Ryanair

Due to the differences in nominal values of shares of different companies, it is not very useful to compare the EPS of one company to another. However in terms of monitoring the changes over a period of time, it enables the performances of the companies to be examined. Looking at all the companies together, it is apparent that although there have been ups and downs, generally the EPS of BA, Flybe and Ryanair have increased.

All three companies suffered at some point during 2006 and 2007. But Virgin on the other hand has found the changes in EPS to be most volatile. With the highest EPS being 14.59p in 2006, the other years it has remained around 3.00p. For the first four years, easyJet saw a gradual increase in EPS; however in 2008 this fell slightly to 22.10p. Therefore comparing all the companies shows that apart from Virgin, the other companies are increasingly growing in profit performances. However it must also be considered that whilst some companies may have increased the number of shares issued, others may have reduced the shares or remained constant.

Price/Earnings Ratio: Considering that the P/E ratio allows investors to interpret the valuations of each share in comparison to the net income received, it can be said that a high P/E ratio indicates that one share of a company is more expensive than that of a company with a low P/E ratio, consequently showing a current investor’s demand of a company share. When looking at the chosen companies, volatilities in the ratio can be seen, however when considering the two long-haul airlines BA and Virgin, it can be seen that overall Virgin has a higher ratio than BA. The P/E ratio of BA has been following a unstable trend of decline from 2004 to 2008, whilst Virgin has remained relatively stable in the region of 20, aside from fluctuations experienced in 2004 and 2006, pning from 204.08 to 6.85 respectively.

When looking at the budget airlines it can be seen that the P/E ratios for all three companies have been much lower. Although all three companies have been showing declining trends, Flybe has suffered the most with ratios falling to negative figures in 2006 and 2007. Ryanair and easyJet on the other hand have been able to stay in the region of 10 – 20, however have fallen behind Virgin who overall has had the most consistently high P/E ratio, as one of the larger and more established companies, Virgin’s performance in terms of P/E shows that it is performing well. But like Virgin, BA has not followed the pattern; instead Ryanair is leading BA with a higher cumulative P/E. Therefore in general all five companies have shown that there is a demand for the company shares to some degree.

Dividend Yield: When looking at the dividend yield for the five chosen companies, it can be seen that all five companies have not been paying out dividends throughout the last five years; however for BA the dividend yield in 2004 was 2.10%, but the subsequent years showed no dividend payout. However this does not mean that the companies were not operating effectively. One reason for not paying out dividends may be due to the companies reinvesting their funds instead of making dividend payments; this subsequently enables a company to increase their market value by undertaking new projects, purchasing new assets and acquiring new companies. Although paying dividends gives the investor a stream of income, it is unstable in terms of fluctuating dividend distribution from year to year. This can adversely affect the price of a security in the company. Therefore by eliminating dividends, all five companies are able to invest in other areas.

Industry Specific Ratios Ratios which are related only to the aviation industry must all be looked at together. Looking at the Available Seat Miles and Revenue Passenger Miles, the operating capacity of the airlines can be distinguished by considering the number of seats available for purchase, this is then further analysed by considering the number of seats which are actually occupied by revenue paying passengers. Expressing these ratios as percentages makes comparisons between the airlines more appropriate, due to the differences in the sizes of the companies.

Looking at the overall performance in relation to the airlines’ capacity, BA has been consistent throughout with ASM lying between 74.43% and 76.70%, this has continued with RPM, although it was 66.48% in 2004, from 2005 onwards it has been relatively stabilised to stay in the region of 55%, showing customer loyalty. So comparing the RPM and ASM in terms of the load factor, it can be seen that of the available seats around 75% of the seats have been purchased, with consistency over the years. The same trend has been followed by easyJet, with the ratios remaining constant over the last five years, the load factor for easyJet however showing that there are more revenue paying passengers for the amount of available seats. Ryanair on the other hand, although has similar ASM and RPM to the other two companies, has a load factor which has been decreasing over the last four years, but is still relatively high at 80.63%.

But unlike the consistency experienced by the other companies, Virgin and Flybe have seen unstable results. With decreasing ASM and unpredictable RPM ratios, the load factor for Flybe has seen a gradual increase to 68.32% in 2008. Virgin however has had irregular load factors throughout the last five years.

The load factor can be used as an important measure of efficiency, but it does not take into consideration the pricing and profitability at which the capacity is sold. It also assumes that the airlines’ are fully utilising their aircraft in terms of kilometres flown.

Taking all this in to consideration it can be said that some companies have suffered due to falling customer demands, whilst other have benefited from this in respect of cheaper travel. The companies which have performed well in comparison to the others are easyJet and Ryanair, both low cost carriers, with Flybe seeing an increase in its load factor, whereas Virgin has experienced instability.

Ratios are a useful tool, if used in the correct context; they provide information on a company’s overall economic situation, giving values which are easier to interpret than that of financial statements alone. They facilitate the understanding of how certain variables could influence each other, helping to determine a range of financial aspects. By studying the relationships of various financial factors in a company, a trend can enable a detailed analysis to be prepared.

However there are disadvantages to this method if not used correctly, with limited comparability, there is an inability to correctly analyse the relevance of a ratio. Companies within different industries apply different accounting policies, which can therefore lead to distortions to the analysis. Some industries, such as the aviation industry, may be highly cash generating, which would require the analysis to be interpreted with regard to this additional information. When considering the limitations, some scepticism must be applied to using ratios. With the use of historical data and qualitative data ignored, the results obtained can be misleading. A single ratio can not provide a complete picture of performance, and factors such as cost and inflation can distort the information collected. (Universal Teacher 4u, 2009)

Therefore other measures must also be considered in order to get a detailed understanding of the performance of the chosen companies.  Determining the Best and Worst Company To enable one to determine the performances of the chosen companies, which will in turn allow for establishing the best and worst company, the current state of the aviation industry and UK economy as a whole must be considered and analysed.

With the problems of sub-prime mortgages in the US causing a global credit crisis in August 2007, recession filtering into the UK economy was ominous. In January 2009, after months of speculation, recession was finally confirmed when statistics showed a decline in GDP, showing negative growth in the UK for two consecutive quarters. (BBC, 2009)

This ongoing decline in the economy has put many sectors under financial strain, and this has had a knock on effect on other sectors, one being the aviation industry. This reduction in income has meant that consumer spending has also followed suit, which is proving to be extremely damaging to businesses. With a fall in the number of passengers by 8% in December 2008 from 2007, many airlines have been grounded and routes cut as they struggle with the decreasing passenger numbers. (Telegraph, 2009)

A fall in passengers has for many airlines led to drastic cuts in an attempt to save costs wherever possible, as revenues continue to go down, with more than 30 airlines already going bankrupt as a result of the recession in the past 12 months. (Business Week, 2009) After considering the economy as a whole and how the UK’s recent entry into a recessionary climate has affected the aviation industry, the position of the chosen companies in respect of this must also be considered. When looking at the ratio analysis conducted for the companies, they were looked at in terms of their individual performance, but to determine the performances of the companies in unison, a ratio comparison of all five companies can be done. (Appendix 8.2)

When looking at the liquidity ratios, it can be seen that where Ryanair is excelling, by employing current assets effectively so as to cover the current liabilities, British Airways is not doing as well as the other companies, scoring the lowest in terms of liquidity. However when looking at the efficiency ratios Ryanair is the worst performing in terms of asset turnover, with Flybe generating the most in terms of the assets it has employed. There could be many reasons for this, where Ryanair may have an extensive range of fleets, which were not fully utilised, Flybe may have a small fleet, which were utilised fully.

