Cometetive Advantage Delta Airlines Essay

Our assigned organization in Delta airline and two organization researched last paper were Alaska Airlines, Inc (ALK) and Southwest. A competitive advantage is an organization having an advantage over its competition which results in greater sales, margins, and retaining more customers. Competitive advantages can include anywhere from an organizations cost structure, their product and service to customer support. One of competitive advantage that delta has with other two airlines is their employees.

Delta believes that their employees are taking the airlines where they only dreamed of through their hard work which is leading to a bright future which includes new ideas and opportunities.

Delta provides their employees with training that consists of emergency equipment, aircraft familiarization, door and window operations; equipment training for certain planes in order to run smooth operations. Another competitive advantage Delta has like their competition is their mergers. Just like their competition Delta’s merger put then over their competition.

In 2008 delta merges with Northwest airlines. Delta benefited from this because in 2007 Southwest serves 101.

9 million passengers where Delta server 72. 9 but with the merger Delta and Northwest combined for over 126 million passengers. Delta has a competitive advantage like their competition because they own thirteen hubs. Delta operates over five thousand flights every day from these hubs. Delta manages the busiest hub at Harsfield-Jackson Atlanta International Airport in terms of passenger and number of takeoffs and landings.

In terms of innovation and sustainability one focus for delta should be the age of their planes. Alaska Airlines has next generation of 737s which help them save on operating cost through fuel. Another area where Delta can learn from competitor is in terms of training their employees. Southwest train their employees in a manner so that their planes spend less time in airports and more time in air. Southwest only pays their pilots and flight attendant for the time in the air in order to incentivize the crew to load the plain and get back in the air faster.

JetBlue Airways Case Essay

Problem Identification

Presently, David Barger, former COO elected CEO of JetBlue Airways (JetBlue), faces a key issue of slowing down their growth. The issue at hand is: What is the best path for JetBlue slow down their growth in the future airline industry?

External Analysis

Macro Economics Analysis
For an analysis of the Macro Economics of the JetBlue, a PESTEL analysis is shown below for the United States. PESTEL Analysis
Political: N/A

Economic: The United Sates was hit hard economically from the terrorist attacks on September 11, 2001.

This caused fare wars amongst competitors in the airline industry and domestic airline yields to drop twenty percent. These yields wouldn’t recover from pre attack rates until 2006. In fact, as of October 2006, five major United States airlines were operating under Chapter 11 bankruptcy protection. Fuel costs in the United States have seen a dramatic increase since the terror attacks in 2001.

Social: The airline industry, like every other industry, has been affected by the introduction of the internet and its users.

People have made it the norm to purchase their airline tickets over the internet instead of by phone or travel agent. These sites have become user friendly and even offer incentives to the buyer. Another social trend is reoccurring business passengers that fly all over the country for work or meetings bringing in a whole other market. Technological: Mostly every industry is driven by technology and the airline industry is no exception. The development of new planes and newer ways of manufacturing them hold a great deal of value for a company. The current planes that JetBlue operate with are the A320 and the E190. The A320 was a proven plane that JetBlue had begun using since their introduction in 2000.

The E190 was turning into a promising plane that had great growth potential showing a much lower cost margin compared to the A320. The downside of the E190 is that it is not liked by JetBlue’s employees and customers as much as the A320. Environmental: Weather is the biggest threat to any travel industry, airliners in particular. Severe weather may cause flight delays or possibly cancellations making airlines an unreliable way to travel. Legal: The size of an aircraft and the amount of passengers that one can fly is regulated by the Air Line Pilots Association (ALPA). These regulations help ensure the relationship between regional airlines and legacy airlines. Pilots’ unions have even asked for scope clauses in their contracts to ensure that their routes are not encroached on by regional airlines. Airlines also operate under the Federal Aviation Administration (FAA) which dictates to them when a flight can fly or not in certain weather conditions.

To conclude, the airline industry like most industries has been dealing with economic downturn along with new social trends and the ever growing of today’s technology. Weather will always be an unpredictable travel flaw where such industries have no control of the results.

Industry Analysis

Industry: Commercial airline providers are separated by two divisions, long haul and short haul outings. The industry that JetBlue operates in is located in the U.S. and it is divided into three segments, legacy carriers, low cost carriers, and regional airlines. These segments serve each of the divisions depending on the distance of the flight and the amount of passengers that can fit on the plane. This industry is a very competitive one and has been proven hard to turn a profit for most companies. Life Cycle: JetBlue, founded in 1999, achieved major airline status in 2004 by exceeding one billion dollars in revenue. JetBlue was also able to achieve the status of the ninth largest passenger carrier in the United States in 2005. JetBlue is currently in the mature stage their life cycle but they have several opportunities for future growth. Mark Powers, the senior vice president, was quoted saying that if JetBlue keeps on the same path of acquiring airplanes in bulk they will grow themselves to death.

Competitors: As aforementioned the commercial airline industry is segmented into three types of carriers. Legacy carriers are the best known airlines in the U.S. and they got their name due to their long histories, some dating back to the 1920’s. These carriers also had a specific characterization called the hub and spoke system where these companies would have large hubs at specific airports where lots of their customers would catch connecting flight (spokes). Some examples of legacy airlines are United Airlines, American Airlines, and Delta Airlines. Low cost carriers, such as Southwest Airlines, operated by directly bringing the passengers to city to city, within the limits of 500 miles.

