Strength of Each of the Competitive Forces in the European Low - Case Study Example

Topic: Business Strategy INTRODUCTION: Business strategy is a never ending complicated risk -based business scene. Business strategy is thedirection and scope of an organization over a long period of time. Its main goal is to achieve a clear advantage over its competitors set in a volatile environment. This can be best achieved through maximization of scarce resources and competencies with the end in mind of keeping up to the benchmarks that had been preset by the company's board of directors. Clearly, business strategy is a never ending complicated business scene (Culp 2001, 3). The OAG official airline guide data taken from the website www.oag.com shows a startling low cast data. Its study of low cost budget airline data released its report dated September 19, 2007 shows startling facts. The data indicates that that budget airline capacity has doubled in the last four years. The low cost growth of the same industry has increased by twenty percent. The study also shows that Europe, which includes the United Kingdom, is leading the world in the low cost /network balance scheme. Clearly, the OAG data shows a startling low cast data. The same OAG study covers a wide airline passenger seat sector. The study covers eleven million extra seats in over sixty six thousand more flights operated by the low cost sector. The industry shows a year on year increase of twenty four percent and twenty percent respectively. The financial data shows that the 2007 low cost flights comprise a higher sixteen percent of the total available airline seats in Europe for the prior accounting period. The prior period only generated a fourteen percent low cost comparative figure. In addition, the 2007 financial data also shows that twenty percent of the total worldwide airline covers is given to low cost flights. This is higher than the seventeen percent financial data of the prior year, 2006. Evidently, the OAG study covers a wide airline passenger seat sector. The following paragraphs give a deep assessment of each of the competitive forces in the European, low -cost, budget airline sector. BODY Critical assessment of the strength of each of the competitive forces in the European low -cost, budget airline sector All the competitive forces in the European, Low -cost, budget airline sector are very strong. Three of the major forces in the European, Low -cost, budget airline sector are rivalry among competing sellers in the air travel industry, market attempts of companies in other industries to win customers and the potential entry of new air travel competitors. Rivalry among competing sellers in the air travel industry. There is s strong rivalry among the competing sellers in the low cost budget airline sectors. The air transportation industry is changing fundamentally. Low cost air passenger carriers are now slowly killing the competition. This long term trend has undermined the industry's prior structure, procedures, business models and these changes have consequences for airport access. Airlines and airports now have neither the money nor the appetite for grandiose projects. While massive airport buildings around the world planned many years ago are still being inaugurated. These inaugurated airports include Heathrow airport in London, Suvarnabhumi airport in Bangkok, Barajas airport in Madrid, a Singapore airport and a Toronto airport. The current trend in the airline industry is to focus on low -cost airport buildings and facilities. Boston had built a $ 400 million passenger building to Delta air's specifications. It was opened shortly before the airline went bankrupt. As Delta air buckles under the pressure of shrinking its network and services, another competitor must be entertained to take over the leased airport spaces vacated by Delta Air. Low cost airline companies easily fit this description. Undoubtedly, there is strong rivalry among the competing sellers in the low cost budget airline sectors (De Neufville 2006). Market attempts of companies in other industries to win customers. The low cost airline companies have taken over the high cost airline companies. At one time airline travel was the exclusive luxury of the rich. Prior national government regulations had protected the few established airline companies that excluded or drove out airline competitors. Airlines had positioned themselves to numerous frills such as the piano bars on regular transcontinental flights and other extravagances during the 1970s. Airline companies had encouraged large signature projects. Many of the great urban monuments of the last fifty years had been airport buildings designed by notable and expensive architects. These projects include Architect Richard Rogers working on the Terminal 5 portion of the Heathrow airport in London. This Terminal 5 airport costs $8 billion. Convincingly, the low cost airline companies have taken over the high cost airline companies. (De Neufville 2006). Further, a new airline business strategy has successfully touched down. The current trend is the deregulation of the aviation industry starting in 1978. The air transportation industry in the United States, Australia, Canada, United Kingdom and the European Union are currently deregulated. Countries in Asia and China have also opened their airports to all competitors. Thus, many competitors have set up shop in London and other airports. The new breed of airline companies is offering low cost prices to their current and prospective clients. The new airline companies are now slowly but surely taking away large portion of the customer base currently serviced by the high cost airline companies. In Europe alone, Ryanair and Easyjet have grown rapidly and are now the strongest passenger airlines companies in the