When looking at the profitability ratios of all five companies it can be seen that Ryanair is again scoring the highest, with high net profit margin and ROCE, its performing exceptionally well in terms of the revenue generated and the effective use of the capital employed. But Virgin however is performing the worst in terms of profitability over the last five years. The reason for this maybe because of the low-cost carrier hype, with many customers now choosing to fly with budget airlines as recession continues to affect both consumers and businesses. Since the economic downturn, many airlines such as Qatar Airways have had to reduce the number of business flights as passengers are opting for economy seats instead. (RTE Business, 2009)

Considering the solvency of the chosen companies, it can be said that Flybe is at the most risky position in terms of gearing. With much higher debt to equity ratios in comparison to the other companies, it has been struggling with finances throughout the last five years; on the other hand easyJet has been the most effective, with the lowest gearing throughout the last five years. This gearing issue can be seen in its EPS ratio, with Flybe having a very low EPS throughout the last five years, along with Virgin. Amid plans to float their shares on the stock market, Flybe’s poor performance on gearing is risky and can be very unattractive to potential shareholders. However as BA is the UK’s largest long-haul carrier, it has performed the best in terms of its consistency by having very high EPS over the last five years, whereas Ryanair and easyJet, have both been performing equally as well as each other.

When looking at the aviation industry specific ratios, it can be therefore seen that, in terms of passengers flown and revenue generated, easyJet has performed extremely well, followed closely by Ryanair, efficiently using the seats available and generating revenue paying passengers to fill them. However Flybe has performed the worst out of the five companies.

When looking at all the ratios together, it can be seen that overall easyJet is performing most productively with Ryanair being second out of the five companies. The reason for easyJet performing better than the two long-haul carriers BA and Virgin maybe due to the cost savings which are experienced by customers when flying with the low-cost airlines easyJet and Ryanair. Flybe however is performing the worst, and this could be due to the fact that they are struggling to compete with the two large low-cost carriers’ easyJet and Ryanair, whether this is in terms of competing with prices, or other costs associated with the airline.

But using ratios alone to determine the success or failures of a company does not provide users with enough relevant information. Further analysis is required into the non-financial aspects of a company, considering the internal and external factors which could affect it. By using a SWOT analysis, these additional factors relating to the individual companies can be explored. A SWOT analysis is a planning method which is implemented when consideration is required about a proposed project or business venture. It enables the users to evaluate the Strengths, Weaknesses, Opportunities and Threats related to a specific objective. It enables the identification of the internal and external factors which may be favourable or unfavourable in order to achieve the set objective. (Tutor 2u, 2009) In order to determine the strongest and weakest company, a SWOT analysis for each individual company has been compiled (Appendix 8.3.1 – 8.3.5)

The aviation industry is global in its day to day dealings, and even with the recession becoming an international crisis, there are numerous strengths which the companies in the industry possess. BA and Virgin are the two largest international scheduled airlines operating from the UK. With years of aviation experience, both the long-haul carriers are better equipped in terms of exceptional customer service experience. Both airlines also provide Club house experiences with fully flat beds in their first class cabin, and through code sharing, where one airline puts its identification code on the flights of another airline and operates them on their behalf, and airline alliances they are able to provide an extensive range of destinations to fly to.

The low cost-carriers on the other hand have the advantage of low costs, through ‘virtual’ administration, from online tickets to check-ins; they are able to pass these low cost benefits on to their customers through very competitive flight prices. In this respect, the long-haul airlines have the advantage of being the largest international scheduled airlines; however the low-cost carriers easyJet and Ryanair are the largest budget airlines, who in the recession will benefit from being able to provide low-cost services.

The weaknesses of the companies help to determine the problems which are being faced, especially considering the current economic climate. The main issue faced by the long-haul carriers BA and Virgin is the increased competition from the low-cost airlines, where easyJet, Ryanair and Flybe are able to provide low-cost package holidays; BA and Virgin may be unable to cut their costs as low as the budget airlines, hence losing potential customers to the budget competition.

As the better established airlines, BA and Virgin are better facilitated to be able to survive the recessionary period, with stable relations with customers and suppliers. Low-cost airlines such as Flybe, who are the more newly established airlines, could also face difficulties in maintaining low prices in times of recession as costs are initially high for new companies. The low-cost carriers are also faced with the fact that they do not provide transatlantic services, and unable to provide such a service means that customers that seek to fly internationally will not be able to use their services.

But considering the opportunities which are available to the companies, the three low-cost carriers Ryanair, easyJet and Flybe can all branch out into the low-cost transatlantic market, which has not been explored yet. In doing so, during the recession the low-cost carriers will be able to provide a low-cost service to compete with the long-haul carriers. BA and Virgin also have many opportunities to contend with as the UK slips further into recession, by looking to open hubs in foreign markets, they are well established enough to be able to capture the markets where other airlines maybe suffering. However this will be a long term goal in order to be beneficial.

The common and traditional definition of a stakeholder is that of Freeman (1984): “any group or individual who can affect or is affected by the achievement of the organization’s objectives” Another well known and more up-to-date definition is, “those groups who are vital to the survival and success of the organization”. (Freeman, 2004) The low-cost airline industry is has a significant number of stakeholders; some of which belong to either the primary or secondary level of stakeholders Managers will attempt to make long-term decision that will accrue benefits to the majority of the stakeholders.

Primary Stakeholders

Employees have a vital interest (stake) in the company for obvious reasons, if the company shuts down, they would lose their jobs. Jet2.com is owned by a larger company (dart group) which makes it a primary interested since jet2.com together with jet2holidays account for more than half of its revenue. Costumers and tourism industry: Both benefits directly from the airline, without jet2’s destinations fleets many customers would not be able to reach some cities easily. At the same time those restaurants, hotels, leisure activities located on current jet2’s destinations would lose clients. Suppliers: Jet fuel plays a major role on Jet2; it uses kerosene type fuel (Jet A-1 grade). As jet.com expands, open new routes and acquire more aircrafts the demand for jet fuel will increase. Other important supplier is Boing (Airplanes), since all their aircrafts are manufactured by them. Minor suppliers can be food and drinks.

Secondary Stakeholders

These are those who are affected by the company but either have a little impact on its development or can be easily swop such as: Minor shareholders/investors: These have an interest on the company since the value of their stocks depends on the success of the company. Media: Nowadays, media has a relativity significant influence on companies. Competitors: they are constantly affected by the company and quite often they have to change strategy or modify aspects within their organisation. Government and regulators: The government has a say on everything: agreements between countries: some airlines cannot operate on specific routes. It also establishes the internal rules and regulation such as airline deregulation which allows airlines to fly more freely, establish fares, etc. Government is also looking after the impact on the environment and the safety of airports. (gov.uk 2012) The public in general.