This was attractive to passengers due to no layovers or connecting flights and utilized a market that would otherwise travel by car or bus. In fact, Southwest Airlines was the only airline in America who constantly that made profits each year from 1973 to 2005. Regional airlines services passengers on a plane of less than 76 seats, and were often used by legacy airlines to charter customers to large hubs to connect with their long haul flight. JetBlue competes directly with all these airlines and is often compared to Southwest Airlines, in terms of being a low cost carrier.

Porters 5 Forces Model

Degree of Rivalry: The degree of rivalry in the airline industry is very high, there are multiple companies offering the same service on a daily basis for customers to choose from. There have been price wars in the past usually low cost is the consumers ultimate decision criteria. Brand recognition makes rivalry even greater and incentives that each airline gives to their customers enable them to pick and choose which company they prefer to travel with. Threat of New Entrants: Entry into the airline industry is very hard making the threat of new entrants very low. There are high barriers along with high capital costs to start operations. An airline is required to have certified pilots that include compensation and they must have substantial training in each aircraft in order to operate one. In order to benefit from economies of scale an airline must have a fleet of airplanes of at least forty to fifty, according to Tom Anderson the senior vice president of Fleet Programs.

A new entrant would have a find it hard to compete in an industry with high brand recognition from the legacy airlines that have a loyal following of passengers with past experiences. Buyer Power: Customer power is extremely mixed between high and low in the airline industry. Customers ultimately get to pick and choose which airline best suits their specific needs making their power high, but the airlines have the power of setting industry prices and times for when flights depart. Customers are left with choosing between the criteria of a low priced ticket or a specific travel time making their power a little less high or even low. Supplier Power: The supply chain for JetBlue has a relatively high amount of power. Suppliers can pick and choose what airline they want to build for due to the highly specialized trade.

JetBlue has found themselves buying airplanes as fast as their supplier, Embraer, can make them. Embraer entered into contract with JetBlue and has enabled them to customize their E190 aircraft in order to try and develop a competitive advantage over others. Fuel is a major source of supply in the airliner industry, with the ability to greater margins with lower costs. Fuel prices have seen a dramatic increase over the years from 2001’s price of seventy cents a gallon to two dollars and ten cents per gallon in 2007.

Southwest takes some of this risk out of their operations with the use of fuel hedges. Threat of Substitutions: There are no substitutes for long distance air travel besides competing companies’ different airplanes, making the threat of substitution low. Planes can be substituted for other plans like the E190 to a regional jet (RJ), but the RJ has a 34% increase in cost per available seat mile. In a way JetBlue is operating as a substitute due to the fact that they offer 65% lower fares than legacy carriers. In terms of a travel substitutes, cars, buses, and trains are all viable substitutes for air travel if a customer decides to choose so.

The above industry analysis shows that this is a highly competitive industry with varying power from consumers to suppliers. The overall conclusion is gaining loyal customers while keeping costs low in order to stay competitive in this industry. Most of the drivers of profitability are at a industry/market level rather than a general/firm level.

Market Analysis

Primary: By utilizing their different planes, JetBlue has been able to attract two types of primary customers. The A320, the larger plane for longer hauls, attracts the family that is going on vacation say to Florida. The E190, the smaller plane for shorter hauls, has attracted the business traveller that might be going to another state for a meeting. Each plane can serve either purpose depending on the distance need travelled but these are the norms that JetBlue has found for their passengers.

Secondary: A secondary customer is served primarily on shorter hauls between cities. These revelers, as they have been called, travel from city to city for a sports event or a celebration of sorts and need to be on time without delay due to scheduling. JetBlue has found it hard in the past to guarantee no delays but continue to be one of the best in flight completion. This makes these customers non frequent flyers due to their reputation. Key Success Factors

In the airline industry the following are the key success factor for a company to have: a way of attracting customers, managing of their staff, managing of their fleet, customer satisfaction, the ability to meet competitive prices, have a low cost per seat mile, a high passenger load factor, and a high amount of connecting flights for long hauls.

The above external analysis shows us that this is a highly competitive industry full of a variety of players. In order to stay successful companies must keep costs low and have good customer service. The external factors in this industry are mostly out of the companies control and should be taken for what they are due to the impact they have industry wide.

The planes that JetBlue operates with are exploitable in a way that gives them a competitive advantage by being able to adhere to two markets instantaneously. The A320 allows them to accommodate long haul travelers while the E190 allows them to accommodate the rest of the market. The Customer Bill of Rights was established after the Valentine’s Day crisis in 2007 and it describes JetBlue’s responsibilities to its customers in information sharing, cancellations, departure delays, overbookings, and on-board ground delays for arrivals and departures. These rights are the first of its kind among the U.S. airlines.

JetBlue’s investment of $800 million for their new terminal in JFK airport with 26 new gates and a wide variety of passenger amenities gives them a huge competitive advantage. This shall attract brand recognition from the state of the art design along with the exclusive access in a very busy international airport. JetBlue with help from their supplier have been able to customize the E190 to include leather upholstery and satellite T.V. screens for each seat giving the passenger a comfortable and luxurious experience when flying. JetBlue for years has prided themselves as being the best in flight completion. BusinessWeek even had them as forth on the top performing companies in customer service.

