Distance between destinations is divided into three categories according to availability of substitute: First one is distance up to 400 km.
Here bargaining power of buyers are high for both travelers and cargo clients, as they have more substitute, like trains, buses, trucks or own cars. So buyers can choose from different substitute which gives them high bargaining power. This means that airline has to compete not only among themselves but also between substitutes.The second category distance is up to 1.000 km. In this category competition remains same among substitute and between airlines but preferences of buyers are changed.
They need more comfort for this much distance, but they still have choice of substitute like trains and buses, which gives them moderate bargained power. But cargo clients still have high bargained power as they can still rally around available substitute for transportation. The last category distance is above 1.000 km. In this category level of competition changes in substitute and between the airlines, both travelers and cargo clients have low bargaining power in this. They find less airline and only international airline to travel and transport cargo, bargaining power become from high to low. They don’t find any feasible substitute to travel this much distance. Let’s take example of Dubai airport, if you want to travel from Dubai to Pakistan you can only find a few airlines to travel with, so traveller don’t have much choices.
2.3. Recommendations:Airlines should provide more on-flight services to justify higher price on business class customers. As business class is becoming more price sensitive, airlines should have more comfort level on the business classes, which can create differentiation between business class and economy class wider and justify the price charge from them.Airlines should bring innovation in their product lines to differentiate themselves from competitors. They can use vertical integration strategy by working with agencies (ticket booking agencies), online portals (tourist agencies) and with hotels (tourist destination places) to create more demand for their services.
Airlines should remove, unnecessary services (which can cost more and add less value) from their airline to provide cheap flights to economy class travelers. They should take early morning and late night cheap slots at airport terminals to reduce the cost further.