Sustainable Competitive Advantage in Airline Services - Case Study Example

Topic: Sustainable Competitive advantage in Airline services University Date Introduction In the current world, the travel sector and especially the air travel sector have become a liberalized market. The deregulation of airline services in the European countries has led to increased competition among the well-established air-travel service providers and the new entrants in the market. Market entrants in the air travel sector need to be well equipped with marketing strategies that can help them survive in the high competitive sector (Johnson et al., 2007). The Open skies policy provides for liberalization of the rules and regulations in the international aviation industry and in particular concern the commercial airline industry. The policy aims at liberalizing and minimizing government’s intervention in the airline sector to ensure free passenger and cargo transportation across the borders with a provision that all security measures are in place by the service providers. Bilateral and multilateral air transport agreements enable different airlines to offer their services across borders of contracting parties freely. In Open skies provisions, there is free market competition, prices determined by prevailing market forces, equal opportunities to compete exists, security must a major priority and service providers must ensure cooperative marketing arrangements (Belobaba et al., 2009). The study provides an intensive view of market requirements for air travel service providers, the strategies necessary to ensure a competitive advantage for new entrants and the factors the need to consider before venturing in the market. New entrants need to consider the political, economic, socio-culture, technological and environmental factors before entering into the competitive airline activities. The study also considers the factors that new entrepreneurship should consider in selecting the suitable routes to ensure survival even with the competition from the competitors who have been in the sector for long. With consideration of the Porter’s Five Forces model of market analysis, the study assesses the determining factors of success in the airline industry. Analysis In the European Union, the airline services operate in a deregulated system provided by the Open Skies policy. In the policy, airline service providers are free to compete in the market and to determine prices depending on the prevailing market situations (Morrison & Winston, 1995). They can also offer their services across the borders of different countries provided they follow all measures in the agreements (Belobaba et al., 2009). New entrants must be in a position to adhere and meet the requirements to be in a position to compete effectively with the well-established service providers. According to Johnson et al., 2007), they have to consider the political, economic, social-culture, technological and environmental factors as required in the Open skies policy. The PESTE requirements for new entrants Political Current and future legislation in home and foreign markets Government policies, term and change Trading policies Pressure groups, initiatives Wars and conflicts Regulatory bodies and the processes involved Economic Home economic situations and economic trends General taxation issues Seasonality in the market weather Market routes Customer requirements International monetary issues, interests and exchange rates Social-culture Demographics Lifestyle trends Customer attitudes and views Major event and other influences Religious/ethnic factors Ethical issues Changing family structures Changing tastes and fashions in holidays Brand, company image Laws in relation to social factors Technological Technology legislations Global communications Information and communication systems Competing technologies Innovation potential Technological advancement and access Environmental Global warming issues Carbon emission issues Waste disposal and management Environmental conservation Water conservation Energy issues Entrants in the market must be in a position to take into consideration all these requirements to be at a competitive zone with others in the market. To compete effectively, new entrants need to take great consideration on the above-discussed requirements and assess the markets in terms of available routes, legislation measures, and travel measures put in place by relevant authorities. In particular as a new entrant, the following factors must be in place. Factors that new entrants must consider Political Compliant with all government legislations on air service provision The must also must register and comply with regulations from regulatory bodies They must also take consideration of security factors and ensure they take measures on security Economic New entrants must consider and comply with the following economic requirements Ensure that they comply with taxation measures Must assess the economic trends in the sector before venturing in the market Assessment of suitable routes and customer requirements Socio-culture They must assess changing trends in people’s lifestyle. Ethical/ ethnic/religious factors Brand/ laws regulating social issues Technological Must ensure they are up to date technologically in terms of IT Modern travel technologies Innovation potential and ability to engage competing technologies in their services Environmental Must adhere to environmental issues on Global warming Carbon emission Waste management Their activities provide no environmental threatening issue New entrants must be well equipped in all the five factors in order to be in a competitive position in the travel sector. Consideration of the factors and compliance with the regulation of the Open Skies policy and focusing on customer requirements and available market opportunity would be necessary for new entrants (Lynch, 2006). The High Sky Airways The High Sky Airways is an airline service provider anticipating to provide it services from London to Berlin. In London, the activities will be on London Heathrow Airport and in Berlin will be in Berlin Texel Airport (TXL) in Berlin. The travel services will start with the introduction of two Dreamliner planes in the market. Discussion In the airline service environment, there is high turbulence with various challenges that range from an intense rivalry emerging