Value Chain

The activities that create value for JetBlue are as follows: To lower fares JetBlue provided customers with incentives to purchase their tickets over the internet on the company website instead of by phone. If a customer still wished to book via phone then JetBlue has part time reservation agents who worked from home which in turn lowered their reservation function costs. Having their pilots exclusively fly one type of airplane and not both. To fly both they needed dual certification and needed to have “training” flying which was a form of non-revenue flight time for JetBlue. This cuts down on fuel costs as well as training time giving JetBlue’s pilots expertise with their aircrafts. “Red-Eye” Flights. Red-Eye flights are a useful capability due to the fact that not many airlines provide them. These flights are done in the early hours of the morning and connect California to the eastern cities.

Leverage: As seen above all the leverage ratios are above one meaning debt is higher than the equity produced by the firm. This can be seen as a positive and a negative. The positive is that the company has the potential to generate more money with this debt then without it. As seen in the financial statements, liabilities increase every year and so does operating revenues, maybe from a direct correlation. The negative aspect is that this gives the company another expense in interest deductive from revenues.

Liquidity: The single liquidity ratio shows a lot concerning where a business is at in terms of being able to pay off your debt when need be. JetBlue’s current ratio shows a positive and a negative aspect. The positive aspect shows that in most of the past years JetBlue has had a ratio over one meaning they could pay all their current debt if called upon. The negative aspect is that in 2005 they fell below one and below industry standards. Profitability: In the case of profit ratios, JetBlue has a minor gap in between their net income and their operating income. The major difference is that in 2005 and 2006 the operating incomes were positive and the net income negative giving an indication that there is a factor that is causing a negative impact out of operations. The industry overall has not been profitable as seen in the analysis but JetBlue who has been compared to Southwest, who was profitable in these years, must make some changes to keep up to par.

To conclude the above internal analysis JetBlue has many resources that they can use to gain a competitive advantage over their competitors. They also have several strong activities that add great value to their operations. Their financial stability might be uncertain at times but the industry as a whole is structured this way in the United States.

Alternatives
Alternative 1: Stop buying airplanes. Put a halt to all plane acquisitions for at least 3 years to stop the growth temporarily.

Pros:Cons:
– Stops from growing to death
– Will make supplier upset
– Allows to pay off existing debt
– No further benefit of economies of scale
– Allows for employees to adjust
– Less maintenance costs

Alternative 2: Scrap the A320. Live out the rest of the days of all A320 planes then scrap them from business operations and exclusively use the E190.

Pros:Cons:
– E190 provides better cost margins
– Employees do not like the E190 as much
– Using proven Southwest model of one type of plane- Would need to have a central hub in Kansas
– Not wasting the remaining life of the A320’s
– Make suppliers upset
– Unique market of medium range planes, opportunity for growth Alternative 3: Scrap the E190. Live out the rest of the days of all E190 planes then scrap them from business operations and exclusively use the A320.

Pro:Cons:
– Employees like the A320 better
– Make suppliers upset
– Using proven Southwest model of one type of plane
– Miss out on better cost margins of the E190
– Proven to be profitable in the past
– Utilization of the new hub at JFK being built

Decision Criteria
The aforementioned alternatives need to be weighted with the below criteria prior to choosing a recommendation.
Employee Satisfaction
Customer Satisfaction
How upset the Supplier will be
Potential growth in the near future
Recommendation

We as a team recommend that JetBlue use alternative two. The reason that we have picked alternative two is due to the fact that it best fit our decision criteria. Even though employees are not as fond of the E190 compared to the old A320 we feel that they would adjust to the new setting quicker if that plane was their only option, this also includes the pilots and maintenance crew. Customers seem to like the E190 and the satisfaction should come more from JetBlue’s new policies and procedure from the Bill of Rights. We believe that the supplier will not be as upset due to the fact that JetBlue will still be buying these planes from them as they are needed.

The E190 gave the best cost margins for potential growth in the near future compared to the legacy carriers and regional jets making it a the clear choice. In order to completely satisfy the entire market of the United Sates JetBlue would need a new central hub located in Kansas City, as mentioned by Rob Maruster. By only having one type of aircraft in the fleet it allows JetBlue’s structure to act like Southwest Airlines, with their Boeing 737, and allow their ground and flight personnel decreasing the average turnaround time between landing and getting back in the air.

Implementation

Implementation should begin with the stopping of purchasing or fixing the A320 planes. Once enough debt has been paid off from the saved money begin to construct a new central terminal in Kansas City. In the long term additional E190’s will need to be purchased enabling JetBlue to service more cities throughout the U.S. and keep the turnarounds quick.

Contingency Plan

If failing to be competitive and popular with the exclusive aircraft model we suggest trying to become an international airline and flying across to boarder countries like Canada and Mexico. This would not require additional capital in planes but merely agreements with countries regulations.

Distribution At American Airlines Essay

American Airlines is a major United States airline. It was formed in 1930 as a passenger airline and merged with different carriers since its formation.

American Airlines’ operations grew rapidly after World War II. In 1921, American‘s corporate predecessor had only five small airplanes for transporting airmail. In 1946, American ordered 220 new planes.

