European Airlines Strategic Management - Case Study Example

The European airline is facing very high competition from other airlines from Africa, Middle East and other Asian countries. Due to the dynamism in the industry, both European airlines and their competitors are all striving to gain the market segments. The external environment and the trends in the industry itself have also had significant impact on the trend and growth of the industry. The European market is usually multicultural with airlines from other parts of the world such as Asia and Middle East but the western culture has dominated the European airline industry. Due to the economic downturn, increased inflation due to high fuel prices, lack of product differentiation, deregulation by the Government and privatization of the industry has experienced a very slow pace of growth. The above issues have really affected the industry making airlines hard to survive and eventually leading to strategic alliances amongst the players in the industry. The macro environment analysis refers to the analysis of the political, economic, technological, environmental and social environment factors in the business environment. Political Factors. The Government has come in very strongly to deregulate the European airline industry by opening up the skies .This follows an agreement that was signed up between the United States Government and the European Union. As a result, the airlines are able to make more frequent flights, they have become more flexible in their pricing and it has helped to enhance and heighten competition in the region. Although opening up the skies has had a positive impact on the growth of the industry, the airlines have not been spared the threat of terrorism in the world. The United Kingdom has also come up with the smoke free policy, whereby people are required to abstain from smoking while in the airplanes and this has created a clean and safe environment for both the passengers and employees in the industry (Kassim and Menon 1996). Social Environment. The social environment has had both a positive and a negative impact on the industry. On a positive note, it has allowed the citizens to interact with other people from all over the world. Having had one major currency, common passports and the opening of the borders the citizens in Europe have been able to learn new ideas in marketing and human capital management. The citizens have benefited from the multicultural environment thus they are able to gain new ideas and hence they have become more innovative. The rate of population growth is also increasing and thus new business trends are emerging and therefore the business is able to benefit from new management styles (Kassim and Menon 1996). Economic factors. The economic recession the industry has affected its rate of operation and has thus led to its slow rate of growth. The rise in the Gross Domestic Product has led to trade amongst the airlines very expensive. The rate of inflation has been high due to the high oil prices thus affecting the profit margins in the industry. The exchange rates have also affected the margins that are being made in the industry due to the large fluctuations (Kassim and Menon 1996). Technological factors. The emergence of the internet has led to the rapid growth of the industry. Online bookings have become possible thus eliminating the need for travel agents and eventually it has led to saving of time and money for the passengers. Genetic engineering and quality controls have improved and made the industry more innovative thus making the industry more effective and efficient (Kassim and Menon 1996). Environmental factors. The industry has made a negative impact on the environment. The industry has come under criticism due to emission of carbon into the environment, erosion of the zone layers and it has brought about the effects of global warming. However, even with these negative effects the industry has become more innovative as they try to come up with new mechanisms to manage and control the negative effects. From the above analysis of the external environment, it becomes clear the European airline industry is growing at a very slow pace due to the threats and challenges it is facing from the political, economic, technological environment. When the negative effects are more than the positive aspects, then an industry is under threat. The European airline can be said to be at the third stage of the business cycle and the small growth can be attributed to the rise of the low cost airlines (Kassim and Menon 1996). Industry Analysis It involves the analysis of issues such as the entry of new competitors, bargaining power of the suppliers, the customers bargaining power, entry of substitutes and how intense the competition is. Although the industry is slowly expanding out of the emergence of low cost airplanes the industry faces very heavy competition from other modes of transport such as roads, canals and the railway system. The customers have also influenced heavily the airline industry in Europe Doganis (2006). According to a report released, the buyers influence the trend the industry is taking due to their changes in tastes and preferences, the changes in style and values of the customer. Due to the competitiveness within the industry, customers who are able to get information from various sources are able to make a selection of the airline they would want to use. Lack of product differentiation is another problem that is facing the airline industry. This is because all the airlines are offering similar products with similar prices and the same brands and thus there is nothing new for the customers. The power of the supplier is also very important to consider Doganis (2006). The industry has only two major suppliers who are Airbus and Boeing and being the only manufacturers, they charge very exorbitant prices to design the aircrafts and therefore it makes it almost impossible for new entrants to enter the market. The threat of new entrants is considered to be very minimal due to the huge initial capital that is required to enter into this industry. For the industry to be developed, it is important that they cooperate with other players in the industry so as to survive within the country. Having a good working relationship with the hospitality and tourism industry will assist the airline to expand its operations. With the five forces being very high the industry it becomes less profitable as the industry is very inconsistent for the current players and those players who would want to join. Investing in the European airline is a very expensive affair due to the threats posed by the external factors thus the returns on investment is minimal. Recommendations. The airlines should strive to create strategic alliances with various stakeholders so that they have a better competitive advantage over that of their competitors. These alliances create more opportunities for the airline and the shareholders due to the long term relationships between the airline and the