Situation Analysis of Airlines Industry

Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries.

In the past decade, air travel has grown by 7% per year. Travel for both business and leisure purposes grew strongly worldwide. Scheduled airlines carried 1.5 billion passengers last year. In the leisure market, the availability of large aircraft such as the Boeing 747 made it convenient and affordable for people to travel further to new and exotic destinations. Governments in developing countries realized the benefits of tourism to their national economies and spurred the development of resorts and infrastructure to lure tourists from the prosperous countries in Western Europe and North America. As the economies of developing countries grow, their own citizens are already becoming the new international tourists of the future. (Source: http://adg.stanford.edu/aa241/intro/airlineindustry.html). Airlines’ profitability is closely tied to economic growth and trade. Despite this, the airline industry has proceeded along the path towards globalization and consolidation, characteristics associated with the normal development of many other industries. It has done this through the establishment of alliances and partnerships between airlines, linking their networks to expand access to their customers. Hundreds of airlines have entered into alliances, ranging from marketing agreements and code-shares to franchises and equity transfers.

Reasons for choosing this topic

As discussed in the beginning the airline industry is seen as the prime revenue generating agent, understanding its dynamics is very important for enabling the airline companies in maintaining its competitive edge. Thus British Airways which so far is an established leader in this market segment confronted with various challenges to retain its market share with its competitors like Easy Jet which is UK most popular airline. The topic is therefore relevant in identification of such challenges and developing a complete understanding for the market dynamics and functioning of British Airways in meeting such challenge and its strategic plan towards future growth. The scope of the paper is to develop a critical overview of British Airways which is one of the premium airlines and Easy Jet one of the local airlines in UK beginning with its SWOT analysis and then appreciating its operations, marketing strategies and target market. Once this understanding is developed, the next step is to look into the Airlines marketing mix and other key success factors and then assessing its competitor’s landscape that finally will enable the company in retaining its position in the market.

Swot Analysis of British AirWays and EasyJet Airlines:

British Airways with its amazing magnitude of operations is able to cater to a wider customer base on a global scale. The magnitude of operation of its competitor’s airlines is limited to fifteen times less in relation to BA (Fedrick, 2002). At the core of its operation lies the strength of the airline that includes its new fleet of aircrafts bought frequently to complement the rising demand of passenger traffic ensuring their comfortable travel. This move was a strategic decision in response to offset the wretched state of travel and complaints from the previous fleet used by the airlines.

EasyJet is Europe’s leading low fares airline. Formed in 1995 by Sir Stelios Haji-Ioannou, it has grown rapidly to become Europe’s fourth largest airline by passengers car­ried. The first was “sweating the assets”, that is making sure that the planes were as full as possible and flying as much as possible. The second was a sophistica­ted yield management system which would set an infinite number of fares for a given flight, based on the demand and supply position for that flight. (Source: http://www.air-scoop.com/downloads/SWOT_easyJet_Air-Scoop.pdf).

EasyJet’s strategy has six key foundations:

1. Strong branding: easyJet has invested a lot in PR and advertising. It has been coming in airline TV programs and created strong brand profiles in catchment areas through advertising. The neon orange ‘easy’ brand represented value for money. Sir Stelios has been known come out in public and demonstrate against any increase in taxes and also ex­hibit strong support to a greener environment.

2. Pricing and revenue management: The airline follows a one-way, time- dependent pricing with only online reser­vations except for two weeks before take-off, when tele-booking is allowed.

3. Lower unit costs: Although easyJet does have lower operational costs, its operating margins are much lower than Ryanair. This is because it flies to major airports most of the time, uses two main types of fleet, invests heavily in advertising and public relations and adopts limited fuel hedging. Its fares are also much higher than that of Ryanair (but it gets to some extent gets neutralized by the higher distance of Ryanair airports from city and town centers).

4. Network strategy: easyJet follows a point-to-point route connection and grows by joining dots. It focuses on catch­ment areas and low prices to obtain traffic.

5. Employee culture: easyJet employs around 4,859 people around Europe. In terms of culture, easyJet favours an infor­mal company culture with a very flat management struc­ture, which eliminates unnecessary and wasteful layers of management. Mission of easyjet ‘To provide our customers with safe, good value, point-to-point air services. To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes. To achieve this we will develop our people and establish lasting relationships with our suppliers. (Source: http://www.easyjet.com/en/about/). Mission of British Airways is ‘BA has shown that redefining the vision, and making sure it is successfully carried out throughout the organization, are keys to corporate success. As competitors became aware that service mattered and geared their processes to suit, British Airways has leapt forward again, now defining its target as being the ‘undisputed leader in world travel’. (Source: http://www.jyanet.com/cap/0614fe0.htm).

Marketing Strategy of British Airways and EasyJet:

British Airways with its amazing magnitude of operations is able to cater to a wider customer base on a global scale. The magnitude of operation of its competitor’s airlines is limited to fifteen times less in relation to BA (Fedrick, 2002). At the core of its operation lies the strength of the airline that includes its new fleet of aircrafts bought frequently to complement the rising demand of passenger traffic ensuring their comfortable travel. This move was a strategic decision in response to offset the wretched state of travel and complaints from the previous fleet used by the airlines.

According to Doganis (2006) the international airline industry to the outsiders is exciting, dynamic with the best technology and the glamorous jobs. It is well known in the economic circles that the profitability of the airline industry is seasonal, requires large fixed and operational costs and in the recent years are constrained by internal and external problems. The British airways are not alien to such problems but it has to be said that in the very recent past it has suffered more problems than its immediate and far away competitors. The ash cloud over Europe and the continuing industrial action are two examples of external and internal problems clogging the British Airlines. The upside is that, its multitude of operations increases its accessibility to the prospective customers in not just UK but also across the world. Furthermore, with increase in the number of airlines, competition has soared up amongst the existing players to attract the largest market share. BA thus has started offering packages to attract more customers by providing them a better mileage for their money and improve their revenues.

As the demand for faster mode of commuting is increasing with globalization BA should develop its marketing strategy in a way that it corresponds to the future trend in the market. Again to meet the customer needs it needs to maintain a healthy environment for its employees. Furthermore, to increase the customer base it is also important to understand the strategies of its competitors as entry of Virgin Airways is posing threat for BA. As Kotler (1999) has suggested understanding a competitor’s strategy is pertinent step in designing company’s strategy for if competitor’s strategy is undifferentiated marketing, firm can gain a competitive edge by using differentiation. Whereas if the competitors firm is using differentiation strategy, the effect on the target firm can be suicidal. (Kotler, 1999)

Once the target market is decided, it can be segmented for positioning. For target market group helps in identification of the group that makes the market and then aligns the firm’s services as per that groups need thus decide the market-mix.

One of the unique features of the BA is its forward looking statements. These statements infact act as data house of information that helps in projection of various areas of operations and financials along with the future plans of the company. Such statements act as an important source of information from investor’s perspectives as well.