1952 – American introduced the Magnetronic ― “Reservisor”, a mechanical console installed on each desk to help automate inventory control. The Reservisor offered major productivity improvements: A trial in the Boston reservations office served an additional 200 passengers daily, with 20 fewer reservations staff.

American and IBM collaborated on the design of an improved inventory management system, ultimately called the Semi-Automated Business Reservations Environment (SABRE). IBM provided the hardware, while American and IBM jointly built the software. The initial investment was comparable to half a dozen Boeing 707 jet airplanes.

Competitors make their own distribution system and later, certain circumstances open the industry to Global Distribution System allowing AA’s own system to be access by those customers of competitors.

TIME CONTEXT

In year 2006, when American Airlines faced the impending expiration of its three-year contract with its four then existing GDS.
POINT OF VIEW
Lead negotiator Charlie Sultan and co-lead negotiator Chris Degroot.
STATEMENT OF THE PROBLEM
American Airlines was unable to shoulder the fees set by GDS due to struggled with fuel prices and increased competition from new entrants.

OBJECTIVES
Must:
To continue attending to customers’ requirements as well as preserving the relationship with travel agents. To maintain easiness in accessing American Airlines’ services through supporting their existing GDS. To overcome possible threats brought by the changing environment (fuel prices and new airline entrants).
Wants:

To become the leader company in airline industry.
To obtain more profit intended for supporting the database services and other related activity. To preserve the trust given to them by their customers as well as their partner travel agencies.

AREAS OF CONSIDERATION (SWOT ANALYSIS)

Strengths
One of the pioneer airlines to have an electronic distribution system (SABRE). Expertise in airline industry proven by their years of operation overcoming past challenges,
Weaknesses
Unable to maintain their existing GDS (Global Distribution System) when it comes to its expenses. Not able to anticipate future problems.
Opportunities
Since they already collaborated with IBM with their SABRE and obtained knowledge in software development, they may expand their business of having an integrated airline services and engage in developing software. Opportunities for growth in the industry.

Threats
The implementation of Source Premium policy may result to travel agencies’ switching to other airlines. Possible new entrants in the airline industry might be more technology-based and modern allowing American Airlines’ existing customers to consider switching services from them.

ALTERNATIVE COURSE OF ACTION

ACA#1 – Limiting American Airline GDS Involvement to One. This will enable AA to focus into one GDA only while taking actions into garnering solutions for acquiring funds in supporting the remaining GDS. For the meantime, while AA resolves the insufficiency, the company may not be able to sacrifice the relationship with its travel agents. ACA#2 – Pushing the Idea of Source Premium Policy. Although the risk will be losing of referrals with travel agencies, the idea is still essential. It is letting the travel agency subscribing to AA shoulder the excess charges set by GDS. Travel agencies, anyway, may pass the charges to customers who is willing fully accept AA’s policy. ACA#3 – Partnerships with Existing and Well-Known Travel Agencies. This will strengthen the relationship between AA and travel agencies and create a mutual understanding. AA’s experience through the years could guarantee the travel agency a continuous growth of the industry. On the other hand, the travel agency could put trust to AA and be able to work for AA’s continue offering of services.

RECOMMENDATION

The student recommends ACA#3 Partnerships with Existing and Well-Known Travel Agencies.

ACTION PLAN

In doing the recommended alternative course of action, the following actions should be fully implemented effectively. 1. Create a plan for the possible business structure that may arise. That may include blueprint on how will be a partnership being structured. 2. Make a draft of possible guidelines on both parties in partnerships. The conditions should include mutual benefit. 3. Seeking of trusted and well-known travel agencies and doing a background check on the prospects. 4. Conducting a meeting with the travel agencies that has been chosen. In a meeting, AA should effectively persuade the agency, stating the mutual benefit. 5. AA should allow the agency to revised or add on the guidelines in setting the conditions for he partnership. 6. Agreeing party should also consider the existing AA business policy. AA should also give a favorable condition to the agencies. 7. Executing the planned structure in the business with the official travel agency partners.

Japan Airlines Flight 123 Essay

August 12, 1985- Japan Airlines flight 123 left Tokyo, Japan at around 6:10 in the evening, fourteen minutes later at an altitude of twenty four thousand feet, and three hundred knots, an explosion, oscillations, and cabin decompressions was heard and captured on the plane’s on board recorder. The captain on duty was seated at the right side of the plane and his co-pilot, who was at that time training for promotion to be a captain, was sitting on the left seat. A few moments later, the captain signals an SOS on the transponder and suggests that the flight return to Tokyo.

The airplane went down to twenty two thousand feet and went on doing violent movements; the plane, for about two minutes was doing a Phugoid, or longitudinal motion and rolls. The captain and his co-pilot were helpless and had no means in controlling the airplane’s heading through the usual flight control inputs. Their only way of limited control is done through thrust differentials.

The plane was able to maintain an altitude of twenty two thousand feet and two hundred and fifty knots for an approximate duration of twenty minutes.

At around 6:39 in the evening, the main landing gear was deployed which caused the erratic movements of the plane to intensify. The plane then did a controlled turn to the left while descending to eight thousand feet. Erratic movement of the plane meanwhile, continue. At 6:47 PM, the plane was in a mountainous area, the plane increased power, and they were at five thousand and three hundred feet. The flaps of the plane were extended at 6:51 PM that caused the roll angle of the plane to be sixty degrees, the crew starts to move the flaps and increase thrust.