SWOT Analysis of JET2.com

Andrews (1987, cited in Kenneth, 1960) describes “SWOT as an analysis of the strengths and weaknesses present internally in the organisation coupled with the opportunities and threats that the organisation faces externally”

Strengths

In 2008, Jet2.com became the first low fare airline to offer a direct route to New York and their route from Manchester to Tel Aviv is the only direct flight from North England to this location. Regularly winning awards for punctuality, more than 85% of our flights take off on time. This gives the company good image and seriousness. Its 8 bases are very well spread throughout the UK and from which it operates across 168 routes and currently has a fledgling fleet of 39 aircraft. Since it is a relatively young and small company it has a great power of expansion at least for the next 2 years. Its internet-based airline company makes it easier to travellers to book and more profitable for jet2 since they do not spend money in branches. Weaknesses:

Domestic air travel is a very competitive industry with Jet2.com’s biggest competitors being EasyJet, BMI (British Airways), Ryanair. These are far more spread than Jet2.com. They can restrict and shape pricing policy on some routes as Jet2.com seeks to compete with their competitors. Jet2 only operates within Europe apart from the New York route. This makes it no competition for non-Europe airline companies. If you want to fly outside Europe jet2 lacks of offers. Their ageing fleet is a key issue. The combined average age of their B737 and B757 fleet is 22.5 years (airfleet.net) aged fleet means more consumption, maintenance and servicing cost.

Opportunities

Possible opening of alternative routes to major cities in Europe. A key route could be from Leeds Bradford to Madrid to the UK, as this has a large potential for business travellers going to UK. Having connected Leeds to New York was a big step; they could expand to other American airports such as Washington DC., again with business travellers potential.

Threats

Raising the fuel prices could lead to a major problem with their low cost policy. Jet2’s major competitor is easyJet’s, but the minor competitors are increasing rapidly within the low cost airline industry. The current economic climate is a threat to most of the business so it certainly is as well for jet2 since the majority of their flights are aimed to casual flyers and holidays destination.

PESTEL Analysis

Economic, Political and Legal

Despite recent government claims of being out of recession (Gross Domestic Product: Preliminary Estimate, Q3 2012) some people still have less disposable income and become more cautious when it comes to spending in holidays, as a result are less likely to travel abroad. Jet2’s chairman, Philip Meeson, (June 2012) suggests that another aspect to bear in mind is the fluctuating oil prices which could affect the cost of the ticket putting it out of the “low-cost” fares. “Profits in Leisure Airline fell, despite capacity and load factor growth, mainly due to increased jet fuel prices which they were not able to pass on to their customers” yet. Europe’s economic climate is not be forgotten and its raises in taxation in order to cope with the crisis. BBC news Business (2011) indicates that the rise in VAT from 17.5% to 20% will mean another price rise estimated at around 3.5p to the cost of a litre of both petrol and diesel that the UK government keeps on increasing. Many other European countries have been forcing through labour reforms, backed by sharp rises in VAT, this year: Spain has increased its VAT rate by 5% to 21% in the last three years. Italy has planned to increase its VAT by 2% to 22% by July 2013. Finland will increase its upper VAT rate to 24% at the start of 2013.

Because Jet2.com travels people to all these places above, this will have a major impact in the next 2 years on jet2.com mainly related to monetary issues as they are forced to either risk profits margins to remain competitive or rise their fares which could lead to customer losses.

Social and Environmental

The UK population is ageing and is projected to continue ageing over the next few decades with the fastest population increases in the numbers of those aged 85 and over (2012, Office for national statistics ). By 2035 people of 65 and over will reach a peak of over 35 percent of the population. Since the older group tend to have more disposable income (2012, The poverty site indicators) the market for jet2.com may change, aiming for a more international corporate with bases out of UK and intercontinental destinations rather than a European a low-cost company.

Technological

Jet2.com has a multi-channel strategy to promote its flights and holidays on and offline across web, TV, radio and press. Ninety seven per cent of all Jet2.com flights are now booked online via the dedicated website. (2012, Planespotters.net publishing). This way they save money in branches, administration

One of the greatest impacts that any business has, come from the increasing influence of consumer review websites such as Tripadvisor.com, Airlinequality.com etc. This combined with the currently common use of the mobile technology which gives easy access to consumers to those sites previously mention enable them to describe and rate their experiences. Having good reputation on the sites can boost jet2’s sales as well as having bad can cause great damage to their revenues.

Reference List

1. Attwooll, J (2012) Holidaymakers face increased costs in Spain.[internet]  {accessed 22/11/2012}
2. BBC News (2011)VAT rate rises from 17.5% to 20%[internet] available at: http://www.bbc.co.uk/news/business-12099638 {accessed 22/11/2012} Civil

Dogfight over Europe: Ryanair (A) 1) What is your assesment of Ryanair? s launch strategy? The Ryanair’s launch strategy was not the best for that moment. They began flying between Ireland and London, in a very saturated market, which competed with two strong companies owned by the government and with great experience: Aer Lingus and British Airways (who also had come together to improve their perform). And also entered the market independent carriers Such as British Midland.

Another important factor was that the Dublin-London route was the only one that provided reasonable returns for Aer Lingus, so it was not going to let customers easily take him by force, and Ryanair will be difficult without a really differentiating strategy. Ryanair’s differentiate notion was delivering first-rate customer service “with lower fares”. But for a new company as Ryanair would not be able to compete in prices following the same strategy as other companies in the market focus on meals and amenities and good service.

Ryanair also has high fixed costs (characteristic of this industry) and has enough volume in order to face a price war (economics of scale). Although the market was saturated, Ireland is a small country with a small population and the two big companies were operating at 60-70% capacity. If since 1986 was using new Boeing 747s with room for nearly 400, means that every plane carried 360 passengers on average, which was down the performance of the planes.

But on the other hand, Ryanair could only get a license for aircraft with room for 44 Passengers, so it had to make eight flights, with the maximum capacity to carry the same number of passengers than BA or Aer Lingus. This could decrease the efficiency of Ryanair and increase the cost per flight management. Although it also because of the low initial demand Ryanair (only 4 flights per day to 44 passengers, 176 passengers) can be a good strategy to distribute the flights throughout the day and get more customers.

Moreover this market consists mostly by Irish emigrants who resided in the UK. These clients are marked by strong seasonal character, and the most important, the majority of customers traveling in economy class and they are very price sensitive, so we are going to be interested in low prices and discounts and are not interested in great facilities and services. Again we see that Ryanair’s idea was not the most appropriate for this market, ecause although Ryanair turn down the price, customers will be more interested in large decreases in the price. Meals also make little sense in a flight of one hour duration. In favor of Ryanair we have to say however, that it test the initial service between Waterford y ? Gatwick Airport, which was a small service, in order to prove the company? s ability to operate. So if the company had problems or losses would be on a large scale and this would give you the ability to identify problems and improvements.

Similarly, although Ryanair did not get expected outcomes, with their low prices, I think it would get take away some customers to the other companies and have started to consider the proposal in the market. To sum up, The Ryanair? s launch strategy wasn? t successful from my point of view because it did not do a good analysis the market to which was coming and did not calculate the chances of success between these two great companies.

They were strong companies with experience and great brand recognition, so if prices dropped to the level of Ryanair and Ryanair provides the same service to the market, customers will continue to use the companies that are already used. 2) How do you expect Aer Lingus and British Airways to respond? Why? As I said earlier, the only differentiation of was in the price Ryanair, therefore the immediate reaction of Aer Lingus and British Airways will be reduce the price. If these two companies started a price war, Ryanair would have no chance.

They were flag carriers and they had the support of the government, so they can have loses during a while of time, at least until they get Ryanair out of the market. On the other hand, B. A was one of the biggest aircraft of Europe and it has an operating margin of 6. 9%, because of B. A can decreased the price at Ryanair level (? 98). While, the Dublin- London route was the only for Aer Lingus, with reasonable return of capital. Therefore is not going to let easily Ryanair steal their clients. ) How costly is it for Aer Lingus and British Airways to retaliate against Ryanair? s launch? Even though, as we think the launch of Ryanair was not successful or at least the outcomes did not reach the expected ones, was a new competitor in the market and also with a more competitive price than theirs so it is threat their capability to meet demand.. With price-sensitive customers such as travelers between Ireland and UK I believe that the two companies would lose customers. Furthermore, a price war is never good for any company, even if it will be winner.

