Bargaining Power of Buyers

Bargaining Power of Buyers

Porter (1979) explained that buyers can forcing down prices and improve quality or more service. Buyers are powerful especially if they are price sensitive, they can affect the price reductions. Customers are price sensitive. Although there will have customers think that low cost equal to not safe and have poor service, most of they will interested in low cost airline as it is good-value pricing. The number of Low Cost Carriers’ was already saturated in Europe. From 1994 to 2004, the number of passengers travelling on Low Cost Carriers has increased from 3 million to 100 million (Doganis, 2006). Buyers have the opportunity to make their own decision to choose which airline to fly as there are more and more low cost airline brands in the market. Also by checking the price of other airlines, customers can know the cost easily. So the customers’ loyalty will easily lose in the future. Overall, the bargaining power of buyers is high.

Bargaining Power of Suppliers

Airline companies have several important suppliers such as fuel, oil and foods. There are few suppliers in the market, and it is hard to find suppliers especially find some low cost supplier. Moreover, the industry’s main suppliers which is Boeing and Airbus. As aircraft cannot substitute with other product, it is important to have a good relationship with the aircraft manufacture; however there are only few manufacturers, so the bargaining power is very high. Besides airline pilots have a strong bargaining power in the airline industry (Pelapu et al, 2007, p.48). There is not enough supply of experienced and high qualified pilots. But switching costs of mechanics and pilots from one supplier to the other is high as they have to be retrained. Overall, the bargaining power of suppliers is very high.