Factors that 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. The
position supplies play decreases the ability for competitors 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 are composed of in terms of fuel, aircraft, and labor. For
instance, the price of aviation fuel can be described as constantly affected by
the 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 and
get unreasonable offers of compromises from certain parties, in other cases
they might pose a disadvantage to the labor market itself. Third, the airline
industry needs 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

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It is an
almost impossible process to change suppliers for airline companies; most firms
have long-term contracts with their suppliers. Planes normally require a high
capital investment, which explains the long-term deals companies enter into. It
is difficult to enter into the plane manufacturing industry because of the
capital needed. It takes almost 200 million dollars to manufacture one plane, 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 relatively low in the near future. Based on these points we conclude
that the bargaining power of suppliers poses a low threat. Customers are price
sensitive in the sense that prices and offers are considered essential to them. We should include that in general, airports
are 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 more
that buyers are.3

To be exact,
Power of suppliers can be summarized in three main factors:

We have summarized the power of
suppliers in three main factors beginning with fuel.The price of fuel is one of the main issues
to take note of when addressing the airline industry, which is greatly unstable
because of geopolitical and other factors such as taxes and exchange rates. Fuel suppliers
such as Shell, British Petroleum and Chevron Texaco are considered market giants;
Fuel providers have an excellent bargaining position as they can increase fuel
prices without regarding the airlines as an important customer group. To prevent losses in the form of costs
from fluctuating market prices of fuel airline companies regularly hedge fuel.
Hedging can save a lot of money for the company by reducing the risk exposure when
market prices fluctuate. To demonstrate the fluctuations of market table
referred to shows an Example of fuel hedging and the total saving from that
approach.4

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