Five Forces: Analysis of the Low – Cost Airline Industry
Bargaining Power of Suppliers
• The supplier of airline companies is the fuel supplier, foods supplier, and aircraft supplier. There are few suppliers in the market
•Only 2 possible suppliers of planes – Boeing and Airbus
•Switching costs from one supplier to the other is high because all mechanics and pilots would have to be retrained.
•Price of aviation fuel is directly related to the cost of oil ...view middle of the document...
•Immediate price war if encroaching on existing LCC route.
•Need for low cost base
Threat of Substitutes
•No brand loyalty of customers
•No ‘close customer relationship’
•No switching costs for the customer
•Other modes of transport
•The low-cost carrier market is highly competitive
•Most cost advantages can be copied immediately
•Low levels of existing rivalry as the two major low-cost airlines have avoided direct head to head competition by choosing different routes to serve
•However if any company does decide to complete on the same basis there will be heavy pressure on prices, margins, and hence on profitability
•Not much differentiation between services. Price is the main differentiating factor