers are willing to switch to other railway companies if the price is right.

Answer 1