Factors that are connected with the bargaining power ofsuppliers include the threat of forward integration, which is when companiesattempt to control the direct, and in some cases the indirect distribution ofits products, it also includes the concentration of suppliers in the industry. Theposition supplies play decreases the ability for competitors in the industry toearn higher profits.

1The main power of the suppliers inthe airline industry can be summed up by the effects it has on all three inputsthat airlines are composed of in terms of fuel, aircraft, and labor. Forinstance, the price of aviation fuel can be described as constantly affected bythe flux in the oil prices as offered in the global market, which can gyrate wildly.Similarly, labor is subject to the power of the unions who often bargain andget unreasonable offers of compromises from certain parties, in other casesthey might pose a disadvantage to the labor market itself. Third, the airlineindustry needs aircrafts that are mainly manufactured by both Airbus, andBoeing. This is why the power of the suppliers is categorized as high accordingto the Porter’s Five Forces framework.2It is analmost impossible process to change suppliers for airline companies; most firmshave long-term contracts with their suppliers. Planes normally require a highcapital investment, which explains the long-term deals companies enter into.

Itis difficult to enter into the plane manufacturing industry because of thecapital needed. It takes almost 200 million dollars to manufacture one plane, notto mention the test trials and specialists being hired for this sole purpose. Forthe above reason, it is clear that the number of suppliers in the industry willremain relatively low in the near future.

Based on these points we concludethat the bargaining power of suppliers poses a low threat. Customers are pricesensitive in the sense that prices and offers are considered essential to them. We should include that in general, airportsare in limited supply and we need airports to land planes and board passengers,Suppliers are under the threat of bankruptcy if they are more profitable morethat buyers are.3 To be exact,Power of suppliers can be summarized in three main factors:We have summarized the power ofsuppliers in three main factors beginning with fuel.The price of fuel is one of the main issuesto take note of when addressing the airline industry, which is greatly unstablebecause of geopolitical and other factors such as taxes and exchange rates. Fuel supplierssuch as Shell, British Petroleum and Chevron Texaco are considered market giants;Fuel providers have an excellent bargaining position as they can increase fuelprices without regarding the airlines as an important customer group. To prevent losses in the form of costsfrom fluctuating market prices of fuel airline companies regularly hedge fuel.

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Hedging can save a lot of money for the company by reducing the risk exposure whenmarket prices fluctuate. To demonstrate the fluctuations of market tablereferred to shows an Example of fuel hedging and the total saving from thatapproach.4