These two companies would have to reduce their prices to more than half the normal price, which would generate losses until they get Ryanair out and this would weaken the two companies. If these companies reduce so much the price, once they get Ryanair out of the market, they can not automatically raise the price to the previous number because customers would feel cheated and companies would lose their credibility. If Aer Lingus and British Airways didn? t get Ryanair out with the war of Price, they would get only weaken themselves and lose the most profitable route for Aer Lingus.

Contents

1. Executive Summary
2. Introduction of Company
3. External Environment
4. Company Financial Performance
5. Competitive Strategy
6. Strategic Direction of Development
7. Methods of Development
8. Conclusions and Recommendations
9. Resources
10. Appendices 1)Executive Summary This report aims to evaluate the current strategic directions followed by Virgin Atlantic. Initially we discuss the organisation’s mission statement and identify how the vision of the company is reflected though the strategic objectives.

It is established at CSR plays an important role one Virgin Atlantic as it is seen to have principles and high standards on acceptable behaviour, BBC News (2009). External factors are evaluated using a PESTLE analysis and it is made clear that the Airline Industy as a whole is suffering financially in the economic turndown. With the well publicised fear of global warming and the level of emissions airlines are giving off is resulting in the government putting pressure on Virgin Atlantic and others to find ways of reducing their C02 output by increasing fuel costs, Virgin Atlantic (2009).

Social trends are examined to determine the appeal of air travel and why consumers continue to fly with luxury airlines like Virgin Atlantic over smaller no frills airlines. The financial performance of Virgin Atlantic is analysed over a 5 year period looking at key ratios to determine the sales and profitability of the organisation. These results are compared to British Airways financial figures as well as Ryanair’s to get a better understanding of how financially secure Virgin Airline is financially in comparison to its competitors.

An analysis is then conducted of the organisations competitive strategy which identifies, using Porters 5 Forces, that Virgin Atlantic fall under ‘differentiation focus strategy’ as they offer premium priced products for a high quality service. Results from Ansoff’s growth vector determine the strategic direction of the Airlines development. The airline’s growth remains competitive through demand in existing markets with existing products as well as newly developed ones.

The methods of development are identified as code-sharing agreements between different airlines, allowing them to make use of each other’s resources at minimum costs. It was concluded that, due to the success of Virgin Atlantic’s current 3 year strategic direction, the airline should extend this strategy. Other strategic concepts where recommended regarding the fight for climate change and they way in which the airline positions itself through branding.

Introduction to Company Virgin Atlantic was launched by founder Richard Branson on the 22nd June 1984 Virgin Airline (2009).

1. The vision of the airline was to offer high quality services combined with good value for money. Working in Music industry for many years Branson himself knew little about the aviation industry therefore he used the advice of his partner, Freddie Fields to manage the venture along with his technical manager Roy Gardner Management Today (1998). As a result of working in the Music Industry Branson was all too familiar with celebrity obsessed culture and thus he packed the first flight was between London and Newark Liberty with some well known celebrities.

Virgin Atlantic credit the use of the famous faces seen travelling on the inaugural fight as one of the factors of success in launching the airline, Virgin Atlantic (2009).

Virgin Atlantic employs a three year strategy which thus far has proved successful. The success has been down to their sound business model which is defined by their Mission Statement: “To Grow a profitable airline, where people love to fly and people love to work. ” Virgin Atlantic (2009)

Low cost airlines offer a typically narrow service where as Virgin Atlantic, through their code-sharing agreements; position themselves as offering a broad range of exotic destinations for people who are willing to pay premium prices. This business model has the key understanding that the way in which the product is positioned and the experience provided travelling by virgin Atlantic, will ensure customers will travel again and again thus allowing them to achieve their long-term strategic objectives of increasing profits and shareholder values.

One of the key factors in the business model is ‘how’ Virgin Atlantic provide a unique flying experience, virgin maintain this positive feeling with the friendly flight attendants and the positive attitudes they show customers. The airline ensures the happiness of staff with fair wage, discounts on fairs as well as loyalty schemes. The most public display of loyalty towards staff was in 2009 when Virgin Atlantic employees were given 2 free flights to any of the airlines destinations as part of the 25th anniversary of Virgin Atlantic Daily Mail (2009).

This generosity towards the staff has the same principles applied by its airline services, the idea of luxury onboard the aircrafts and the knowledge that you will be taken care of.

Thomson and Martin (2005) believe that customers play a key part in an organisations business model as they are ones who the services are specifically tailored to. In the 80’s when Virgin Atlantic’s vision was launched, the glamour of air travel had distinguished and air travel was seen as an expensive means of getting from a to b.

People had forgotten what air travel was all about, and the ideal of jet setting across the world in luxury was seen available only to those who where famous. The vision introduced encouraged people to pay more but have better value for money and made the whole air travel experience pleasurable. Virgins Growth is testimite to how effective the initial vision of the company was and shows that their mission today is exactly what customers are looking for in a service provider.

Corporate Social Responsibility also takes a key stance in Virgin Atlantic’s business model.

The company’s strong stance in responsible business is heavily publicised by the media, especially when it comes to environmental factors. Richard Branson has publicly pledged to invest profits of his travel organisations into the research and development of alternative fuel and renewable energy Mallen Baker (2006). “Virgin Atlantic is committed to reducing our environmental impacts where we can by becoming a more efficient business, leading the industry to practical and technical solutions and engaging, inspiring and empowering our staff and customers to help us meet this challenge” Virgin Atlantic (2009). . 6. The airline was also the first of its kind to trial an alternative fuel which was created from a combination of coconuts and Brazilian Babassu nuts, BBC News 2008. Virgin Airline also have strong policies on equality and avoiding discrimination, this was pushed into the media when 13 of the airlines staff where sacked after describing the passengers as ‘chavs’ on the social networking site Facebook, a spokesperson for the airline stated “It is impossible for these cabin crew members to uphold high standards of customer service… f they hold these views. ” BBC News 2008. This very public stance on social responsibility, especially when it comes to environmental factors, enforces the public interest that Virgin Atlantic employ especially when it comes to decision making and setting their strategic objectives. Reidenbach and Robin (1995) have produced a spectrum of 5 ethical/unethical responses and I believe that Virgin Airline would fall under Ethically Engaged and, “Actively want to do ‘the right thing’ and be seen doing so”

The companies mission states that they want to be a profitable airline & their CSR stance assures the consumers that Virgin Atlantic have principles and although they want to be a profitable airline they will not achieve this strategic objective expense of the planet and the people who inhabit it.

External Factors There are a number of external factors which can affect not only the environmental stability of Virgin Atlantic but the attractiveness of the airline industry as a whole.

Such factors can be determined by conducting a PESTLE Analysis, a PESTLE Analysis is a business model designed by looks at 6 different factors (Political, Economic, Social, Technological, Legal & Ethical Issues) and aims to evaluate the impact these factors will have on the Organisation. 3. 1. Political &Legal Factors The main political factors which affect the airline industries stability and attractiveness is the current tax policy employed by the government.

