The bargaining power of customers
According to Porter (1985), where buyers have strong bargaining power, the
relative position of suppliers of goods and services is relatively weak. In such
industries, product and service providers must be particularly cognizant of the needs
and demands of their customer base if they are to develop – and maintain – their
market share. The bargaining power of customers in the airline industry is moderate.
Switching costs between airlines are very low (Cook, Tanner and Lawes, 2012).
Switching costs refer to the burden perceived by customers in selecting one supplier
over another, and are comprised of time, emotions, opportunity and financial costs.
Observers have argued that switching costs for passenger flights have considerably
lessened in recent years, driven by the decline in high street airline offices and travel
agents and the proliferation of the Internet (Lim and Lee, 2012). Although virtually all
airlines have their own websites through which passengers can search, book and pay
for flights, it is more common for passengers to search for flights using one or more
of a multitude of ‘comparison sites’ such as Lastminute.com and Traveljungle.com.
These websites enable passengers to compare the airfares of like-for-like routes and
services, which in turn facilitates easy switching (Lim and Lee, 2012). Airlines, have
however, been attempting to increase switching costs through the provision to
passengers of loyalty schemes, either alone, or in conjunction with partners in
strategic alliances. Passengers are encouraged to remain loyal with one airline or one
alliance as frequency of purchase enables them to accrue ‘points’ or ‘air miles’ that
can be exchanged for free or discounted flights, or other rewards. The extent to
which these initiatives drive purchasing decisions, is, however, under debate (Wang,
2014).