Boeing and Airbusrespectively have been the two major suppliers of aircrafts to the airlinesover the world. For the past few years, we have seen a huge increase in theproduction which resulted in delivering aircrafts at an above-average pacewithout defaulting a single time, even though the commercial aviation industrywas slowing down in terms of production due to effects of the overall globaleconomic conditions. The total deliveries in 2009 were close to 1000, with arecord 979 aircrafts delivered by the two aircraft majors.
Other than a two anda half month strike at Boeing in 2008, which delayed production in the fourthquarter of the year, the deliveries have been increasing steadily in thecurrent decade.1One of the way that would affect both fuel and aircraftsis forward integration; in this case, it is low. The reason for this is thataircraft manufactures, neither fuel providers nor technical support companieswill purchase an airline and staff it with flight attendants, commercialpilots, and a maintenance crew and operate flights across the world requiring amajor network of resources, which most companies do not have or are notprepared for. However, the strong position fuel suppliers and aircraftmanufacturers hold in the industry need to be taken into account when operatingan airline.2 Labour comesthird in our inputs, it is subject to the power of the unions who often bargain and getunreasonable and costly concessions, which are granted rights or a privilegefrom the airlines, plus, another point to keep in mind is that strikes affectthe industry greatly.Suppliersprovide resources to the business.
For example, consider opening a restaurant.Owner will look at suppliers of food noting their reliability, quality, pricingand whether they can offer credit terms whenever asked. A single supplier mightstand out but multiple suppliers will compete for business and therefore willoffer better service on a reasonable price, whereas a single supplier can havean advantage and hold business on hostage. He will also look at real estateresources. For the airline industry, there is technical support and ITservices as well as the catering services, which is a challenge to keep.
Goingback to our restaurant example, there is a switching cost if he will try to move the business from onelocation to another. 3