The Bargaining Power of Suppliers:LOW The fourth of the five competitiveforces is the bargaining power of suppliers (=the organization that provideinputs to the industry, such as materials, services and labor, which madeindividuals, organizations such as labor unions, or companies that supplycontract labor) (Jones & Hill, p52). In the case of Aegean & OA thebargaining power of suppliers is low. For the following reasons: First, theproduct that suppliers sell has enough substitutes –there are a lot of cateringservices to choose, a lot of fuel providers and a lot of IT services companies;there is no concentration of suppliers but rather there is now a fragmentedsource of supply of airline service suppliers. Secondly, the profitability ofsuppliers is significantly affected by the purchases that airline does and thusthe airline industry is important customer to its suppliers – Airbus, Boeing.Thirdly, Olympic Air would not experience significant switching costs if itmoved to the product of a different supplier. Fourthly, the brand name of thesuppliers is not so powerful which means there are enough suppliers to be reached.
Fifth, suppliers cannot threaten to enter OA’s industry and use their inputs toproduce airline products that could compete directly with the establishedcompany. Finally, Aegean & OA could threaten to enter in the supplier’sindustry as its possession of provision their own Airline Handling andEngineering and Catering could support them to do without some of its suppliers(Johnson & Scholes, p92). Therefore, there are not powerful suppliers tosqueeze profits out of an industry by raising input prices or raise the costsof the company in the airline industry and thus they are not constitute athreat (Jones & Hill,p52).
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The Threat of Substitutes: LOW The final force in Porter’s model isthe threat of substitute products (= the products of different businesses orindustries that satisfy similar customer needs – an increase in the price ofairline ticket will increase the demand for a railway ticket). The key pointsto be referred are: First that the close substitutes of airline products such likerailway, shipping, car do not possess a threat of obsolesce of the airlineproduct and does not provides a higher perceived benefit or value. Secondly, itis not easy for buyers to switch to substitutes as the cost in time would behigh. Thirdly, the extend that the risk of substitution can be reduced is high;by building in switching costs or perhaps through added producer’s service benefits meeting buyer’s needs ( likethe travelair club visa, on time services). The low power of close substitutesis not a threat as it cannot limit the prices that company in the industry cancharge for their products and thus cannot decrease profitability (Johnson , p93).