external environment. The alliances tend to increase the financial stability of the industry incase there is a financial crisis. It also gives the industry more opportunities in terms of human resource capital and marketing strategies. The industry can also try and reduce costs by concentration of the full service airlines rather than the low cost airlines due to the many challenges from the external environment. For example, British Airways has sold one of its small airlines to a corporation in a strategic move so as to maintain its standards and lower costs of operations Hoffmann (2007). Possible Future directions Due to the opening up of the skies and the borders, the threat of terrorism remains very high such that traveling in airplanes is no longer safe. Airlines are rising up to this challenge by improving security within the airplane by having guards who are very highly trained to deal with insecurity. The tourists from China and Asian countries continue to increase and it is expected that over 100 million tourists will be traveling to China as from 2020 and with this in mind, the airline industry in Europe is expected to grow Hoffmann (2007). The industry must therefore try and merge with the Asian tourism industry so that it can take advantage of the high population from these countries. A no smoking policy is being implemented in the industry by making public places no smoking zones. The ban on smoking is expected to bring about positive changes for the passengers and the staff working for the airline. The industry also intends to provide nicotine to passengers and this will help to create a positive image for the industry. The industry is also targeting gay couples as their potential customers since they have a higher disposable income as compared to people in other marriages Doganis (2006). Other issues The Industry is in the process of introducing mobile technology in the aircrafts for people to converse and send text messages while the passengers are on board. For example, the airline known as BMI has already introduced the technology thus making it possible for passengers especially business people to be in contact with their clients. The airlines have to also consider the health of the customers and the passengers. Most passengers and staff are said to suffer from Deep Vein Thrombosis due to lack of exercises and therefore the industry is considering ways that they could help their employees and passenger relax while traveling Doganis ( 2006). The airlines are expected to expand their jet ways so as to accommodate the new models of airplanes that are being designed and manufactured. The new models of aircrafts known as A 380 are bigger and heavier and thus the airlines must expand the jet ways. The industry is also considering a ban on alcohol and this is because reports indicate that many accidents in the industry and they occur out of intoxication. It is believed that even the staff could be at risk of any danger happening within the organization. The European Union is putting up new security regulations that limit the amount of liquor that is consumed so that the customers on board cannot consume the liquor excessively so as to reduce the risk that the passengers are exposed to while drunk. Conclusion The industry is faced by many threats and challenges but for the airlines to survive they have to minimize on the threats and maximize on the opportunities available. Due to competition from other modes of transport, they should try and become more competitive so as to attract and maintain their customers while conducting their businesses within the organizations. Appendices The macro environment analysis Political Factors: The Government has come in very strongly to deregulate the European airline industry by opening up the skies .This follows an agreement that was signed up between the United States Government and the European Union. Social Environment: The citizens have benefited from the multicultural environment thus they are to gain new ideas and hence they have become more innovative. The rate of population growth is also increasing and thus new business trends are emerging and therefore the business is able to benefit from new management styles. Economic factors: The rise in the Gross Domestic Product has led to trade amongst the airlines very expensive. The rate of inflation has also gone up significantly due to the high oil prices thus affecting the profit margins in the industry. The exchange rates have also affected the margins that are being made in the industry due to the large fluctuations. Technological factors: The emergence of the internet has led to the rapid growth of the industry. Online bookings have become possible thus eliminating the need for travel agents and eventually it has led to saving of time and money for the passengers. Genetic engineering and quality controls has improved and made the industry more innovative thus making the industry more effective and efficient. Environmental factors: The industry has come under criticism due to emission of carbon into the environment, erosion of the zone layers and it has brought about the effects of global warming. However, even with these negative effects the industry has become more innovative as they try to come up with new mechanisms to manage and control the negative effects. Industry Analysis Competition: Although the industry is slowly expanding out of the emergence of low cost airplanes, the industry faces very heavy competition from other modes of transport such as roads, canals and the railway system. Power of consumers: Buyers influence the trend the industry is taking due to their changes in tastes and preferences and also the changes in style and values of the customer. Product differentiation: Product differentiation is another problem that if facing the airline industry. This is because all the airlines are offering similar products with similar prices and the same brands and thus there nothing new for the customers. Bargaining power of suppliers: The power of the supplier is also very important to consider. The industry has only two major suppliers who are Airbus and Boeing and being the only manufacturers they charge very exorbitant prices to design the aircrafts and therefore it makes it almost impossible for new entrants to enter the market. Strategic alliances: For the industry to grow it is important that they cooperate with other players in the industry so as to survive. Having a good working relationship with the hospitality and tourism industry will assist the airline to expand. Reference Doganis, R 2006, The airline business, 2nd edn, Routledge Publishers, United States of America. Hoffmann, S 2007, The Low-cost Airline Ryanair: A Critical Evaluation of the Ryanair Phenomenon and Its Future Prospects with Taking the European Airline Industry Into Consideration, GRIN Verlag Publishers, United States of America. Kassim, H and Menon, A 1996, The European Union and national industrial policy, Routledge Publishers, United States of America. Read More