The plane was at ten thousand feet when it began a nose dive at a very fast eighteen thousand feet per minute. The crew countered this by lifting the nose. 6:56 PM – the airplane crashed at the mountains on an altitude of five thousand feet and three hundred and forty knots. Roughly forty six minutes since take-off and thirty two minutes since the decompression. Boeing, as owners of the plane, are somehow responsible for the crash but definitely they are not the only ones to blame and do not deserve to be blamed in entirety.

Part of the responsibility lies with Japan Airlines who maintains the plane. In fairness to Boeing, they have provided specific repair instructions to the plane that was not followed by those who were responsible for the repairs. The plane had previously suffered damage to the bulkhead in 1978 but was not repaired properly. As stated in the report, “The initiation and propagation of the fatigue cracks are attributed to the improper repairs of the bulkhead, conducted in 1978, and since the fatigue cracks were not found in the later maintenance inspection, this contributed to the accident.

” (Aviation Safety Network, 2008). Boeing did its part by providing proper instructions but their failure to see to it that they were carried out properly contributed to the crash which makes them partly guilty of neglect. There was confusion on the rescue operation, A US owned helicopter was the first at the scene, about twenty minutes after impact. The US chopper in turn, informed Yokota Air Base and offered backup. But the US helicopter was ordered to return to base because Japanese forces were to handle the mission.

Poor visibility at the crash site prompted the Japanese team to report that there were no survivors and made it impossible to land. Thinking that there were no survivors the rest of the rescue team waited till the next morning to check out the site. But there were survivors, reports show that injuries on the bodies found imply that they survived the crash but were not given immediate medical attention which caused their deaths.

If the helicopter pilot hadn’t reported abruptly that there were no survivors, there could have been. References Aviation Safety Network. (2007). Applying Lessons learned from Accidents. from: http://aviation-safety. net/database/record. php? id=19850812-1 Air Disaster. com (n. d). Special Report: Japan Airlines 123. from: http://www. airdisaster. com/special/special-jal123. shtml Jackson, H. (1985). 524 Killed in worst single air disaster. from: http://www. guardian. co. uk/fromthearchive/story/0,,1017027,00. html

Competitive Profile Matrix Emirates Essay

In order to construct a competitive profile matrix, it is necessary to determine critical success factors in airline industry. These are: strong management, organization of routes, availability of non-stop flights, qualified workforce, in-flight services and service promotions, price competitiveness, effective financial management, cost management. Main competitors of Emirates Airline can be divided into two groups: private airline companies and airline alliances. Key airline alliances posing strong competition to Emirates Airline are SkyTeam, Star Alliance and oneworld (Plunkett, 2011). AirAsia is a private company also presenting a significant competitive threat for Emirates Airline (Plunkett, 2011).

It is possible to see that also the competitive performance of Emirates Airlines is above average (2.55) and private companies like AirAsia generally have lower competitive capacity (Graham, Papatheodourou & Forsyth, 2010), all three airline alliances have strong or even close to superior competitive profiles, which means that Emirates Airlines should aim to develop competitive power compared to that of the major alliances.

North South Airlines Essay

BACKGROUND OF THE COMPANY

Northern Airlines merged with Southeast Airlines to create the fourth largest U.S. carrier in January 2008. The new North–South Airline inherited both an aging fleet of Boeing 727-300 aircraft and Stephen Ruth. Stephen was a tough former Secretary of the Navy who stepped in as new president and chairman of the board. Peg Jones on the other hand is the vice president for operations and maintenance.

DEFINE THE PROBLEM

Stephen’s objective is to gear the company’s financial performance towards stability and continuous growth.

This made him concern that the aging fleet of Boeing 727-300 aircraft’s maintenance cost may impede realization of this goal.

The significant difference in the reported B727-300 maintenance costs (from ATA Form 41s) both in the airframe and engine areas between Northern Airlines and Southeast Airlines made him to probe through Peg Jones’ assistance on determining the quantitative and graphical report of the following : Correlation of the average fleet age to direct airframe maintenance costs Linear relationship between the average fleet age and direct engine maintenance costs

CASE FACTS AND INFORMATION (INCLUDING LIMITATIONS & CONSTRAINTS)

In addition to the aging formulas below, Peg constructed the average age of Northern and Southeast B727-300 fleets by quarter since the introduction of that aircraft to service by each airline in late 1993 and early 1994 respectively.

TOTAL FLEET HOURS = TOTAL DAYS IN SERVICE X AVERAGE DAILY UTILIZATION

AVERAGE AGE OF EACH FLEET = TOTAL FLEET HOURS FLOWN # OF AIRCRAFT IN SERVICE
AVERAGE DAILY UTILIZATION = TOTAL FLEET HOURS FLOWN
TOTAL DAYS IN SERVICE

In getting the average utilization, Peg used the actual fleet hours flown on September 30, 2007 from Northern and Southeast data, and dividing by the total days in service for all aircraft at that time. The average utilization for Southeast and Northern were 8.3 and 8.7 hours per day respectively. In addition, available cost data including the average fleet age were calculated for each yearly period ending at the end of first quarter.

