Business analysis of uk no-frills airline industry
These carriers were aimed towards serving the ‘tour’ industry. Holiday companies would arrange holidays with charter airlines which included flights to and from their destinations. Tickets are not sold to individuals by the charter airlines instead; bookings are done on a large-scale from holiday companies. Charter carriers achieved economies of scale by focusing on cheaper operation costs and higher density seating. They also claimed to have laid the foundation for ‘low-cost’ carriers.
The UK no-frills industry http://www. belfasttelegraph. co.uk/multimedia/archive/00257/flights1_257265a. jpg Figure 4: domestic and international routes of UK no-frills airlines No-frills carriers are airlines primarily characterised by its low fares with a focus on reducing operating costs. This type of airline mainly operates on a point-to-point network and offers no-frills services. A study conducted in 1998 by the UK CAA (civil aviation authority) described the advent of the no-frills model as a ‘third way’ way in European aviation. The emergence of Ryan air and Easy jet led to the development of no-frills carriers in Europe.
Ryan air, an Irish carrier was the first no-frills carrier to evolve. The company re-organized its operations in 1991 and adopted the no-frills model using the same technique provided by the US no-frills carrier ‘Southwest airlines’ which have been in existence since 1971. Ryan air started its no-frills operations by selling seats on flights between Ireland and UK focusing on some regional UK airports such as Luton while Easyjet started its operation in 1995 offering flights between Luton and Scotland.
The market became deeply competitive with new entrants such as British airway’s Stanstead-based subsidiary ‘GO’ which was purchased by easy jet in 2002 and also KLM UK’s new brand ‘buzz’ which was launched in 2000 and was purchased by Ryan air in 2003. That wasn’t the end of the intense competition; British European also re-launched itself by adopting the no-frills model in 2002 as ‘Flybe’. Ryan air and Easyjet grew dramatically in the late 1990’s focusing on cost reduction and cheaper flight tickets and also extending their current operations beyond existing markets to cover routes across Europe.
In Europe, No-frill carriers’ benefit from a 28% in market share which is a significant increase from the 13. 6% occupied in 2002. IATA (International Air Transport Association) projects that the market share of No-frill carriers in the UK will increase to 35. 7% by 2010. According to Mintel reports, in the past two years, one in three British adults have flown with a no-frills airline. About 19% have flown with easyJet and 14% with Ryanair. The table below illustrates the use of no-frills airlines as at March 2007.
In November 1995, easyJet started flights from Luton to Glasgow and Edinburgh with Boeing 737-300 which had a capacity of 148 seats offering prices of i?? 29 one way. Seats were being sold over telephone reservation system only. As at 1996, easyJet receives delivery of its first completely owned aircraft and goes international with first services to Amsterdam from Luton. A year later (1997) easyJet launched its website, easyjet. com which from 1998 onwards formed a fundamental part of its business concept.
(Providing for about 90%of its bookings today). In August 2002 easyJet expanded its fleet and routes by acquiring British Airways’ low-cost subsidiary ‘Go’. Also, later on that same year, October 2002 the airline signed a deal to purchase 120 Airbus, which will facilitate the airline’s ongoing growth strategy. In April 2008 the airline won the Hitwise award for the ‘most visited commercial airline website’ also winning the award for the ‘most visited transport website. ‘
The ongoing changes within the society make an environment uncertain therefore impacting on the operations of the no-frills industry. According to Kotler (1998), the PEST analysis can be defined as a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The analysis examines the influence of certain factors such as political, economic, socio-cultural and technological on the no-frills industry.
EU Expansion: In 1997, the European Union deregulated the air industry permitting airlines from one EU country to operate flights between other EU member states which provided access to new markets for many no-frill carriers. The expansion of the EU in may 2004 to include 10 more member states has given no-frill carriers renewed momentum with new services starting from central and eastern Europe as a result of the deregulation that comes with EU membership resulting in an increase in traffic of 10% in 2005.
The EU is expanding the aviation markets beyond its boundaries signing agreements in morocco, Turkey and Ukraine. Airlines are taking advantage of this expansion for example; Ryanair has invested heavily in expanding the volume of its fleet with a list of 115 European destinations being served by more than 750 fleets a day pioneering services to and from airports such as Frankfurt Hahn and Stockholm Skavsta. EU abolishment of Duty free sales: Duty-free sales occur wherever international travel takes place such as airports.
Most of the duty-free goods are mainly dominated by alcohol and perfumes. The idea behind duty-free sales is that passengers can purchase goods free of taxes as long as the goods will be consumed at the consumer’s proposed destination. In July 1999, the EU abolished duty-free shopping of which according to the EU regulatory body, the idea behind the abolishment was that duty-free shopping distorts trade by substituting the place of ‘duty-paid sales’ which according to the EU officials, leads to a reduction in income for the EU exchequer.
