The airline industry has become more concentrated over the last 10 years. Two main factors have contributed to this concentration: several mergers and bankruptcies. Several mergers have taken place during the last decade: as traffic growth has slowed and carriers have exhausted the means to boost profits through conventional cost-cutting measures, mergers provide opportunities for saving by consolidating administrative, distribution and maintenance operations. Bankruptcies have also contributed to the increased concentration, especially in the early 1990s.
The bargaining power of suppliers: Labor is the airline industry's largest single expense. Most airline workers belong to one of a dozen unions, which give the airline workers strong power in negotiations with the airlines, such as the Association of Flight Attendants, the Air Line Pilot Association, etc. despite of the falling of the real ticket price and the always increasing competition, the labor costs have never stopped to increase and in the future will continue their raising.
Airline operations are also energy-intensive, and some carriers attempt to hedge their fuel costs by buying and selling futures. Jet fuel prices are currently high because oil refiners kept jet fuel production down in 1996 as they waited for crude oil prices to dive following the return of Iraq to the market.
The bargaining power of buyers: The customers can be broken down into two main segments: business and leisure. Because business travelers often book flights at the last minute and frequently have their organization pick up the tab, they tend to be relatively price-insensitive, so high inelastic; Instead, the demand for air tickets among leisure travels is fairly price elastic. Consequently, business travelers generate a larger portion of the industry's revenues relative to their numbers.
The frequent flier programs were originally targeted toward the business segment.