Due to the rapid decrease of sustainable fuels and with concerns of global warming stronger than ever the Conservative party plan to increase the Air Passenger Duty (APD) up to 113% by November 2010 if they win at the election, Virgin Airline (2009). This will mean an increase in fares thus affecting the attractiveness of the air travel & may have significant impacts on Virgin Airlines profits. Interest rates set by the government may affect any loans that the Airline have taken out.

The exchange rates on currency may also provide issues when the company need to trade currency for customers on board an aircraft moving between the uk and America etc. Legal factors which may affect the attractiveness of the airline industry would be legislation on health & safely, wages and airline regulations in terms of training and quality standards. Code-sharing agreements, which we have established plays a key role in the success and growth or Virgin Atlantic, may be put in to jeopardy if there is conflict between countries which could potential affect the air space in which Virgin Atlantic travels.

It would be important for the company to have alternative routes put in place allowing them to still get to their chartered destinations in case this type of situation were to occur. Starting in 2012, the EU union will require all airlines to hold emission permits in order to operate; this was designed as a means of reducing the production of greenhouse gases. This is something which will effect Virgin Atlantic & they will have to do research into the costs of the permits & analysis how this will affect the company financially.

Economic factors

The economic factors affecting the airline industry as a whole would be mainly the current economy. With less disposable income the demand for travel has fallen The Times (2009), and the airline may to look at competing with low budget airlines in 2010. The business side of air travel is the most expensive to run and has been affected the worst with the rises in fuel costs Mintel Report (2007). Branson has stated publically that the airline would no doubt overcome the recession but that the first class aspect of air travel would dwindle, Daily Mail (2009).

The financial information reported, which will be addressed in the next section ‘Company Financial Performance’ , indicates that Branson’s prediction is correct and that that Virgin Airline will remain stable despite the current recession. This is one such scenario which Virgin Atlantic must address and research in order to determine the environmental stability of the organisation and the ability for it to achieve the 3 year strategy in place. As a result of the recession, Virgin let go off 7% of all employees in 2009 and may have to consider the possibility of letting more go in 2010.

The airline is not alone as their main competitor British Airways let 4000 jobs go, Daily Mail (2009). 3. 3. Social Factors & Ethical Issues The main social trend which could impact the airline industries attractiveness would be attitudes and emphasis on safety. After the terrorist attacks in September 2001, the thought if flying was unbearable to most. There is still the threat of terrorism and thus it’s no surprise that many individuals are still concerned about their safety when flying.

Virgin Atlantic would have to make sure that they have procedures in place to deal with such situations and ease any concerns individuals have about flying. They have set up a course for those individuals who have a fear of flying which takes place in Local Airports Virgin Atlantic (2010). As previously stated there is an obsession with the celebrity culture and the ideal of traveling to exotic locations in luxury, going into the next decade it is important that this trend of social status remains important and ‘popular’ as this is the brand image which Virgin Atlantic is associated with.

If this social factor was to change it would severely impact the attractiveness of the airline industry and subsequently the demand for Virgin Atlantic’s services would be affected. The main ethical issue which is affecting the attractiveness of the airline industry is the emissions let of by the aircrafts. Aviation is responsible for 2% of emissions worldwide and global warming is a huge issue in today’s society, with many individuals dedicated to the social trend of ‘going green’ in a bid to save the planet.

Virgin Atlantic remain actively involved in the research and development of alternative sustainable fuels and have joined a voluntary agreement proposed by the airline industry to reduce emissions by 50% in 2050 compared to that of 2005 . 3. 4 Technological Factors Virgin Atlantic has been at the forefront of technology, starting in the eighties when it was the first airline to have individual Televisions for its Business Class Passengers, Virgin Atlantic (2009). With technology in the aviation industry developing from year to year, from new air craft models which reduce emissions to efficient means of checking in customers nd the great entertainment facilities on board makes air travel is very appealing. Virgin Atlantic offer great entertainment systems as well as spacious and luxury air travel in their Airbus A380, which is the world’s first twin deck aircraft offering a fully functioning restaurant’s and bar’s, Boston (2009). This level of technology in the A380 sets the airline before is competitors such as BA and low budget airlines can simply not compete with the level of comfort provided on board. 4)Company Financial Performance

Despite harsh conditions of the external environment, namely the recession, Virgin Atlantic have remained a successful and profitable airline. In this section, the financial performance of the airline will be analysed over a 4 year period and compared to its main competitor British Airways as well as popular low budget airline Ryanair.

The first area we will look at is turnover. The turnover indicates the level of business that each airline has achieved over a yearly period, changes in turnover can be impacted by changes in external factors which result in a decrease of sales.

Virgin Atlantic’s turnover is much less compared to their competitors. This is not a true indication of the financial performance of an organisation but the money they derive from sales can indicate the demand one airlines service over another. Although a company may have a high sales turnover, the real profitability is determined by taking the pre-tax profits and dividing these by the turnover, Thomson and Martin 2005.

Pre-tax profits To establish the financial success of the Virgin Atlantic we will firstly look at the pre-tax profits of the airline & that of its chosen competitors.

Pre-tax profits – Ryanair (thousand 000) Ryanair (2005/9) Pre-tax profits- British Airways (Millions  ) British Airways (2005/9) They key factor to note in all three pre-tax profits charts is that the recession in 2008 has impacted both low frills airlines and British Airways. Both airline reported losses, the most significant being that of BA at 401 Million. Despite the external factor of climate change Virgin Atlantic has managed to not only sustain its financial performance but to almost doubled their pre-tax profits from the previous year, with recorded pre-tax profits of  68. 4 Million.

Profit margin

Virgin Atlantic is the only one to have maintained their profit margin over 2008. Ryanair & British Airways have made significant losses, whilst Virgin Atlantic’s profit margin is growing. This just shows how much of an impact the economy has on the airline industry and means that Virgin Atlantic will have to keep cost of sales, administration, the selling and distribution costs of tickets down in order to remain profitable.

Gearing ratio

The average gearing ratio in the airline industry is around 150% while some companies who are struggling in the recession are as high as 380%.

Another key statistic in determining Virgin Atlantics financial position is the gearing ratio. The gearing ratio measures the return on capital employed and indicates any financial risks. The principle is that the higher the gearing ratio the more vunerable the company is. As you can see from the table above Virgin Atlantic is slightly over the recommended average in the aviation industry but their vulnerability and financial risk is decreasing year on year following the demand for their services. 5.

Competitive Strategy A clear competitive strategy is key in the success of an organisation meeting its strategic objectives. In order to establish Virgin Atlantic’s Competitive strategy we will be using Porters Generic Strategic Framework, a diagram is shown below. According to Porters theory there are 5 forces used to analyse the industry;

“Threat of New Entrants. ”

As with any industry the more new airlines that enter the market, the more saturated it becomes. The most important factors in the airline industry in retaining loyalty are brand name recognition and frequent fliers point s.

Virgin Atlantic have spent the past 25 years building their polished and somewhat sexy image which is so appealing to flyers today. Virgin Atlantics strong brand name and discounts for loyal air travellers will give them the power to gain a customer even if its prices are slightly higher than its competitors.

“Power of Suppliers. ”

Boeing and Airbus are two of the main air craft manufacturers. Their aircrafts are used by Virgin Atlantic and majority of its competitors, therefore there is no real competition between them.

“Power of Buyers. Due to there being a low choice in suppliers in the aviation industry and taking into account that switching all Virgin Atlantics 38 air crafts to another supplier would be very costly, the airline do not have power over the suppliers.

