This report has been compiled for the purpose of analyzing the No Frill Airline Industries in UK and Europe .the term no frill is used for describe any product and services which are not essential or direct effect product , its only added value services and treatment which are given to a customer to attract buy or use their product. In the airline industries no frill is used as no extra services or any complementary food, ticket or special treatment in seats reservation. (Itravelnet)
‘No Frills’ concept started in the beginning of the 1970 in the USA and then this concept was followed by Airlines in Europe, and the rest of the world. No-frills airlines are airlines that offer low fares but eliminate all unnecessary services. No-frills or no frills is the term describe any service or product for which the non-essential features (or frills) have been removed (answer.com).Firstly the report analyses the key players and position of the easy jet company its environment in terms of EL PEST (Political, Economic, Social and Technological)then key drivers of change ,and success factor in the no frills and Business strategy of the company discussion on Porters generic theory, analyses Resources Capabilities of easy jet and in the last how the resources and capabilities aligned with SBU in its business strategies .
Key players and their market share in no frill airline industries for UK and Europe.
The main low-cost Airline operating with the UK and Europe are.
Easy jet which is UK leading low cost airline, currently flies into 53 airports around Europe, 12 of which are in the United Kingdom, and 3 in Ireland (Mintel, 2005) .market share of easy jet is 37.01% of the total market.( e consultancy 2004).
Ryan air is easy Jet’s closest competitor in the low fares market, although they directly compete on very few routes. They also offering not only cheap airline but also links to other services, such as car hire, insurance and accommodation. (Deutsche Bank, 2002) Ryan air currently flies into 94 airports across Europe, 19 of these are in the UK, and with a further 5 in Ireland (Mintel, 2005) .Market share of Ryan air are 25.83% (e consultancy 2004).
Bmibaby is the low-cost carrier of British Midland International (BMI).The airline is based at Nottingham (East Midlands Airport) from where it serves 18 destinations in the UK, Ireland, France, Spain, Portugal, Netherlands, Switzerland and the Czech Republic. Bmibaby operates 13 Boeing 737 aircraft and employs 455 staff. It is estimated that the airline carried around 3 million passengers in 2004 (Mintel, 2005).Its market share in the industry is 10.03 %( e consultancy 2004).
Fly be is the third biggest low-cost airline, in terms of passengers carried, operating out of the UK. Airline carried around 4 million passengers in 2004.Flybe flies to 41 destinations in seven countries (UK, Ireland, France, Switzerland, Portugal, Austria, Spain and Portugal). The airline’s main hub airports are Birmingham, Southampton and Exeter (Mintel 2005).its market share is 8.05% (e consultancy 2004).
Monarch Airlines has been in operation since 1967, largely as a charter carrier. Presently the airline operates from three UK bases, Luton, Gatwick and Manchester. Monarch principally caters for the holiday travelers, with all 10 destinations being in Spain or Portugal. Monarch operates a fleet of Airbus 300, 320, 321, 330 and Boeing 757 aircraft. Monarch had 4.68% market share in UK and Europe airline industry. (E consultancy 2004)
Easy jet provides travel services to the UK and Europe with Low cost airline flights and Online reservations(Datamonitor, 2005).No frill airline target market are not only the leisure or holiday plans traveler packages but also the business customers within the UK and Europe. Low cost airlines now a days not only provide low cost services to 100 destination across Europe but also introducing new market for airline industry .e.g. Introduce cheap hotels, e-tickets, car rental, and cheap food (easyjet.com).
The competition that exists between the competitors within the airline industry is very high in term of low cost, emerging of different new airlines companies targeting similar market. Europe is the fast growing sector of UK tourism increased by the short break holidays and leisure time. Top 10 no frill airline websites tells that the Visits by UK consumers have increased by 12.5% over the past year (Mintel reports, 2004). The main competition is offering low price and encourage more customers to use their airline within the low cost airline sector.
In the Airline industrial sector there are some bottom line constituents which can effect environment of industry. These environmental forces can be so detrimental that they can endanger the competitiveness and more importantly for the survival of any airline company (Easy jet financial report, 2005). Some of the critical factors are described below;
* Foreign Regulation on flight Path restricts the airlines ability to compete on certain routes.
* September 11 has had a bad impact on airline industry. Some governments have made it compulsory to have 2 armed guards on any airlines that come to their country.
* After 9/11, feared establish in customer using air traveling especially in the Europe and UK.
* Due to war on terrorism and dramatically changes prices in oil industries makes hard to maintain the airline fare constant.
* Introduction of one currency Euro in European markets encourages many airline companies to operate flights with in the Europe.
* Low frill airline keep fares very low which attracts every class peoples travel by air flight.(easyjet.com)
* Rising fuel prices worldwide is important issue which affects the profit margins and ticket prices which eventually results in a decline in demand for air travel, fuel can make up 14% to 16% of airline total cost (Mintel 2005)
* Through low prices ,airlines generates higher passenger volume (TRB Special Report,1999)
* Due to increase of unemployment rate day by day decrease peoples interest to travel for leisure.
* Demographic changes, particularly in consumer life style, have produced the demand of holidays and therefore in airline travel.
* Due to the increase in open global market peoples from different part of the world travel more and they take short break holidays during their business tours.
* It is very hard for peoples to travel more then once a year because of the work loads from jobs and different businesses.
* Emergence of IT, internet online ticket system make consumer to buy fast and easy to get information about flight.
* The computer reservation systems made airlines to do online reservation to cut down cost and keep consumer closer to company.
* On board surfing, touch screen technology and on board entertainment are new challenges for airline industries.
