Strategy analysis airline industry
•
18 likes•12,074 views
This document summarizes information about the European airline industry. It discusses the differences between full service carriers (FSCs) and low cost carriers (LCCs), provides financial statistics for major European airlines and LCCs, and analyzes factors like industry competition and strategic groups. Porter's five forces model is applied to the industry, showing high levels of competition. The document also includes frameworks for analyzing airline strategy and competitive advantage. Case studies are presented on British Airways' performance and recovery program.
Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Similar to Strategy analysis airline industry
Similar to Strategy analysis airline industry (20)
More from MTM IULM
More from MTM IULM (20)
Recently uploaded
Recently uploaded (20)
Strategy analysis airline industry
- 1. Di Nola Marianna Moroni Laura Karbay Koray Victorova Ksenia - Client Market - Profitability - Strategic Groups - Case Study - Client Market - Profitability - Strategic Groups - Case Study Airline Industry in Europe Business Strategy June, 9 2014
- 2. Airline Industry in Europe: FSCs and LCCs Full Service Carriers • Point to Point&Connection • Small&Large Airports • Slow Turnaround • High Ground Times • High Frequencies • Service on Board • Gds&Basic or No Direct Sales • Strong Cooperation With Travel Agencies • Strong Targeted Sales • Fares for Each Target Group • Large Employee Structure & Offices Low Cost Carriers • Point to Point Network • Small Airports • Quick Turnaround • High Block Hours • No Frills on Board • Direct Sales • No Cooperation With Travel Agencies • No Target Differantation • One Type Fare • No Direct Employees • No Office
- 3. *AerLingus, AF-KLM, Airberlin, Alitalia, easyJet, Finnair, IAG, Lufthansa Group, Norwegian, Ryanair, SAS, Turkish Airlines, Vueling Airlines. 13 major European airlines* 2012: Financial and Operating Statistics EUR million 2011 2012 % change Revenue 100,528 108,552 8.0% Operating profit 2,002 1,662 -17.0% Operating margin % 2.0 1.5 -0.5 Fuel cost 25,444 30,260 18.9% Fuel as % of revenues 25.3 27.9 2.6 Ex fuel cost 69,596 72,916 4.8% Total costs 98,526 106,889 8.5% Net profit 243 69 -71.8% Operating 2011 2012 % change ASK bn 1,235 1,274 3.2% RPK bn 978 1,026 4.9% Pax m 521 546 4.7% Load Factor % 79.2 80.6 1.3 Average sector km 1,877 1,881 0.2% RASK EUR cent 8.14 8.52 4.7% CASK EUR cent 7.98 8.39 5.2% CASK ex fuel EUR cent 5.87 5.94 1.3% Fuel CASK EUR cent 2.14 2.47 15.0%
- 4. •*easyJet, Norwegian, Ryanair, Vueling Airlines. Source: CAPA (Analysis of Company Financial Statements). 4 major European LCCs* 2012: Financial and Operating Statistics EUR million 2011 2012 % change Revenue 10,723 12,346 15.1% Operating profit 1,047 1,174 12.2% Operating margin % 9.8 9.5 -0.3 Fuel cost 3,299 4,130 25.2% Fuel as % of revenues 30.8 33.4 2.7 Ex fuel cost 6,377 7,042 10.4% Total costs 9,676 11,172 15.5% Net profit 823 1,015 23.3% Operating 2011 2012 % change ASK bn 221 237 7.0% RPK bn 182 198 8.3% Pax m 158 171 8.0% Load Factor % 82.5 83.5 0.9 Average sector km 1,155 1,158 0.3% RASK EUR cent 4.85 5.22 7.6% CASK EUR cent 4.38 4.72 7.9% CASK ex fuel EUR cent 4.01 4.00 -0.4% Fuel CASK EUR cent 2.08 2.34 12.9%
- 5. Airline Financial Outlook Strengthens Forecast Drivers Regional Variation: Europe Increasing regulatory and tax burdens, Some Governments are backtracking on deregulationRisks IATA: $12,9B Global Net Profit Expected in 2013 $19,7B Global Net Profit Expected in 2014 Lower jet fuel prices, Increasing efficiency (joint ventures), Increasing Demand (5%-6% range), Increasing Ancillary Revenues Net Profit 2013: $1,7B Net Profit 2014: $3,2B
- 6. The Industry: Porter’s 5 Forces #1 Bargaining Power of Suppliers High • Aircraft Manufacturers have all the power; • Labor is highly unionized; • Airports = local monopolies; • High Switching Costs; • Low concentration of main suppliers; • Airport services concentrated in a small number. #2 Bargaining Power of Buyers/Channels High • Buyers are fragmented; • Air travel is perceived as standardized product; • Low switching costs; • Quite price sensitive; • Channels are highly concentrated; • Price transparency.