from strategic alliances, high fuel, labour costs, increased security concerns, high taxes, technological advancement to emergence of low cost carriers (Belobaba et al., 2009). With time airlines come up with different strategies to compete effectively in the high competitive filed (Morrison & Winston, 1995). Thus, for High Sky Airways to create a competitive advantage it must develop an economic value to its customers than rival firms. Porter five-force model indicates that the structure and the success of the industry lie on five forces; the threat of new market entrants, threat of substitute service providers, supplier power, buyer power, and the competition rivalry (Johnson et al., 2007). These forces determine the profit or loss potential of any stakeholder in a competitive market. The High Sky Airways considered the threat of other new entrants and found that, in the sector, the threat is moderate because of the high capital requirements, entry by cost leadership and regulations. On buyers, they have much power something escalated by use of technology through internet. There is information power and people can choose from different airlines through the internet. With these in High Sky Airways’ consideration, the company aims at providing sufficient information to customers to enhance its competitiveness. Suppliers in the airline industry involve employees who provide the highest cost in the industry after fuel (Lynch, 2006). The company also considered getting planes from the best suppliers like Boeing. Substitutes are less in the route selected by the High Sky as it is across country borders. Competition is a major challenge and a critical point to consider for new entrants. The company aims at offering cheaper prices at the most modern available airlines and use of customer loyalty programs to enhance its competitiveness as provided by Peters (2006). The British Airways and Air Berlin offer similar services and will be major competitors in the route. This might be a discouraging factor in the entry of new service providers. Map plan of the berlin Texel Airport and the surroundings The map plan around London Heathrow Airport In both Berlin and London, there are taxis and buses that are readily available for travellers direct from the airport passenger’s zone. These taxis and buses connect with most of the tourist attraction sites, conference facilities, hotels and business hubs. The roads around the airports are in good condition and free of traffic jams thus efficiency in travelling from the airports. Most travellers in this route are business people, tourists, and football fans who travel to watch football and other games in England or in Germany. Most of these activities are seasonal but in well distributed times. Germany and England business partners who actively participate in development planning thereby creating a customer framework for airline service providers as the stakeholders actively participate in meetings. This creates a flow of clients throughout the year thus; the High Sky Airways will venture in a market where clients are readily available. The changing ways of peoples lifestyles and need for learning beyond the national borders gives the route a bright future in terms of client availability (Belobaba et al., 2009). The recent investments in Germany and England for football clubs predict a probable market during football seasons. Other seasonal sports activities and the increased number of sports fanatics’ form. The market is open ended as all activities almost balance in both cities. Advantages that the Incumbent service providers have over High Sky Airways Companies such as the British Airways have been offering the services in the route for a long time. They are, therefore, well adapted to the barriers in the route. One challenge that the High Sky Airways will encounter is the disadvantage on economies of scale (Johnson et al., 2007). British airways have well-established customers, operation methodologies, and most resources to compete in the market. Bearing in mind that High Sky Airways is a new entrant in the market, it will encounter subjection to various legislation and measures to ensure it violates none of the set rules. These might slow its processes of competing thus put the incumbent companies at an advantage. The already established companies have a large capital base putting them at an advantage in competing effective as compared to new market entrants (Lynch, 2006). Apart from capital availability, these companies have a history and people may not respond well to a new market entrant. Conclusion Market entry is one of the challenging activities in every venture. Entrepreneurs require well-structured strategies to emerge as successful competitors in the market failure to which other existing and well-established competitors would outdo them. It is necessary to study the market especially in the airline industry and evaluate the suitability and the strengths of the service before implementation. As it is evident from the above study, it is necessary to consider political, economic, socio-culture, technological and environmental factors in strategizing. In analyzing the market, those anticipating to join the air travel services should also consider all regulations and provisions to ensure they meet the required standards for competitiveness. They should also be in a position to foresee the possible trend in the future of the route they opt to choose. Though the Open Skies policy creates a deregulation advantage, it is necessary consider other factors that would threaten a new entrant in the market. Thus, the High Sky Airways entrepreneur is bound to succeed in the venture, as the route selected is less competitive and meets most of the requirements that entrants require to succeed. References Belobaba, P., Odoni, A., & Barnhart, C. (Eds.). 2009. The global airline industry (Vol. 23). John Wiley & Sons, Hoboken Johnson, G., K. Scholes, and R. Whittington.2007. "Corporate strategy: Text and cases." FT Prentice Hall. Harlow [u.a.], Lynch, R. L. 2006. Corporate strategy. Prentice Hall. London Morrison, S., & Winston, C. 1995. The evolution of the airline industry. Brookings Institution Press. Washington, DC Peters, C. 2006. Evaluating the Performance of Merger Simulation: Evidence from the US Airline Industry. Journal of Law and Economics, Vol.49, No.2, pp.627-649. Read More