Power Of The Buyer : High. Buyer Power

With only a few large companies across the globe (Boeing, MD, and Airbus), the commercial aircraft industry essentially exhibits the qualities of an oligopolistic competition with intense rivalry. Here is an analysis of competition in the commercial aircraft business using Porter’s Five Forces.

Suppliers generally have a moderate to high bargaining power within the industry due to the limited number of suppliers which forces aviation companies to choose from the number available and accordingly to accept their prices. In fact, fuel is the second highest cost for aviation companies. There are highly depended on supplier’s prices and the availability which indicates on a relatively high bargaining power of suppliers. In addition, there are high switching costs which are strongly in favor of the suppliers and means that the company experiences an increase in operating costs when switching to another supplier as flying another type of aircraft leads to additional costs (maintenance, training etc.).Aircrafts are vulnerable to delays due to the location of gate locations which leads to a decrease in utilization and therefore to an increase in costs.

Airlines are now able to expand their outreach directly to consumers through e-commerce. For example, airlines like Qantas are able to introduce ticketless travel through the use of technology (Thompson and Gamble, 2012).

Buyers are usually customers and customers if powerful have the ability to reduce prices, ask for high quality products and services. In the Indian airline industry, the bargaining power of buyers is high and is increasing as there are lots of airlines to choose from and there are hardly any switching costs. Moreover, there are lots of travel agents and customers can now buy ticket online from even intermediaries. Therefore, they do not really have to stick to one airline and this increases the power of the customers.

There are only 3 main competitors in the commercial jet engine-making industry which operates as an oligopoly. Historically, all of these companies have competed with each other for jet engine contracts which led to intense price wars. To avert ruinous price wars, these companies typically enter into exclusive supplier contracts with aircraft manufacturers. In such arrangements, the engine maker becomes the sole provider of jet engines for a specific aircraft model.

Even if the company can have a strong position against its buyers due to the business characteristics the close relationship that the customers have with the travel agencies gives their a greater influence over the ticket price.

Porter (1980) emphasized that suppliers to an industry may be powerful if they are more concentrated than their customers and their customers do not command a significant share of their business because their customers do not represent a potential long-term or major relationship, for example, one-off or small customers versus regular or bulk buyers.

The following analysis discusses the suppliers, buyers, industry competition, threats to entry, and substitutes that exist within the large commercial aircraft industry. Additionally, the analysis identifies the pressure that each of these groups applies on the industry and estimates the impact this pressure has on potential industry profits. Each group is identified using a high, medium, or low-pressure classification. A high-pressure classification indicates the group reduces industry profit potential and vice versa.

Powerful customer-the flip side of powerful suppliers-can capture more value by forcing down prices, demanding better quality or more service, and generally playing industry participants off against one another at the expense of industry profitability. Buyers are powerful if they have negotiating leverage relative to industry participants, especially if they are price sensitive, using their clout primarily to pressure price reduction. The bargaining power of the buyers is very high as now a day’s tickets can be booked online and if they can go for the cheapest fares and there is not much cost involved in it.

àAs a result, the number of user-oriented travel tools on airlines’ direct Web sites increased dramatically in just a few short years. Aggregator Web sites : —  Such as Expedia.com, Orbitz.com, and Priceline.com —  A pseudo-competitive position relative to the airlines' own direct Web sites but also offered services beyond flight purchase, including hotel and vacation packages. —  The airline paid a fee to the

Of the total travel market only 1% was generated from the online travel market, and consumers still depended on customer call centers to confirm payment status. To counteract the risks it is important that Lucky Air create an effective business-consumer-business model that will do the obvious and draw consumers to their site and make an online purchase of airfare. To draw in consumers Lucky Air will need to focus on Web 2.0, which is the unique feature or features of e-commerce and the Internet coming together as applications and social media technologies. Web 2.0 will allow for a better online experience with inter-human connections, consumer interacted blogs and the staff to constantly monitor the site to provide consumer feedback. Web 2.0 is crucial to providing customer relationship management. Promoting reviews from consumers in regards to destinations and airline experience are important so the consumer can feel they are important enough to expose the truth from other consumers even negative remarks. But the single most important part of focusing on e-commerce is the ability to provide a online experience and advanced technology that enables customer self-service without the need for multiple customer call centers. Customers should be able to pay for fares, cancel fares, use a safe payment method that can verify a credit card, check on the status of flights and use rewards programs

The airline industry has always been a fiercely competitive sector. Since the invention of low-cost carriers, also known as no-frills or

The supplier power in airlines is dominated by the world’s two largest aircraft manufacturers are Airbus and Boeing. The competition between the two manufacturers is neck to neck but that would prove to be a boon for Emirates as the prices would not rocket through the ceiling. A study shows that Emirates holds 93 Boeing aircrafts and 83 Airbus units (Planespotters, 2009). In 2007, Emirates purchased 81 Airbus flights, to extend it services- however, they chose Airbus over Boeing as the latter failed to deliver its latest aircrafts on time and moreover, Airbus had quoted a good price (Barryl, 2007). The changing oil prices also have an adverse effect on the aviation industry. In a nutshell, the bargaining power of suppliers is high.

The probability of power of suppliers would be low-medium risk. The bargaining powers of suppliers are low due to the limited numbers in the industry. This gives Boeing a high degree of control over the suppliers. Since Boeing started as an engineering company, they provide suppliers with unique features to decorate the crafts and supply parts. But if Boeing needed certain parts from their suppliers, their bargaining power can decrease. Boeing can also lose more bargaining power if government created new laws on making planes more eco-friendly. This would cause Boeing to purchase new parts just to follow the new rules and regulation.

According to my research the power of buyers is medium to increasing within the airline industry. Over the last few years, buyers have been presented more choices when choosing an airline carrier. The internet has created a structure of easier pricing information and allows the buyer to more easily compare pricing. Buyers can sometimes find pricing discrepancies on the exact flight due to less fragmented pricing information at the buyers fingertips. The internet and it’s ability to compare prices has also allowed the emergence of a few budget airlines to be profitable. Much of the bargaining power of the power can still depend on where the flier is traveling. The “hub” system, mentioned earlier still allows the larger airlines to dominate certain cities and creates an environment of higher prices in that market. For example, a flight from Nashville to Santo Domingo, DR presents the flier with very low bargaining power. Unless the flier wants to fly through NYC or Newark, NJ, he/she must fly American Airlines via Miami. The price for this flight is typically very high due to no other airlines