- 7. #3 Threat of New Entrants High • Limited incumbency advantages; • Low switching costs; • Easy access to distribution channels; • Demand-side benefits. #4 Threat of Substitutes Medium-High • Rising number of people who can afford air travel • Fast technology development • Fast trains compete on short distances • Travel can be delayed, limited • Environmental issues #5 Competitors Rivalry High • Rapid growth + many direct/indirect competitors; • Perishable product; • Limited differentiation; • High costs/Low margins; • Limited economies of scale; • Significant exit barriers;
- 9. Industry Strategic Groups European Airline Companies Different strategic dimensions: - technological leadership - product quality - pricing policies - distribution channels - customer service Help Identify Barriers to mobility that protect a group from attacks by other groups Assess Competitive position, future directions of firms’ strategy
- 10. 0 1 2 3 4 5 12345 RyanAir easyJet Virgin Atlantic • Flybe British European • British Airways Lufthansa Aer Lingus ValueforMoney Catering Service Bad 1 Poor 2 Average 3 Good 4 Excellent 5 IndexStrategic Groups Map
- 11. !!!! Best Worst …in Addition to the Value for Money… Other Factors
- 13. The «Entrepreneurial Formula» Framework •British Airways •Easy Jet •Aer Lingus Competitive System •Upper Class •Premium Economy •Economy Products and Services •Focus on business and leisure markets •"To grow a profitable airline, that people love to fly with and where people love to work." Project Stakeholders Organizational Structure - Economic Forces - Social Forces - Communities - Employees Deliver Brand Value - Customers Enjoy Brand Value - Brand Value - People Oriented Structure - Unorthodoxically Centralized Structure No formal structure for the organization management Long term direction for the business and financial control remains centralized with the CEO and his team.
- 14. The «Basic Strategy» Framework Cost Leadership Differentiation Focus Source of Competitve Advantage Competitive Scope Industry-wide Single Segment Tangible & Intangible
- 16. The The Company’s Performance (FY2013) • + 4,3%Revenues • + 1,8%Capacity • + 5,3% Load Factor Costs Fuel Costs Employees Costs + 6,1% 2013 = pre-tax loss of 51 GBPmln 2012 = pre-tax loss of 99 GBPmln Losses in Decrease but Cost Cutting Efforts Neded
- 17. Duopoly on domestic routes to Heathrow shared with BA; Increased Revenues and Load Factor (also in upper classes); However, in FY2014… P.P. > E.C. Incomplete differentiation advantage Differentiation advantage No differentiation advantage Vulnerable differentiation advantage «A great brand in need of a greater finanacial discipline» Source: CAPA 2 Year Recovery Program CEO: «Our strategy has been to focus on network, alliances and managing our cost base in a way which has not impacted the customers. For example, use of a new fuel management system delivered savings of £8mln in a single year.»
- 18. Di Nola Marianna Moroni Laura Karbay Koray Victorova Ksenia THANK YOU FOR YOUR ATTENTION!