“Availability of Substitutes. ”

Substitute products and services may be a concern of some airlines, especially smaller regional firms. However when it comes to Virgin Atlantic they have routes to some of the best locations in the world, of course there are other premium fare airlines which go to the same destinations but they will not have the same brand image as Virgin.

It would just be up to the individual travelling and probably concern the cost difference between Virgin Atlantic and its Competitors.

“Competitive Rivalry. ”

There is a certain degree of rivalry in the aviation industry, especially between Virgin Atlantic and British airways. The affects of the competition are more clear in a economic turndown, for example BA’s loss of 401 million the year ending won’t be helped by Virgin Atlantic’s 25th Anniversary which was celebrated all though 2009, offering special promotions and discounted rates.

This Analysis would indicate that Virgin Atlantic would fall under differentiation focus strategy. By offering premium priced products for a high quality service Virgin Atlantic has an advantage over its competitors. Porter (1980) 6. Strategic Direction of Development The main strategic direction flowed by Virgin Atlantic in to increase the airlines market share. This growth has been the main strategic objective since 2008 when it was introduced in a 3 year plan. According to Ansoff’s Matrix there are four main types of growth, Ansoff (1987). Virgin Atlantic’s strategic direction would fall under both market penetration & Product Development.

The existing market which Virgin Atlantic operates in continues to have a growing demand for the current services which the airline offer. The growth in demand is due to several of the external factors which were discussed earlier, namely the social trend of luxury air travel and the idea of jet setting around the world with a company associated with celebrities and seen to been sexy. The growth in demand is identified in the increased ticket sales over the past few years despite the current recession which is affecting other premium airlines Virgin Atlantic continue to out-grow its competitors.

The strategic direction of increasing market share could not come at a better time for Virgin with British Airways in massive dept and in a very vulnerable position. It is no secret that if BA were unable to operate that Virgin Atlantic would see a significant increase in the market share. Despite the success of the existing services in the existing markets, it is well known that Virgin Atlantic drive for innovation in product development. As established in the external environmental analysis airline have been at the forefront of technology since they launched in the eighties.

By continually updating their fleet of air crafts with the newest gadgets and luxuries, the airlines passengers have a better experience on board and are more likely to travel time and time again with the airline. 7. Methods of Development 7. 1. In order for Virgin Atlantic Airline to grow it entered into a code share agreement with some of the larger names in the airline industry these included Continental Airlines & Jet Airways iloveinda. com (2009). Code sharing agreements are used by companies to make the most of each other’s resources and according to the Air Transport Association, Code-sharing agreements allow two (or more) airlines to offer a broader array of services to their customers than they could individually. These marketing arrangements enable an airline to issue tickets on a flight operated by another airline as if it were its own, including the use of its own two-letter code for that flight. These arrangements allow airlines to market expanded networks for their passengers at minimal expense” Air Transport Association (2009) 7. 2.

In 1999 Virgin Atlantic also partnered with Singapore airlines who now own 49% of the company, Richard Branson signed the deal as he believed it to be an effective way of offering their customers a wider range of destinations at competitive rates BBC News (1999). 8. Conclusions and Recommendations The diagram created by Rowe et Al in 1989, can be used to determine Virgin Atlantics Strategic direction and determines what type of strategy the airline should undertake going forward. Rowe et Al developed this model based on which he considered to be four important variables.

The financial strength of the airline and the advantage it has over its competing airlines makes up the internal strategic direction and the stability of the economy along with the attractiveness of the airline industry as a whole. Throughout this report, the strategic direction of Virgin Atlantic has been discussed and the methods of development evaluated alongside airlines financial performance, taking into consideration the external environment. As a result of this analysis and though Rowe at Al’s Space Analysis we can conclude that the airline is not only using a aggressive strategy but that their approach is highly competitive.

The current strategy employed by Virgin Atlantic is very successful and is essentially the reason why the organisation has remained profitable in such times as a recession. I would recommend that Virgin Atlantic extend the current strategy over a longer period of time, all of the areas in this report echo the success of the strategy and how well it fits into the organisations business model. They must make sure that they continue to brand themselves as having a unique selling point with an emphasis on value for money in order to remain competitive.

Another recommendation would be to keep the economy boarding which they have on flights, i believe that if this element was stripped away altogether then the airline would further narrow their market further and reduce the potential market shares. With the voluntary target set in the airline industry on cutting emissions by 2050, I would encourage Virgin Atlantic to take a more public stance and be actively involved in the research and development of bio fuels by pairing up with the lead organisation. This would enforce the airlines stance of ethical issues regarding global warming.

The way in which the organisation brands itself, being sexy & tongue in cheek, has been constantly one of the most important factors in the airlines success. I recommend that message conveyed with the airlines ’25 years still red hot campaign’ is carried on throughout 2010.

References

• Airline Network (2007) ‘Virgin Atlantic Passenger Traffic Increase’ Online at http://www. get-packing. com/news/flights/archives/august-2007/virgin-atlantic-passenger-traffic-increase. html (Accessed 19th November 2009) Air Transport Association ‘Airline Handbook, Chapter 2, Code Sharing’ online at http://www. airlines. rg/products/AirlineHandbookCh2. htm (Accessed 1st January 2010)
• Boston (2009) ‘Virgin Atlantic’s Airbus A380’ online at http://images. google. co. uk/imgres? imgurl=http://cache. boston. com/bonzai-fba/Third_Party_Photo/2005/01/18/1106063427_8542. jpg&imgrefurl=http://www. boston. com/business/gallery/airbus/&usg=__tA9PrCq_sbXx6TAWpndBbvcOSrc=&h=333&w=508&sz=28&hl=en&start=7&um=1&tbnid=wm5v998e2jOptM:&tbnh=86&tbnw=131&prev=/images%3Fq%3Dvirgin%2Bairbus%26hl%3Den%26rlz%3D1T4TSEH_enGB359GB359%26sa%3DN%26um%3D1 (Accessed online 20th November 2009) BBC News (2008)’Airline in first biofuel flight’ online at http://news. bc. co. uk/1/hi/7261214. stm (Accessed 10th of December 2009). BBC News, ‘Branson sells 49% of Virgin Atlantic’ online at http://news. bbc. co. uk/1/hi/business/572516. stm (Accessed 19th November 2009) BBC News (2008) ‘Crew sacked over Facebook posts’ online at http://news. bbc. co. uk/1/hi/uk/7703129. stm (Accessed 10th December 2009 The Daily Mail (2009) ‘Like A Virgin (Pin-Up): kate Moss Dresses up In A Red Playsuit As She Joins Branson for Virgin Atlantic’s 25th Birthday’ online at http://www. dailymail. co. k/tvshowbiz/article-1194691/Like-A-Virgin-Pin–Kate-Moss-dresses-red-joins-Branson-Virgin-Atlantics-25th-birthday. html (Accessed 20th November 2009)
• The Daily Mail (2009) ‘Virgin Staff Get Bonuses While Ailing Rivals BA Urged to Take Pay Cut’ online at http://www. dailymail. co. uk/news/article-1194942/Virgin-staff-bonuses-ailing-rivals-BA-urged-pay-cut. html (Accessed 19th November 2009) Iloveindia. com ‘Virgin Atlantic Airways’ online at http://www. iloveindia. com/airlines-in-india/international/virgin-atlantic. htm

Macro-environment PESTEL Analysis:

Political and legal factors

Political issues are very relevant in the airline industry which has been and still is under political influence. This is particularly true in the European Union where Ryanair primarily operates. A recent liberalization act came under the form of the EU-US Open Skies Agreement, signed in 2007and which entered into effect on March the 30th 2008, which gives the right to US based airlines to operate intra-EU flights, while European airlines are not permitted to operate intra-US flights and are not allowed to purchase a controlling stake in a US operator. This represents both a great disadvantage and a threat of increased competition for European airlines. The threat of increased competition is increased by the possibilities of strong US based airlines starting to operate within the EU.