Business asset depreciation depends on the cost of asset and its useful life. What is distinct about aircraft depreciation is that each component of an airplane is depreciated at different rates and depreciation methods. The North-South Airline problem for this instance may also be resolved by using depreciation methods as follows: straight line with salvage value method = Asset Cost/ Useful Life The advantage of using the straight line method involves the ease of calculating the annual depreciation amount.

The disadvantage of using the straight line method is that this method does not consider the rate the asset will actually depreciate in value. Declining balance method = Remaining Asset Value x Depreciation Rate The advantage of using this method is that it accelerates the depreciation recorded early in the asset’s life and thus reduces the taxable income and the taxes owed during the early years. The disadvantage is that the method can be applied only when there is a residual value of the asset.

quantitative method/s employed and the solution to the problem

Northern Airlines Data

AIRFRAME

ENGINE

Southern Airlines Data

AIRFRAME

Southeast Airline—airframe maintenance cost:
Cost = 4.60 + 0 (airframe age) = 4.60
Coefficient of determination = 0.39
Coefficient of correlation = 0.62

ENGINE

Northern Airline—airframe maintenance cost:
Cost _ 36.10 _ 0.0025 (airframe age)
Coefficient of determination _ 0.7694
Coefficient of correlation _ 0.8771
Northern Airline—engine maintenance cost:
Cost _ 20.57 _ 0.0026 (airframe age)
Coefficient of determination _ 0.6124
Coefficient of correlation _ 0.7825

Southeast Airline—engine maintenance cost:
Cost __0.671 _ 0.0041 (airframe age)
Coefficient of determination _ 0.4599
Coefficient of correlation _ 0.6782

ethical considerations
DEPRECIATION USED = SAFETY

The units of production method involves determining the cost to depreciate and dividing that amount by the estimated production units the company expects to manufacture over the life of the asset. The advantages of using the units of production method include the ease of calculating the annual depreciation amount and that the depreciation is matched to the production quantity. The disadvantage of using the units of production method is that this method assumes the asset will depreciate evenly over its productive life.

The graphs below portray both the actual data and the regression lines for airframe and engine maintenance costs for both airlines.Note that the two graphs have been drawn to the same scale to facilitate comparisons between the two airlines.

Northern Airline: There seem to be modest correlations between maintenance costs and airframe age for Northern Airline. There is certainly reason to conclude, however, that airframe age is not the only important factor.

Southeast Airline: The relationships between maintenance costs and airframe age for Southeast Airline are much less well defined. It is even more obvious that airframe age is not the only important factor—perhaps not even the most important factor.

Overall conclusion

Overall, it would seem that:
1. Northern Airline has the smallest variance in maintenance costs, indicating that the day-to-day management of maintenance is working pretty well.
2. Maintenance costs seem to be more a function of airline than of airframe age.
3. The airframe and engine maintenance costs for Southeast Airline are not only lower but more nearly similar than those for Northern Airline, but, from the graphs at least, appear to be rising more sharply with age.
4. From an overall perspective, it appears that Southeast Airline may perform more efficiently on sporadic or emergency repairs, and Northern Airline may place more emphasis on preventive maintenance.

Ms. Young’s report should conclude that:
1. There is evidence to suggest that maintenance costs could be made to be a function of airframe age by implementing more effective management practices.
2. The difference between maintenance procedures of the two airlines should be investigated.
3. The data with which she is presently working do not provide conclusive results.

Environmental Analysis: Southwest Airlines Essay

INTRODUCTION

Southwest Airlines Co. began its operations in 1971 and has been serving the industry for the past 43 years now (Southwest Airlines, n.d.). It is the major domestic airline, and ranked number one in 2014 by the Bureau of Transportation Statistics (United States Department of Transportation, 2014). Back in 1971 the airline began its services in Texas in the cities of Houston, San Antonio, and Dallas. The company has been ranked as the nation’s largest low cost carrier (Mergent, 2012). It offers the lowest fares, and has the lowest cost structure in the industry.

Southwest Airlines Co. also acquired AirTran Holdings Inc. in 2011 and now owns AirTran Airways. The company has been ranked 9th among the 50 most admired companies in the world according to a survey by Fortune magazine (Fortune Magazine, 2013). Southwest uses the exchange symbol LUV on the New York Stock Exchange (NYSE).

This paper will summarize an environmental scan of Southwest Airlines to include an analysis of the most important external environmental factors in the remote, industry, and external operating environments, the most important strengths and weaknesses of the organization, an assessment of the company’s competitive position, and analyze the structure of the organization and how this affects organizational performance (University of Phoenix, 2013).

POLITICAL FACTORS

The Airline and Aviation industry underwent Governmental Regulations by the passage of the Civil Aeronautics Act of 1938 and the simultaneous creation of the Civil Aeronautics Board (CAB). This Act enabled the CAB to control the service fares, the entry of new airlines from the market and the exit of existing airlines from the same, and the assigning of air routes to different airlines. Then the Federal Aviation Act was passed in 1958 and led to the formation of the Federal Aviation Administration in August 1958. The rule making was shifted to the FAA and it had control of the air routes, the airline safety and air traffic controls.

The Airline Deregulation Act was passed in 1978 and falls in the category of Federal Law. It eliminated the governmental authority over determination of service fares and control of routes and new airlines entry into/exist from the airline industry. As a result of the act, the CAB was dissolved in 1984. The FAA was not eliminated and it remained in control of airline safety and air traffic control (United States Government Accountability Office, 2006). This Amendment came into force in 1979 and comes within the category of federal law.

