Business Strategy in Transport - Essay Example

?Business Strategy In Transport Table of Contents Table of Contents 2 Introduction 3 Critical Analysis of the Business Prospect 4 Business Environment Analysis 9 Conclusion 13 References 14 Bibliography 17 Introduction Deregulation in the European Union (EU) regarding the airline service had lowered the barriers for market entry. The abolition of restrictive air service-related agreements had provided tremendous business opportunity and growth prospect for a number of service providers in the EU region. The EU has around 27 member states which provide massive prospect for especially a new entrant in the market to start airline service. In this context, it can be observed that the economic recession alike many other industries had affected airline industry as well. It can also be observed that apart from a number of benefits prevalent in the EU for starting a new airline service provider, there are certain difficulties that requires to be considered such as uncertain economic scenario, credit crunch, fluctuating fuel price and unpredictable environmental and climatic conditions. Due to these uncertainties, a few full-service airlines in the EU had suffered losses. Despite these certain hindrances the growth prospects which have been observed in the EU region has opened up opportunities for low cost service providers such as Ryan Air and EasyJet. In the EU there is a tremendous prospect of improvement in travel and tourism sector which will provide added growth prospect for a new airline service provider. Low cost operators can make the most of the existing and prospective scenario to leverage benefit out of it (Case Study, n.d.). Therefore, it can be observed that in the existing scenario in the EU, the low-cost operators are being able to earn profits for the shareholders. In this context, the research paper intends to critically examine the prospects of an entrepreneur who endeavours to set up a low cost scheduled airline within the EU. The route that has been selected is between London and Amsterdam. It is identified to be one of the most popular routes on a worldwide basis (Patrikarakos, 2009). The research paper will subsequently attempt to analyse the existing business environment to identify potential barriers to the intended business venture. Critical Analysis of the Business Prospect The intended business venture of the optimistic entrepreneur is towards starting a new low-cost scheduled airline service. From the provided case study, it can be observed that in the present economic context (post-recessionary period), there is a substantial growth prospect for establishing business in the new venture. It can also be identified that in the present context, in the EU region, there are certain obstacles and losses faced by full service carrier due to few prevailing conditions. Therefore, the most promising growth prospect that can be identified is for the low-cost service carriers. The intended business venture can be started in not only the EU but also throughout the world i.e. Amsterdam to London route, which can be one of the most growth prospect oriented routes According to the intention of the entrepreneur, the new scheduled service will provide low-cost airline service in this particular route only at the inception. It can also be stated that the demand for service is at the optimum level in this route. Thus, a new service has tremendous opportunity to acquire benefits out of the growth prospect which can be from business travellers as well as leisure travellers who are likely to use the services provided by the new low-cost scheduled airline service (Patrikarakos, 2009). The two airports that can be selected for the scheduled airline service are Amsterdam Airport Schiphol, which is the prime international airport of the Netherlands, and Heathrow Airport of London, which is one of the busiest airports in not only the UK but also in the world (ACI World, 2011). In this context, it can be identified that the Amsterdam Airport Schiphol is situated mere 14 km outside the city of Amsterdam. The airport efficiently handles more than 40 million tourist as well as business passengers each year. The airport is the base of national airline of the Netherlands KLM. In the Schiphol more than 100 separate airlines fly in. Due to the proximity of the airport to the city of Amsterdam it is quite convenient for the travellers and passengers to locate a place to stay. From the airport, the passengers can select from various option such as taxis, trains, and car rental and shuttle buses to reach resorts and hotels. The train is considered to be the cheapest as well as convenient option to reach the city as it is available throughout the day and takes just 15 minutes to reach Amsterdam. A number of hotels such as Conexxion Hotel provide shuttle bus service. There are also a number of airport hotels situated in close quarter of the Schiphol Airport (Amsterdam.info, 2011). Map depicting the Amsterdam Airport Schiphol Source: (World Travel Guide, 2010). Heathrow Airport is situated around 20 miles to the west of the ‘Centre of London’. In order to reach to London from the Heathrow Airport the National Express operated ‘bus service’ is an option. It takes around 35-60 minutes to reach London Victoria coach station from Heathrow Airport. There is also a transfer service of London hotel named as Dot2Dot. This service enables easy ride to a number of hotels and resorts situated in London. There is also train service called Heathrow Connect which operates between