There has low switching cost which gives customer opportunity

There
are various factors which have a significant impact on the bargaining power of
buyers. Therefore, we divided them in 5 following segments:

 

Product and
services: The airline Customers have a
high bargaining power because there is no much product differentiation among
different airlines. Almost all airlines are providing the same services.
Therefore, airline
companies always try to get competitive advantages over other companies, which
includes greater legroom, on flight entertainments, on ground services. They do
that in order to differentiate themselves from others and justify price they
are charging.1

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Online
portals: With the evolution of online ticket booking
applications, now buyers have easy access to different prices over internet.
More informed customers have high bargaining
power as they can compare different airlines online and choose options
according to their need.2

 

Low switching cost: The Airline
industry has low switching cost which gives customer opportunity to utilize low
switching cost opportunity and switch to other airline, where they get
high value. There
are factors such as frequent flyers miles and flag carrier which has their
effect on switching cost. Airline usually provides free miles to overcome
switching of customers, however this has not deterred customers from switching by
large extent.3

 

Price sensitivity: Price sensitivity is another
factor which is influencing airline industry. Now the customer is getting
access to online prices through different agencies portal therefore if they see
any price difference among same product or service, they will switch to cheapest
one. Previously, business-travelers segment was not price sensitive but now
corporate are booking travel tickets and they are pushing price competition
higher for this class too.4

 

Distance: Distance between destinations is divided into three
categories according to availability of substitute:

First one is
distance up to 400 km. Here bargaining power of buyers are high for both
travelers and cargo clients, as they have more substitute, like trains, buses,
trucks or own cars. So buyers can choose from different substitute which gives
them high bargaining power. This means that airline has to compete not only
among themselves but also between substitutes.5

The second
category distance is up to 1.000 km. In this category competition remains same
among substitute and between airlines but preferences of buyers are changed.
They need more comfort for this much distance, but they still have choice of
substitute like trains and buses, which gives them moderate bargained power.
But cargo clients still have high bargained power as they can still rally
around available substitute for transportation.6

The last
category distance is above 1.000 km. In this category level of competition
changes in substitute and between the airlines, both travelers and cargo
clients have low bargaining power in this. They find less airline and only
international airline to travel and transport cargo, bargaining power become
from high to low. They don’t find any feasible substitute to travel this much
distance. Let’s take example of Dubai airport, if you want to travel from Dubai
to Pakistan you can only find a few airlines to travel with, so traveller don’t
have much choices.7