It manages the air traffic at Dallas Airfield in Texas. Initially, this amendment posed such restrictions on nonstop flights that their routes got limited to Texas and its neighboring states only. However, the restrictions were taken off in 1997 and 2005. The Amendment was revoked in 2006 but some restrictions will expire in 2014. Soon after the passage of the Airline Deregulation Act of 1978, Southwest was about to begin interstate flights. But restrictions were imposed by the Congress and the airline was disqualified to ticket/operate flights beyond Texas and the states touching its borders.

ECONOMIC FACTORS

A number of economic constraints are also there in the environment that have their relative impacts on Southwest’s operations. These include:

Higher unemployment rates, which Southwest had been challenging by refusing to lay off employees even during surging unemployment.

Increase in operating costs.

Instable credit market and capital market.

Declining demand for air travel.

Economic Recession in the country (Southwest Airlines, et al., 2013).

SOCIAL FACTORS

Social factors influencing performance include an increase air pollution caused by the airline industry as a whole; gases are emitted in upper atmosphere causing an increase of around three percent of greenhouse emissions globally. Also, fuel efficiency has increased significantly from the past three decades. The airline industry has been divided into labor unions which include several types of unions such as the Flight Attendants’ Unions, the Machinists’ Unions, and the Pilots’ Unions. The majority of the employees are part of such unions which has led to an increase in labor costs for the entire airline industry. TECHNOLOGICAL FACTORS Fuel efficiency is increasing. Aircrafts that are more fuel efficient are being developed and the engines are being redesigned to cater to this change.

The Air Transportation System has been reformed by the introduction of the Next Generation Air Transportation System (NextGen). This system is supposed to be implemented in the country by 2025. The system revises air routes and updates it to satellite system management; the promotion of usage of GPS technology for navigation, route length shortening, time reduction, and fuel saving, etc.

The JPDO (Joint Planning and Development Office) has been setup to facilitate the development of NextGen. Apart from that, the tracking system has been updated and routes have been improved significantly. Airline forecasting and algorithms have allowed improvements in prices and costs for airlines in the industry. The average age of an aircraft in the industry is around 13 years. The market is expected to grow and revenues are likely to increase.

HOW SOUTHWEST SHOULD CONFRONT THESE THREATS

Southwest should take active measures to deal with all the above measured threats. To combat with political threats of regulation, the Shelby agreement does help by providing expansion in a few routes. However, they are still less and the routes and areas served need to be expanded. Some sort of agreement should be made for that. To deal with its economic threats, Southwest is already implementing fuel cost saving strategies. It has already reduced its fares for the passengers, which provides it with a competitive edge. Southwest has adopted a no-layoff policy with reference to its employees, in the face of high unemployment rates. Therefore it should work to control and ultimately minimize its operating costs. To deal with the social issues present in the industry, careful negotiations and dealings with the various kinds of unions should be done. Environmentally safe emissions of gas should be reviewed as well as alternate sources of energy.

Technology is increasing in the industry. Southwest needs to be able to afford the latest technology so that it could offer superior quality of service than its competitors.

SOUTHWEST’S STRENGTHS

Southwest Airlines has a number of strengths. It uses the inner city airports and focuses on point-to-point service, which reduces the connections and facilitates nonstop routing. That resultantly reduces the total flight time. This makes it easier for Southwest to charge low flight fares for its passengers. The airline also serves downtown airports including Houston Hobby, Chicago Midway, Dallas Love Field, Burbank, Oakland, San Jose, Manchester, Baltimore-Washington International, Hollywood, Long Island Islip and Providence airports. This way the airline can make good use of its assets and perform on time and be reliable. That ultimately shows up as an increase in market revenue (MarketLine, 2012). The company has also employed successful advertising methods. It has reduced its overall operating costs and has been profitable for 36 consecutive years. It is known in the airline industry as being the best low cost carrier.

SOUTHWEST’S WEAKNESSES

Contractual obligations associated with the purchase of future aircraft, debt payment, and leasing arrangements resulted in a lowering of the companies’ credit rating in 2009. This has affected the company’s ability to secure future financing (Tellex, 2012a).

With increased technology, fewer companies are dependent on face-to-face meetings resulting in a lower demand for business travel. Reappearing downturn in the economy have also reduce the amount of those who travel for leisure. The subsequent result in the overall decrease in travel is lower profit margins for the company (Tellex, et al., 2012b).

The company continues to rely heavily on revenue generated by passenger travel, earning only one percent of its revenue through the transportation of freight and cargo. Considering that passenger travel is heavily dependent on price, fluctuations in fuel and security costs can expose profits to volatility (Tellex, et al., 2012c).

The airline has always maintained a conservative growth strategy. It needs to develop a more aggressive, robust business plan in order to keep up with other industry leaders in the modern economy. The company is currently limited to approximately 68 cities domestically and relies heavily on one aircraft manufacture (Boeing) to produce its fleet (Tellex, et al., 2012d).