* Keeping up to date and latest Air craft is leading to competitive advantage
* Due to increase in use of air travel the airlines impact a verity of pressure on environment in form of chemical pollution.
* Some of the airports are near to cities, aircraft route on that side make noise pollution, which effect peoples living there.
* Proper maintenance of the aircraft makes to reduce environmental issues.
* Government Restriction on various routes.
* Maintains aircraft to certain level so it can not harm the environment, and helps to decrease the fuel emission.
* Taxes on landing charges.
* Legal documentation for Airline Company to operate.
Key Drivers of Change.
Bargaining power: Bargaining power of Aircraft manufacture is high because the no frills markets mainly uses same, size and one specific aircraft carrier. Fuel is a kind of resources for which airlines don’t have any other substitute. Increase in international oil prices might make company increase the ticket price which can be difficult for a company to survive in competitive environment. (Calder, 2003).
Threats of Substitute Product ; Service: Large airlines companies introduce their services in no frill sector and use of Fast trains which is alternative of air travel with in the Europe and UK.
Bargaining Power of buyers: no frill airline is very different there is no such bargaining in buying tickets it depends on the day you book tickets only in advance to avail low price (easyjet.com) bring customer dissatisfaction on price .
Threats of New Entrants: Treats arising in the no frill industry keep competition in form of new services offers, discounts on tickets(Calder,2003).. The distribution channels are controlled by the existing airlines; new entrants would have to face the problems finding the airport slots. (Mintel 2005)
Competitive: The airline industry have high exit barrier because of their huge fixed asset cost. On price within the low cost sector such as Easy jet, Ryan air targeting a similar market. (Calder,2003).
The success factor in the no frills
Airlines are keep lowering costs and delivering the type of service which will increase the process of trade. Single European currency might result in a wider market in which low cost airlines can access new sources of cheap and long term funds. EU enlargement provides access to new markets, which are beneficial in terms of expansion opportunities. Technological developments and keep aircraft update bring competitive advantage to the company (Mintel 2005). Computer reservation system, ticket less travel, automated check-in procedure and touch-screen systems makes easy for the consumer to buy and travel and on other side company cut down its cost. Globalization and open market makes peoples to use frequently air travels (McCoster, 2003). Airline partnership with different companies provides services in from of maintenance, baggage handling and cleaning services at cheap cost (easyjet.com).
Business Strategy of the company.
Easy Jet offers a no frills service at low fares. Fares can be offered at such good value due to the following main reasons. Easy jet is a Ticket less airline which mean All you need to fly is your passport (or suitable photographic ID on domestic flights) and your confirmation number (easyjet.com). Efficient use of airport. Easy jet flies to main destination airports throughout Europe, but gains efficiencies through rapid turnaround times, and progressive landing charges agreements with the airports. (Datamonitor, 2005) By reducing turnarounds to 30 minutes and below, Easy jet can achieve extra rotations on the high frequency routes, by maximizing utilization rates of its aircraft. There’s no such thing as a free lunch Easy jet does not offer free food from company, passengers are given the choice as to whether they wish to buy themselves drinks or snacks from the in flight. ( McCoster, 2003)
Porter’s generic theory.
Competitive advantage grows out of value a firm is able to create for its buyers the exceeds the firm’s cost of creating it (porter,1985)A company relative position within an no frill Airline industry is given by its competitive advantage which is cost leadership and differentiation, from other frills airline companies and with its choice of competitive scope. Introducing new technologies new or shifting buyer needs the emergence of a new industry segment and availability changes in government regulations are competitive advantages.
Where Differentiation is the firm’s product, associated services, and other activities affect its buyer’s activities. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and producer cost. (Porter, 1985) Easy jet gains competitive advantage by performing strategically important activities more cheaply or better than its competitors. (Easyjet.com) Competitive advantage can come not just from great products or services, but from anywhere along the value chain. To understand how a firm fits into the overall value system includes the value chains of its suppliers, channels, and buyers. Generic strategies are useful because they characterize strategic positions at the simplest and broadest level. Porter maintains that company achieving competitive advantage requires and makes a choice about the type and scope of its competitive advantage.(Porter, 1985)
Resources of easy jet.
The resources of a company can be divided into three parts tangible, intangible resources and human resources. Tangible assets of easy jet are the visible assets of a company which are equal to 271.2 million which tends to be increasing every year. Tangible asset includes planes, website, staff, and airports. Intangible assets are mostly invisible assts but can be calculated through the financial statement of a company which is equal to 292.2 million .and total net asset of a company is 495.1 m pounds. Intangible assets are services provided by company (Easy jet financial statement, 2005).Human resources are the workers working for the company. (Easyjet.com)
Capabilities of easy jet.
The capabilities of easy jet are hired expert companies to provide cheap fleet maintenance, hiring low cost airports and selling web base tickets to reduce cost. (Easyjet financial report, 2005).
The resources and capabilities aligned with SBU in its business strategies
The resources and capabilities of SBU are aligned according to the porter’s generic strategies as easy jet follows cost leadership and differentiation strategy (Mintel 2005).
Easy jet uses a strategy according to which the company gets high profits for low cost by cutting down most expenditure that scheduled airlines has these days (Easy jet financial report, 2005).
It is not possible to find out that one particular type of airline is better than the other in similar competitive market each of them have advantages and disadvantages; and, depend on the personal circumstances and preferences of the individual Customer . No-frills airlines customer enjoy more choice than ever before because of the competitive market, to book as early as possible to get the cheapest air fare by internet which is easier and quicker way (Datamoniter, 2005). To obtain the competitive market for long time easy Jet Company has to keep expanding its market and keep price stable.