world. The two companies' growth was done at the expense of the high cost European airline companies. Currently, the low cost airline companies account for one third of the entire air traffic in the European Union today. This has been replicated in the United States and other airports around the world. In Canada, the low cost Westjet airline company has been side -sweeping the country's traditional airline companies to the point of pushing into bankruptcy the traditional Canadian Air. Unquestionably, A new airline business strategy has successfully touched down. (De Neufville 2006). The potential entry of new air travel competitors. Offering a low ticket fare is an excellent business strategy. The entry of low cost airlines has captured a large chunk of the European passenger market from the traditional High fare cost airline companies. The rock -bottom airline ticket fares have entice air travelers from the very cold north to places like Barcelona, Nice and Rome. These low fare airlines have endeared themselves to Europeans who never rode a plane because of the cost constraint. The Air lanes have now become saturated with the increase in air lane traffic brought about these new airline companies. The new low cost airline companies have introduced to the European travelers an alternative which is characterized by cheap and similarly fast mode of transportation. The bookings in these new airline industry entrants have resulted to increases in airline bookings as the low fare airlines. The low cost airline companies are drafting expansions plans and placing large orders for new passenger planes. Many of these low cost airline companies are even defying the cyclical nature of airline business by generating profits. This has resulted to driving many of the high cost fare airline companies to the brink of bankruptcy. Truly, offering a low ticket fare is an excellent business strategy. (Erber, Hagemann, and Seiter 1997). Further, the business strategy of selling low is difficult to hurdle. Many of the airline flag carriers located in the European countries are now starting to seriously take notice of the encroaching business strategy of these low cost airline passenger competitors. Some of the stock market investors are keeping their eyes glued on these new airline competitors. Many of these investors are foretelling that the future of intra - Europe air travel will be conquered by the new cost fare competitors (Majone 1996, 9). However, other pessimists believe that the current seven percent intra -European air travel market share attributed to the low cost airline companies would not be as successful as the low cost United States companies that have successfully gobbled a large percentage of the United States air travel market. Southwest Airlines had easily taken twenty five percent of the United States air travel market after thirty years of its low price business strategy. Southwest Airlines has also gobbled fifteen percent of the entire United States air travel revenues. Southwest Airlines could afford to lower their air fares because their business is serious in reducing unnecessary expenses. One such eliminated airline expense eliminating business strategy to set in motion its no frills policy. Surely, the business strategy of selling low is difficult to hurdle (Binggeli & Pompeo, 2002). Mintzberg's Five P's of Business Strategy Plan. Planning is an important business strategy. The low cost airline companies put implemented its plan to offer their services to current air travelers as well as prospective air travelers. They would focus on the low income groups and the expense conscious air traveling public. The low cost airline companies would then buy more airplanes to service current and future unmet air travel need after successfully generating sales in this market segment. Planning keeps all the implementation of the business strategy in focus. Clearly, planning is an important business strategy (Clougherty 2001, 459). Pattern. The pattern of the low cost airline companies is to implement a business strategy that fills a strong public need. The low cost airline companies have been successful in increasing air travel revenues. The low cost airline companies have applied to set up shop in the major airports in Europe and the rest of the world. This has been made possible because the airports have relaxed their policy of not admitting new entrants to the airline passenger and air cargo industry. The low cost airline companies are able to compete profitably with the high cost airline companies and airline flag carriers of many European nations because they have maintained their expenses at a bare minimum. The low cost fares generate lower profits than the high fare airline companies. However, the success of this business strategy is that sales and profits will skyrocket to the point of even being more profitable than that high cost fare airline companies. This is in line with the economic theory of supply and demand. The demand theory states that as prices of goods and services, including airline travel, decreases, the quantity of customers will increase. After a time, the low cost airline companies will buy new airplanes. Correctly, the pattern of the low cost airline companies is to implement a business strategy that fills a strong public need (Clougherty 2001, 459). Further, the business strategy of filling an unmet need is the foundation of marketing. These new airplanes will service the unmet demand for the public's clamor for more low cost flight schedules. The new airlines would serve the usual air routes and even fill the need for low cost flights to other countries outside the London air travel market segment. This has pressured the high cost airline companies to lower their fares to be more competitive and get back their long