airport terminals and stations of west London. It needs around 25 minutes to reach London by availing this service and the trains are available within a 30 minutes gap. There are other options such as taxi, car hire to reach the central London (Heathrow Airport Guide, 2008). Map depicting the Heathrow Airport Source: (Heathrow Airport Guide, 2008). Therefore, it can be identified that the Heathrow Airport is quite conveniently accessible by various forms of transports such as cars, trains and others. The airport is located on the M4 motorway which makes it quite easy for surface transport (Heathrow Airport Guide, 2008). In terms of passenger traffic, considered for the last 12 months, the Heathrow Airport has observed around 61, 084, 119 number of passengers and Schiphol Airport has observed 45, 458, 838 number of passengers. The passenger traffic in both the airports is identified to run throughout the year and there are no specific peaks or troughs in passenger demand (ACI World, 2011). The demand of passenger is divided in fairly balanced manner between the cities of London and Amsterdam and according to 2009 figures the annual passenger traffic is around 1242550 passengers (Patrikarakos, 2009). In the foreseeable future, both Heathrow and Schiphol Airports have tremendous growth prospect. The high amount of passenger traffic in this route will ensure that a new service provider will find adequate number of passengers to fill the seats of its flight. The Schiphol Airport is recognised as a tourist attraction and facilities such as Schiphol Plaza make the place attractive. In the future too, this demand is expected to increase which would provide a definite prospect for any new entrants in the market that intend to base its flight in between these airports (Amsterdam.info, 2011). Business Environment Analysis In this section of the research paper, the business environment which has an influence on the commercial prospects for the airlines that run on the route of Amsterdam-London will be identified. From the case study it can be identified that deregulation had been one of the main encouraging forces for the increase in number of airlines in the EU region. Another significant aspect of the business environment which can be recognised is the adoption of cost leadership model by a number of full-service as well as low-cost carriers to meet the demand of the volatile economic scenario. This adopted strategy is selected with an endeavour to attract consumers from varied segments especially those who seek low fare for air travel. In light of the prevailing business scenario, the Porter’s five forces model will be utilised to find out and interpret the five significant factors that will have an impact upon the business prospect of the low-cost airline service. The five forces model will help to understand the sources of competition around as well as within the industry (Johnson & Et. Al., 2008). Industry competitors: In order to analyse the industry competitors’ aspects, the intensity of the competition between existing or incumbent airlines will be observed. The air travel between the two destinations i.e. Amsterdam and London primarily runs from Amsterdam Schiphol to London airports. In terms of existing competing airlines, Easyjet is considered to be the most well-liked carrier. It connects Schiphol to Gatwick, Luton as well as Stansted airports of London. It is considered as a good value airline. The other two major carriers in this route are British Airways and KLM. The British Airways is available from Gatwick, Heathrow and City airports. KLM is established as the national carrier of the Netherlands. It has its flight from Amsterdam to Heathrow as well as City airports of London. The frequent flyers belonging to business segment of the Netherlands generally prefer to use this flight. The other flier present in this route is CityJet which flies from the city of Amsterdam to the London City airport. Ryanair also runs their service in this route between Stansted airport of London and Eindhoven, which is only at a distance of 90 minutes from Amsterdam (AmsterdamTips.com, 2011). Power of New Entrants: The route between Amsterdam to London was one of the first routes on bilateral basis to be liberalised. This liberalisation was the initial instigator of a number of low-cost airlines to enter into the market of the EU. London is considered as a prime hub of air travel in the EU region. Thus, for a new prospective start-up organisation, this route provides a definite vision. At present, the route has a few full-service airlines such as British Airways and KLM and low-cost airline such as EasyJet and Ryanair (Uittenbogaart, 1997). Due to the high passenger traffic on this route it has always been an attractive option for new entry. This scenario can be substantiated from the fact that in the year 2008, Eastern Airways launched their airline service between London and Amsterdam despite the presence of existing competitors (Frary, 2008). Power of Suppliers: The suppliers for new start up flight between Amsterdam-London routes can be the existing airport authorities of the two intended airports, i.e. Heathrow and Schiphol Airport. The engineers and technical support providers for the airline service, human resources such as staffs and cabin crew, the training centres of these staffs who will be required to provide the required manpower are all part of the suppliers. The travel and tour operators existing in both the countries can also be considered as suppliers as their recommendation can positively influence