Environmental Factors

(need to do further research!)

Socio-cultural factors

Since the airline industry provides a service it is very dependent on its customers that become part of the airliners operations. Therefore the passengers’ perceptions and the way they change can highly impact an airliner’s volume of business. Such a big change has occurred in the population’s perception of air travel. Since the low cost revolution, air travel is no longer seen as an expensive, luxury item. Travelling by plane is now available to the larger public and travelling abroad for a short holiday has recently become a trend within the European Union. The consumers’ perceived safety is also very important in the airline industry. If passengers do not feel safe to travel or to do so by plane they will avoid boarding flights and airliners revenues will plunge. Fear of terrorist attacks such as the September 2001 can significantly affect passengers’ trust in travelling by plane.

Technological Factors:

The most important technological factors affecting the airline industry are the emergence of the internet and developments of technological innovations that reduce the necessity of personal encounters and therefore of air travel. The development of videoconferencing has led to a decrease in air travel demand since the need to fly has disappeared. The impact of the internet has been to give a higher bargaining power to customers due to increased access to information. Prospective passengers can access the web pages of all the airliners and book their own flights according to their preferences. This has led to an increased competition on price among the airliners and consequently to the need of airliners to increase cost efficiency in order to maintain their margins.

Another technological factor has been the improvement of airplane technology. More cost efficient aircrafts have made it easier for low cost carriers to maintain low fare levels. Furthermore the increase in safety has contributed to a higher trust of the passengers in air travel and thus helped in raising the demand in the industry.

European airline industry is one of the most competitive markets. What is the market position of Ryanair? This presentation will analyze. 2.0 PESTEL analysis 1. Political EU set one rule, which was seriously influence European airline industry. “It was an overbooking delay and cancellation rule. If passengers were suffered from the above mistakes. Compensation must be repaid by airline”. (P.834) The cost of whole airline industry will be increased. However, “this rule didn’t bring big impact to Ryanair”, (P.834) as it possessed good record and control to prevent fraud.

Moreover, ” Irish government announced plans to break up the state monopoly”. (P.852) This plan may be brought some quassation in European airline industry. However, Ryanair will be seriously affected by this plan. It may block Ryanair future expansion I its home base. 2. Economic “EU deleted duty-free on intra-EU”. (P.843) The above taxation policy directly affected European airline industry development. It will bring negative impact on airline profit and staff morale. Of course, Ryanair was also affected by this policy. There were three significant challenges to Ryanair. ” A loss of revenue, a drop in incentive to flight attendants and increased landing charges”. (P.843)

Furthermore, there were another major economic problem for European airline industry, “which were foreign exchange and fuel risk”. (P.836) It is because there were energy crisis and various currency policies. It will prevent European airline industry development. Equally, Ryanair was also influence by the above risk. However, ” it removed some of the risk through foreign exchange hedge and fuel risk management policy”. (P.836) 3. Social Europe was a huge market, “since there was a large population base.” (P.845) Good transportation was an essential for every European citizen. It created great opportunity for European airline industry to expand its business. Simultaneously, Ryanair was also to be benefited greatly, as this factor can assist them to open up European market.

Besides, there was an interesting phenomenon. ” A lot of passengers seek less expensive travel alternative”, however, there was a trend of high fare in European. The utmost divergence was created in European airline industry. Different price policy was implement by mainstream and budget airline. Nevertheless, Ryanair can obtain this advantage to develop its business, as the direction of Ryanair fitted the market. 4. Technology There was a trend in European airline industry, which was website establishment. The improvement of technology can aid European airline industry development and competition.

In view of Ryanair, creation of website can help to save cost and open up revenue such as agent commission cost, computer reservation cost and advertising income (P.845 & P.850) 5. Environment There were many competitors operating in European airline industry including mainstream and budget airline. Ryanair was difficult to survive in the competitive environment. A lot of problem will be face by Ryanair such as cost and distribution.

“Some of the budget airline established an organization (ELFAA) in order to concentrate the resources against EU issue”(P.847) It brought various impact to mainstream and budget airline respectively. It will accelerate competition to reach the climax in European airline industry. Ryanair also faced great challenge in price competition. 6. Legal EU commission had been reiterated a rule against illegal state subsidies. It hoped to establish fair deal environment in European airline industry. “EU decision was based on non-discrimination legislation preventing airport from offering differential deal to different airline operators.” (P.833) The interests of European airline industry were protected by non-discrimination legislation. On the contrary, Ryanair may need to repay penalty for breaking rule.

Five Forces analysis

1. Bargaining power of supplier There were only two major suppliers in the aircraft market, which were Boeing and Airbus. (P.836 & P.849) Boeing and Airbus concentrated the hold market. It made high level of switching cost whichever mainstream or budget airline. It is because they can’t freely change product. High information cost will be faced by mainstream and budget airline. In general, airline industry obtained economic of scale through bulk purchase. European airline industry stood at weak situation.

2. Bargaining power of buyers European airline industry was a substantial market, since there were large population base. The buyers can easily obtain information owing to technology improvement. Information cost was lower. Moreover, there was a low switching cost, as there were many similar airlines in European airline industry including mainstream and budget airline. Besides, There was a service differentiation between mainstream and budget airline. It is because they executed different operating direction. However, “in hard time demand for premium service tends to decline as more passengers seek less expensive travel alternative.” (P.845) It meant that passengers were price sensitivity. Consumers buying pattern were changed from service premium to low price.

Under the above forces, mainstream and budget airline also stated at weak situation. However, budget airline possessed some advantage which was better than mainstream. 3. Threat of substitutes European airline industry faced a lot of pressure. It is because there was not only heat internal industry competition, but also encountered by other travel industry pincers movement such as cars, ferries and high-speed train. Mainstream may has the most pressure, as buyer inclined low price than service premium. The above substitutes may be better than mainstream.

However, the current trend was created a hardship environment for substitutes to survive. “It is because the pattern of competition was the low cost show.” (P.846) the performance of budget airline was greater than its. ” they faced falling passengers volume”, (P.846) even through more passengers seek less expensive travel alternative.” (P. 845) Passengers have low switching cost in competitive environment.

Under the above forces, mainstream stood at weak situation, but budget airline place at strong place 4. Threat of new entrants Since the incident of 911 was happened, it created a great challenge for European airline industry. A lot of competitors hoped to seize the opportunity to invade aviation market. However, it was difficult to enter European airline industry, since high initial investment and fixed cost were an essential to establish an airline (P.848 Exhibit7)

Moreover, economies of scale were the major factor to prevent competitors to take part in European airline industry. For budget airline, “it was difficult to sell lowest airfare and make profit. For mainstream, it was also difficult to provide premium service at minimum level. The only way to perform minimum efficient scale was through bulk purchase of aircraft fleet, good management and appropriate distribution. Under the above forces, mainstream and budget airline stated at strong situation.