lost air travel clients. The trend now is for the airline companies to serve not only the hub and spoke model industry but to serve the areas where air flights are not profitably possible. The hub and smoke model means that the major airlines prefer to land in airports where there are large passenger travel. On the other hand, these high cost airlines prefer not to set up its branch in areas where there are only a few air travel customers. This is where the low cost airlines make lots of money. They would monopolize the low passenger volume markets that the high cost airline companies do not even dream of landing on. This is line with the business strategy of convergence. Glaringly, the business strategy of filling an unmet need is the foundation of marketing (Costa, Harned, and Lundquist 2002). Position. Positioning is a profit -centered business strategy. The low cost companies have slowly grabbed a large share of the high cost fare airline companies' market segment. Slowly they continue to climb up in terms of volume of air travel customers and increase in revenues. This research shows that the share of the low cost companies in the air travel market will continue to increase because many of the world's airports have opened their doors to the entry of new competitors to the airline passenger industry. Definitely, positioning is a profit -centered business strategy (Doganis 2001, 1). Perspective. Low cost companies perceive the airline industry as a market segment where they are much needed. For, the public is clamoring to save on air travel expenses. This is the niche that the low cost airline companies are zeroing in. The low cost airline companies have done their homework well. They have scouted around with questions to the air traveling public with the intention of determining the air traveling public's behaviour in case the low cost airline companies will offer their services to the general public. Naturally, low cost companies perceive the airline industry as a market segment where they are much needed (Morris 1996, 31). Play. Play is an important business strategy. The low cost companies have outwitted their rivals in the air travel industry. They have pirated a large chunk of the air traveling public with their irresistible low fares. Their competitive advantage is that they can bring the customers to their place of destination with the same safety standards but with the advantage of having a much lower air travel ticket fare. Surely, play is an important business strategy (Pagel, and Westerfelhaus 2005). CONCLUSION: Business strategy is a never ending complicated business scene. Clearly, the OAG data shows a startling low cast data. Evidently, the OAG study covers a wide airline passenger seat sector. All the competitive forces in the European, Low -cost, budget airline sector are very strong. Undoubtedly, there is s strong rivalry among the competing sellers in the low cost budget airline sectors. Convincingly, the low cost airline companies have taken over the high cost airline companies. Unquestionably, a new airline business strategy has successfully touched down. Truly, offering a low ticket fare is an excellent business strategy. Surely, the business strategy of selling low is difficult to hurdle. Conclusively, business strategy is a never ending complicated business scene. Implementing Mintzberg's five P's is one of the best business strategies. Clearly, planning is an important business strategy. Correctly, the pattern of the low cost airline companies is to implement a business strategy that fills a strong public need. Glaringly, the business strategy of filling an unmet need is the foundation of marketing. Definitely, positioning is a profit -centered business strategy. Naturally, low cost companies perceive the airline industry as a market segment where they are much needed Surely, play is an important business strategy. Conclusively, Implementing Mintzberg's five P's is one of the best business strategies. Works Cited Binggeli, Urs, and Lucio Pompeo. 2002. Hyped Hopes for Europe's Low-Cost Airlines: Europe's Most Successful No-Frills Carriers Are Making a Lot of Money. but as They Mature, They Will Have Problems Expanding. The McKinsey Quarterly : 87+. Clougherty, Joseph A. 2001. Globalization and the Autonomy of Domestic Competition Policy: An Empirical Test on the World Airline Industry. Journal of International Business Studies 32, no. 3: 459. Costa, Peter R., Doug S. Harned, and Jerrold T. Lundquist. 2002. Rethinking the Aviation Industry: New Strategies Could Help the Business Recover-But Will Also Put More Pressure on Established Players. The McKinsey Quarterly : 89+. Culp, Christopher L. 2001. The Risk Management Process: Business Strategy and Tactics. New York: Wiley. De Neufville, Richard. 2006. Planning Airport Access in an Era of Low-Cost Airlines. Journal of the American Planning Association 72, no. 3: 347+. Doganis, Rigas. 2001. The Airline Business in the Twenty-First Century. London: Routledge. Erber, George, Harald Hagemann, and Stephan Seiter. 1997. Global Competitiveness: Industrial Policy in the Performance of Asia and Europe. Journal of Contemporary Asia 27, no. 3: 338+. Majone, Giandomenico. 1996. Regulating Europe. New York: Routledge. Morris, Joseph David. 1996. Market Power and Business Strategy: In Search of the Unified Organization. Westport, CT: Quorum Books. Pagel, Sonya, and Robert Westerfelhaus. 2005. Charting Managerial Reading Preferences in Relation to Popular Management Theory Books: A Semiotic Analysis. The Journal of Business Communication 42, no. 4: 420+. WEBSITE: Growth in Low Cost Sector Continues to Sour, OAG, Retrieved March 13, 2008, http://www.oag.com/oag/website/com/OAG+Data/News/Press+Room/Press+Releases+2007/Growth+in+low+cost+sector+continues+to+soar+190907 Read More