When looking at an industry, it’s helpful to look for common patterns. One place important patterns often emerge is among industry suppliers. These patterns can often illuminate where profit from value is being captured in an industry. Porter’s Suppliers force applied to the airline industry would consider factors such as the following:
1. Does the industry depend on a relatively small number of suppliers? There is a fairly small group of aircraft manufacturers in the world, compared to the large number of airlines that purchase from them. Air carriers’ dependence on just a few suppliers limits their power to exert pressure on those suppliers in areas such as price.
2. How differentiated are suppliers’ products? High cost and complexity make airplanes vary dramatically in factors such as passenger capacity and range, while improvements in engine technology and fuselage materials can dramatically affect fuel costs. But in commercial aviation, the suppliers often produce similar products that fit the same niche. For example, if you’re flying between cities in the US more than 500 miles apart, you’ll likely find yourself on a Boeing 737 or an Airbus A320. Ultimately, choosing a different supplier doesn’t lead to a differentiated offering for the airline (i.e. most passengers don’t even know what kind of plane they’re on.)
3. What impact does supplier forward integration have on its customers? In other words, do you need to worry that your suppliers will move into your business? At present, the answer in air travel seems to be, “No.”. Boeing and Airbus don’t seem poised to become a airlines themselves. For what it’s worth, backward integration (an airline buying Boeing) also seems unlikely.
By Sean Campbell
By Scott Swigart
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