are connected with the bargaining power of suppliers include the threat of
forward integration, which is when companies attempt to control the direct, and
in some cases the indirect distribution of its products. It also includes the
concentration of suppliers in the industry. Supplier power decreases the
ability for competitorsWU1 in the
industry to earn higher profits.1
The main power of the suppliers in the airline
industry can be summed up by the effects it has on all three inputs that
airlines have in terms of fuel, aircrafts, and labor. For instance, the price
of aviation fuel is subject to the fluctuations in the global market for oil,
which can gyrate wildly because of geopolitical and other factors. Similarly,
labor is subject to the power of the unions who often bargain and get
unreasonable offers, in other cases they might pose a disadvantage to the labor
market itself. Third, the airline industry needsWU2
aircrafts that are mainly manufactured by both Airbus, and Boeing. This is why
the power of the suppliers is categorized as high according to the Porter’s
Five Forces framework.2
It is an
almost impossible process to change suppliers for airline companies; most firms
have long-term contracts with their suppliers. Planes require a high capital
investment, which explains the long-term deals company enter into. It is
difficult to enter into the plane manufacturing industry because of the capital
needed to enter. The amount of money and expertise needed to make even one
plane is around 200 million dollars, not to mention the test trials and
specialists being hired for this sole purpose. For the above reason, it is
clear that the number of suppliers in the industry will remain low for the near
future. Based on these points we conclude that the bargaining power of suppliers pose a low threatWU3 . Customers are price sensitive in the sense that
prices and offers are considered essential to them. In general, airports are in
limited supply and we need airports to land planes and board passengers.
Suppliers are under the constant threat of bankruptcy if they are more
profitable more that buyers are.3 WU4
summarized the power of suppliers in three main factors beginning with fuel. The price of
aviation fuel is subject to the fluctuations in the global market for oil,
which is greatly unstable because of geopolitical and other factorsWU5 . Fuel suppliers such as Shell, British Petroleum
and Chevron Texaco are considered market giants. Fuel providers have a bargaining
position as they can increase fuel prices without regarding the airlines as an
important customer group, reducing costs from fluctuating market prices of fuel, companies’ hedge
fuel that can save a lot of money for the company by reducing the risk exposure
to market prices fluctuations. To demonstrate the fluctuations of market table
referred to shows an Example WU6 of fuel hedging and the total saving from
more Organization of the Petroleum Exporting Countries (“OPEC”)cuts the supple
of oil, which is needed for airplane fuel, airline companies have to depend
more and more on hedging. In an ideal case, the company has a flexible policy
regarding hedging that matches to tries to match the fluctuations. If OPEC
decides to produce more or increase supply then the
1 (Supplier Power (one of Porter’s Five Forces), 2013)
Five Forces Analysis of the Airlines Industry in the United States, n.d.)
(Annual investor relations report, 2003)
3 (Grant, 2016, p. 95)
4 (Grant, 2016, p. 95)
WU1Do you mean “airline companies”? or which competitors we are talking
about? AIRLINE COMPANIES, this one is clear.
WU2Maybe better to say “buys”.
Because with “needs” – sounds like
airlines can choose, in fact they can only buy what are provided – so suppliers
have a power
.I think it should stay the same here.
WU3I did not understand this statement.
WU4With these three statements I can’t see any logical connections – is
the statements above support the last one about the bankruptcy?
For me it is
hard here to get an clear idea, what we are trying to say.
There is a
full stop separating prices and airports, the two statements are different. I
don’t see where the problem is.
WU5Again, this sentence are repeated (you have the same sentence above
Can you do the paraphrase + can we extend
“Other factors”? what are they? I think there are a lot what we can say,
besides just geopolitical reasons….
WU6Could find any table…