Competitive rivalry

There were many competitors operating in European airline industry. they snatched the same resources and consumers. It made as intensifying competition in European airline industry, as the environment led them to struggle for market leadership. Passengers will have more choices, so they can freely change another airline whichever mainstream or budget airline. It is because there was low level of switching cost.

Moreover, European airline industry became crowded with competitors. It will create industry stakeout. New entrants increased supply, however there was insufficient demand to support the market. Finally, intense competition, price war and failure were released in European airline industry (P.846) Although mainstream stated in passive place, it had relatively strong force. It is because they possessed advantage in long term. On the contrary, budget airline may state at weak situation, as hardship operating environment.

4.0 SGA In graph one, X and Y factors were load factor and total operating expensive. In graph two, X and Y factors were passengers and destination. In strategic group analysis, Aerlingus, Easyjet and Ryanair obviously defined as competitive grouping European airline industry. They possessed similar market position. 5.0 ICA 1. Physical In the group, Easyjet possessed more aircraft than Ryanair and Aerlingus. Aircraft was an important asset for airline. Ryanair must consider scale of aircraft fleet for future development.

2. Financial In the group, Ryanair possessed net profit, which was greater than Easyjet and Aerlingus. Substantial net profit can provide stable finance for Ryanair future development.  Furthermore, Ryanair also had well cost control that another two airline were deficiency. 3. Human Resources In the group, Easyjet and Aerlingus possessed more employees than Ryanair. A staff was an important asset of airline, so Ryanair must consider employing more staff. Furthermore, Ryanair possessed Michael O’Leary. He was a brain of Ryanair. He always created mysterious strategy to turn defeat into victory

4. Reputation In the group, Ryanair was the most famous airline, since it provided less expensive and convenience service. When consumers thought less expansive travel method, Ryanair is the first choice. Besides, Ryanair obtained the trust of investors, as it had good reputation and earning ability. It was greater than the above group competitors.

The critical success factors of Ryanair were low price and well management. It was not easy to implement and obtain both factors. However, Ryanair can perform it. It is because it possessed stable finance to implement low price direction. Moreover, Ryanair possessed well management- Michael O’Leary. He can bring Ryanair to achieve low price and make profit. Those were the basic behind the critical success factors. Ryanair will utilize its resource to create value to passengers through value chain. Primary activities 1. Sales and Marketing.

Ryanair invested resource to establish website for passengers. It made passengers more convenience. Ryanair can cut some cost, so it can set competitive price to passengers. 2. Operation Ryanair placed resources to strengthen its core business such as satellite television, Internet service and arcade game, so the passengers can enjoy the trip. Support activities 1. Human Resource management Ryanair employed Michael O’Leary to be CEO. He can utilize Ryanair resources to operate low price strategy. 2. Procurement Ryanair acquired similar budget airline Buzz. It can create synergy effect in the market, so low price direction can be operated efficient and effective.

Competitive advantage European airline industry was the most competitive market. Ryanair can occupy this market. It depended on its competitive advantages such as good management and strong revenue growth as well as low price strategy. Disadvantages Ryanair offered less expensive and convenience service, but it didn’t satisfy with passengers’ need such as Toilet and legroom. Moreover, there was too less employees for Ryanair to operate its business. It will make Ryanair business less efficient and effective.

Opportunity

There was a large expansion space in European airline industry, since large population base and transportation need. Ryanair can launch new route. If Ryanair implement outward development in other countries, it can reduce Ryanair dependence on the UK-Ireland market Moreover, there was a necessary for Ryanair to expand it aircraft fleet to accommodate substantial volume of passengers. New airplane possessed latest entertainment and safety system. The enlarged fleet was not only to alleviate existing capacity workload, but also assist Ryanair to expand its network capacity. Advance technology can improve Ryanair service, so Ryanair must seriously consider possible of expanding aircraft.

Besides, there were a lot of competitors place in the aviation market. Ryanair can increase its market share through takeover and merger. It was not only making gradual inroads on the budget airline industry, but also on the mainstream airline. 7.0 Threat The cost of fuel was continuously increased, due to rising oil price globally. It will seriously affect Ryanair the speed of development and earning ability, as operating expenses of Ryanair will be raised unceasingly. It may cause Ryanair to disproportionate its sales volume.

Furthermore, weak employees relationship and high salaries may bring potential problem to Ryanair. It brought two difficulties to Ryanair. Former, weak relationship caused less production efficient and effective. It may waste or overlap airline resources. Subsequence, high salaries will increase airline-operating cost. Next, there were a lot of competitors placed in European airline industry. They made a pressure to Ryanair such as price war. If Ryanair didn’t concentrate, it may be foul out in aviation market.

Conclusion

To conclude all the analysis, Ryanair must conduct an innovation to contend heat competition in European airline industry. 9.0 Recommendation Ryanair should establish one reliable hedge system to eliminate fuel price. It is a seriously problem challenging Ryanair profit. Secondly, Ryanair must employ more staff and skillful management, since there were human resources insufficient in Ryanair. It may block Ryanair development.

Aer Arann has always been careful to make sure that it divides the market into two segments, the first segment being those who travel for business and the second segment being those who travel for leisure. Aer Arann makes sure that in all marketing campaigns and customer building strategies, it manages to convince both these market segments that air travel is not an element of luxury but a necessity.

This measure can be justified by the fact the air travel is still considered to be a luxury in Ireland by a vast majority and this niche market can be very profitably taken advantage of by a sales and marketing that can change this bent of mind in the Irish. SWOT Analysis Strengths • Aer Arann is competing with Aer Lingus and Ryanair in the Irish market. Having becomes the third busiest airline at Dublin Airport Aer Arann is giving Small National Airline Aer Lingus and Low Cost Carrier Ryanair a run for their money.

• Aer Arann has an advantage over several other airlines through the Government subsidiaries it receives. The airline has recorded government subsidiaries as high as around €20 million. Weaknesses • Aer Arann is an airline that targets business and leisure travelers and has to do so in order to keep the business rolling. Unlike the immediate competition that Aer Arann faces, it is not an established leader as yet. • Aer Arann relies too much on third party outsourcing to perform maintenance and other such operational mechanisms.

This is a risk for Aer Arann in the sense that any union strike or the temporary or permanent closure of any of the organizations that is used y Aer Arann to out-source and save costs can result in Aer Arann undergoing immense switching costs while leaving Aer Arann in an extremely vulnerable position. Opportunities • Aer Arann seems to have caught the eye of the Irish Government considering the four Public Service Obligation Routes that Aer Arann has recently attained. Further benefit can be yielded by providing service that compels the Irish Authorities to give Aer Arann PSO clearance for all six routes.

• Aer Arann is a regional airline but it operates between UK, Ireland and France. Aer Arann can present its ever improving track record to the French Government in order to gain access to more French air routes since Aer Arann currently operates on only three French routes. • Aer Arann’s track record in Ireland and the revenue generated by the efficient usage of subsidiaries can allow Aer Arann to gain subsidiaries from the French government for domestic flights in France. Threats • Two of the 6 awarded PSO clearances were awarded to Aer Arann’s immediate competition, the Scottish regional airline Loganair.

Loganair can be a cause of loss in market share in the Irish market for Aer Arann. • Loganair is a franchise for British Airways and therefore has the advantage of being a part of an International Network Airline. This convenient position for Loganair is one of the most dangerous of threats for Aer Arann. • The only other threat to Aer Arann is posed by Ryanair. The Ryanair “No frills” approach and aggressive pricing strategies have proven to be a success for the low cost European carrier.