the passengers to select the new low-cost airline. In this context, it can also be stated that fuel suppliers are going to be one of key components of the new flight and in this unpredictable economic condition, the price rise of fuel can have an impact on the new service (Mortished & Andrews, 2008). Power of Buyers: The buyers of an airline service are primarily the passengers. The other sets of buyers that can be considered in this route are cargo service users, courier service users and others. Due to the high amount of traffic in this route, power of buyers can be considered to be quite medium. The requirement of service from the buyers end generally comes from business commuters between the UK and the Netherlands. Furthermore, tourists and travellers constitute significant segment of buyers as the two countries are considered to be among the favoured tourist destinations of the world. The service provided to the buyers, therefore, needs to be of high quality in order to attract and retain the buyer segment (Boehmer, 2009). Power of Substitutes: In this route apart from airlines, the other available options are Eurostar train, Eurolines coach, which is a bus service and rail and ferry combined service. The train service is a split journey which is from London to Brussels in Belgium and then to Amsterdam. The train service is considered to be quite expensive. The coach service Eurolines is between London Victoria to Amsterdam. It takes around 11 hours to travel. In the rail-ferry service it takes around 7 hours to travel by the ferry to the Netherlands. In terms of travel time, flight takes comparatively shorter period of time than the available substitutes (AmsterdamTips.com, 2011). From the overall analysis of the five forces and taking into consideration a few factors that might create barriers to entry for the new low cost service, it can be observed that in recent times the competition between the airplanes and high-speed trains have become intense. The increase in prices of fuel and ecological surcharge aspect prevalent in the Netherlands has created barriers for airline service providers and has benefitted substitutes. The entry of low cost air carriers has intensified the competition in this route. Despite prospects from the existing as well as growing market in this route, there is a definite aspect of prevailing price competition which needs to be considered as a barrier to entry for the new service provider (Jorritsma, 2009). In order to distinguish from the existing full service and low cost service providers in this route, the new venture requires to keep in view the customer loyalty aspect. Thus, it needs to provide value added service apart from on-time service to the passengers in order to attract them towards the new service. In this context, the contribution of their suppliers such as travel operators can come in handy to highlight the benefits of the new service. The existing airline service providers and substitutes in this route can be expected to retaliate with variation and improvement in their service. Thus, to overcome this barrier the new service provider needs to create their service offerings according to the requirement and demand of the customers that will enable them to sustain their existence and growth in future. Another significant aspect which can create barrier for the new entrant is the new segment of greenhouse gas (GHG) regulations in Europe which will take effect from the year 2012. This scheme is expected to increase costs and curb the expected growth in the aspect of emissions. It could also create an impact upon the credit quality of the carriers in future (Clements & Et. Al., 2011). Conclusion The intended business venture of the entrepreneur has been selected to operate in the route of Amsterdam and London. From the overall analysis, it can be observed that at present context of business environment after the recessionary period, this route can be considered as one of the most growth prospect oriented routes in the world. The route has been seen to attract tremendous passenger traffic throughout the year. Thus, for the new carrier it can provide growth and sustainable opportunities in future. The intended two airports for the service, i.e. Heathrow and Schiphol will enable the new service provider to attract passengers as well due to the popularity and usability of the two airports. From the case study and overall analysis, it can also be identified that the growth prospect of low-cost airline is relatively superior in this route. The success of EasyJet can be cited as an example. Due to the aspect that the route connects two counties, i.e. the UK and the Netherlands, which are known for attracting tourists, the new venture will be able to find passengers, who are not only business travellers but tourists as well. There are certain barriers that are required to be considered for new venture such as incumbent airline service providers such as EasyJet, KLM and others which can provide stiff competition. The impending government regulations related to greenhouse gas emission and unpredictability of the economy as well as availability of necessary components such as fuels can create barriers to the service provider in future. From the overall analysis, it can be stated that the identified route can indeed provide more positive aspects than barriers to the new low cost service provider. References ACI World, 2011. International Passenger Traffic for Past 12 Months 12 Months Ending Jan 2011. Display. 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