Threat of substitute

In India airlines operate in two major segments. The first one is Domestic and second one is
International. In an international sector as such nothing can substitute convenience offered by
airline industry. Marines ways are not time effective and reliable. So, in international mode of
transport threat of substitution is very low.
In domestic market cars, buses and trains can be used instead of airlines. Cars and buses are
not reliable and convenient ways of long-distance transport as time required will be much
higher so they can’t substitute for airways. Railways are the cheap mode of transport and also
offers convenience. As mentioned in the case as airlines reduced fares and made it par with
first class ticket of railways, customers shifted from railways to airways. So, to get constant
consumer base low fares are mandatory. Hence the threat of substitute from railways is very
high.
Bargaining power of suppliers
In suppliers side aircraft suppliers and aviation fuel suppliers. In aircraft supply the industry is
dominated by Airbus and Boeing. As suppliers are very limited bargaining power of suppliers
are very high. Along with aircrafts these companies also provide repair and maintenance
services so airlines are highly dependent on them which again increase their bargaining power.
Talking about fuel suppliers, bargaining power is very high as around 50% of the total cost
incurred in airline industry is the cost of fuel. Airlines do not have any control on prices of fuel.
Thus the bargaining power of suppliers is very high.