The abolishment of duty-free sales would have serious implications for no-frill airlines especially for airlines that accrue a certain percentage of revenues from having airport retail outlets such as ‘Aer Rianta’. According to an interview with the Group commercial manager of Aer Rianta Frank. O Connell, he said that ” The abolishment of duty-free and its loss of revenue will not be helpful for its international retail business”. He further emphasised that the abolishment of duty-free sales in the EU could cost Aer Rianta up to 20million.
Climate protection change: International aviation emissions are becoming a growing concern in the UK in terms of its impact on climate and the environment. Between 1990 and 2003, the UK greenhouse gas emissions (carbon dioxide, nitrogen gas and water vapour) increased by nearly 90% due to the growing influence of cheap-flight revolution (no-frill airlines).
The latest white paper on ‘The future of transport’ (Dft, 2004b) states; “if UK aviation is defined as all international departures from the UK, then the aviation sector currently contributes about 5.5% of the UK’s CO2 emissions but because of radioactive forces, 11% of total UK “. The EU is keen to take the matter through legislation. According to mintel reports, EU airlines have decided to join the EU Emissions Trading Scheme by 2011. Airlines exceeding emissions limits will be forced to buy carbon credits from other industries. No-frill airlines have expressed their concern. European airline associations estimates that only a third of the EU scheme will be recoverable from passengers.
Increased Trade-union pressure: In terms of industrial relations, trade unions have been very significant. Trade unions are known for concentrating on negotiating acceptable terms and conditions for their fellow colleagues in their employment sector. In other words they act as the ‘Voice’ of their fellow employees. In relation to no-frill carriers, trade unions have been trying to enlist new members to gain recognition and strengthen their bargaining power however they have faced hostility on different occasions. Ryanair is known to operate a very hostile anti-union policy.
In 1998 the company opposed a union recognition by their baggage handlers in Dublin who were protesting poor pay in relation to their counterparts in other airlines resulting in a disagreement. In addition, the airline also rejected to deal with unions representing pilots protesting a comparable pay with staffs of other airlines in the sector. Due to this reason, the International Transport workers Federation (ITF) has set up a website (www. ryan-be-fair. org/) to give Ryanair staffs freedom of speech in discussing their employment conditions and other related problems.
In 2005, the ITF’s secretary explained that the website had been very useful. He also claimed that the contributions on the website have been shocking with tales of job threats and bulling within the sector. It is assumed that the continuous neglection of trade unions within the UK no-frill airline will result in an enormous loss of staffs and passengers in the future 4. 1. 5 Threat of war and terrorism: After the July 7 bombing in 2005 which was assumed to be a response by terrorists to Britain’s participation in Iraq’s invasion, the EU made counter-terrorism its top priority.
The EU union laid a proposal to amend existing regulations of aviation security in September 2005. The sole aim of the proposal was to bring into line current rules on aviation security and introduce new measures on in-flight security. In addition, the recently foiled attempt of 24 people suspected of planning to smuggle liquid explosives onto aircrafts, has pushed the UK to raising its terrorist threat alert to the highest level also tightening airport security resulting into a disruption in air travel.
Due to this increased threat of terrorism, No-frill airline Ryanair threatened to claim compensation from the UK government if airport security measures were not restored to normal. The airline estimates that the disruptions to flight schedules have cost up to i?? 2million. The chief executive Michael O’Leary said: “If they allow these restrictions to stay in place, then the government will have handed the extremists an enormous PR victory.
” Other airlines such as easyjet, flybe, Aer rianta have also vowed to claim compensation if security is not restored to normal because they claimed it didn’t give passengers a calm environment to travel in. Looking at the whole industry, consumers of no-frills airlines are scared of travelling due to the increased threat of terrorism resulting in a loss of revenues and increased costs for no-frills airlines. Consumers might begin to look for alternative mode of transport if the threat continues.
Allegations of misleading advertising: In 1997, the Air Transport users council (ATUC) complained to the Advertising Standards authority (ASA) about allegations of misleading advertising by airlines. They claimed that airlines were advertising fares net of taxes which consumers complained was unfair. Due to this reason, the ASA carried out a research on airline websites and found out that additional charges often totalled up to more than the basic ‘fare’ of which they emphasised its very common with no-frills carriers including easyjet, flybe, Bmibaby and most of all Ryanair.
It was also found that the taxes, charges and fees charged quoted by different companies differed even on the same route. In addition, other forms of misleading advertising were also noticed for example, Ryanair was ordered by the ASA to stop advertising its flights from London to Brussels are faster than rail connection ‘Eurostar’ on the basis that the advertisement was misleading due to required travel times to the airports mentioned.
