Thereare various factors which have a significant impact on the bargaining power ofbuyers. Therefore, we divided them in 5 following segments: Product andservices: The airline Customers have ahigh bargaining power because there is no much product differentiation amongdifferent airlines. Almost all airlines are providing the same services.Therefore, airlinecompanies always try to get competitive advantages over other companies, whichincludes greater legroom, on flight entertainments, on ground services.
They dothat in order to differentiate themselves from others and justify price theyare charging.1 Onlineportals: With the evolution of online ticket bookingapplications, now buyers have easy access to different prices over internet.More informed customers have high bargainingpower as they can compare different airlines online and choose optionsaccording to their need.2 Low switching cost: The Airlineindustry has low switching cost which gives customer opportunity to utilize lowswitching cost opportunity and switch to other airline, where they gethigh value.
Thereare factors such as frequent flyers miles and flag carrier which has theireffect on switching cost. Airline usually provides free miles to overcomeswitching of customers, however this has not deterred customers from switching bylarge extent.3 Price sensitivity: Price sensitivity is anotherfactor which is influencing airline industry. Now the customer is gettingaccess to online prices through different agencies portal therefore if they seeany price difference among same product or service, they will switch to cheapestone. Previously, business-travelers segment was not price sensitive but nowcorporate are booking travel tickets and they are pushing price competitionhigher for this class too.
4 Distance: Distance between destinations is divided into threecategories according to availability of substitute: First one isdistance up to 400 km. Here bargaining power of buyers are high for bothtravelers and cargo clients, as they have more substitute, like trains, buses,trucks or own cars. So buyers can choose from different substitute which givesthem high bargaining power. This means that airline has to compete not onlyamong themselves but also between substitutes.5The secondcategory distance is up to 1.
000 km. In this category competition remains sameamong substitute and between airlines but preferences of buyers are changed.They need more comfort for this much distance, but they still have choice ofsubstitute like trains and buses, which gives them moderate bargained power.But cargo clients still have high bargained power as they can still rallyaround available substitute for transportation.6 The lastcategory distance is above 1.000 km. In this category level of competitionchanges in substitute and between the airlines, both travelers and cargoclients have low bargaining power in this. They find less airline and onlyinternational airline to travel and transport cargo, bargaining power becomefrom high to low.
They don’t find any feasible substitute to travel this muchdistance. Let’s take example of Dubai airport, if you want to travel from Dubaito Pakistan you can only find a few airlines to travel with, so traveller don’thave much choices.7