MAIN COMPETITOR

One of the major competitors to Southwest Airlines is Delta Airlines, which is headquartered in Atlanta, Georgia, U.S. It has a few significant weaknesses such as the legal issues it has recently faced (including 2009’s antitrust lawsuits) that have had their impact on the company’s brand image. Also, the company is heavily indebted. In Fiscal Year 2011, the company had a long term debt of $11,233 million, and in FY2010 it was $12,553. The interest expense was also very high. That is why it is more prone to recession and because of this financial depression it is also unable to acquire additional funds. That has become a threat to its liquidity. The company also faces increasing fuel costs, competitive threats, and extensive governmental regulation (MarketLine, et al., 2012).

While it is difficult to combat governmental regulation, Southwest Airlines can build upon Delta Airline’s weaknesses, because it has remained profitable and has also become fuel efficient in the recent past. Also, the company has been successfully able to reduce its overall cost structure and provide high customer service, which is why it is amongst the top ranked airlines in the industry. This automatically creates value for the stakeholders.

SOUTHWEST’S COMPETITIVE STRATEGY

The company follows a low-cost competitive strategy by offering low fares to its customers which happen because it has been able to reduce its operating costs. It focuses on inner city airports such as the Dallas Love Field. To minimize costs, Southwest doesn’t provide meals in flights. It also uses Boeing 737 aircrafts which are technologically more fuel efficient. This makes its ranking high in customer services as compared to other airlines in the industry.

RECOMMENDED MODIFICATIONS TO SOUTHWEST’S STRATEGY

Assuming that the United States economy is undergoing a downturn, Southwest Airlines will need to make a few amendments to its strategy. These include improving its cost efficient structure and maintaining its existing customer base as well as begin providing healthy meals on an economical basis without increasing the flight fares too much. It should focus on what it does best and also build upon its competitive edge of excellent customer service. That way it would be able to combat the effects of an economic downturn, partially or completely.

IMPACT OF GLOBAL COMPETITION ON SOUTHWEST’S STRATEGY

If viewed from a global perspective, the company needs to make several revisions to its competitive strategy. Although Southwest has a competitive edge in the local industry because of its low fares and low cost structure, to be able to face global competition, the company needs to begin serving more routes, as the number of routes it serves currently is making it seem like a competitive disadvantage for the company. Also, the company should utilize its profits for the provision of healthy quality meals. An overall improvement in the operations should also be considered.

ORGANIZATIONAL STRUCTURE AND PERFORMANCE

Perhaps the most important element of Southwest Airline’s success is the company’s decentralized organization structure. The airline places a limited emphasis on organizational structure allowing employees and management committees to make decisions. The company’s policies are developed by combining employee input and measuring all decisions against its own code of ethics.

The company continuously demonstrates its ability to develop relationships through the formation of cross-functional teams that share goals and knowledge and build a mutual respect for one another rather than blaming. “Focus on relationships is the fundamental driver of leadership, culture, strategy, and coordination at Southwest” (Gittell, 2003, p. 177). Southwest defines leadership as a process that can occur at any level of the organization but is most productive on the front lines.

Supervisors assume a position of servitude to their subordinates going beyond the traditional responsibilities of that role. Employees are viewed as internal customers who deserve nurturing and training. The company intentionally distorts the lines between work and personal lives to enhance family and community relationships. The end result of such an organizational structure is improved flight departure performance, faster turnaround times, greater staffing productivity, fewer lost bags, and fewer customer complaints (Gittell, 2003).

CONCLUSION

Since its inception in 1971, Southwest has continuously distinguished itself from other airlines in the industry. For 41 consecutive years, it is the only airline to sustain a profit. The company’s organizational structure reflects its commitment to customers and employees alike. The benefits of this commitment have established the company as the benchmark for the industry in terms of loyalty and customer/employee satisfaction. Rankings such as number one in air transportation (United States Government Accountability Office, et al., 2006), number nine in _Fortune’s Most Admired Companies_ (Fortune Magazine, et al., 2013), and number 12 on _Forbe’s Best Companies to Work For In 2013_ (Forbes, 2013) also provide testament to the success of the company’s business strategy.

In order to sustain this level of success in the long-term and remain competitive within an industry that already has limited flexibility created by an unusually large amount of fixed costs, federal and union regulation, manufacturer dependency, and economy. The company must give consideration to developing a more transformational model. Fortunately for Southwest, the company has no need to reinvent itself. However, this model should include an cost-effective approach to fleet expansion and additional freight and cargo transportation services to generate more revenue while retaining their proven formula for organizational structure and customer service.

References

Forbes. (2013). _The 25 Best Places to Work in 2013_. Retrieved June 8, 2014, from Forbes: http://www.forbes.com/pictures/efkk45eddil/no-12-southwest/

Fortune Magazine. (2013). _World’s Most Admired Companies_. Retrieved June 8, 2014, from Fortune: http://fortune.com/worlds-most-admired-companies/southwest-airlines-9/

Gittell, J. (2003). _The Southwest Airlines Way: Using Power of Relationships
to Achieve High Performance._ New York: McGraw-Hill. Retrieved June 8, 2014

MarketLine. (2012, December 21). _SWOT Analysis_. Retrieved June 8, 2014, from MarketLine: http://advantage.marketline.com/PageForbidden?returnUrl=%2FProduct%3Fpid%3D345D3B5B-CDC8-4F13-AD68-8D79064FB08A%26view%3DSWOTAnalysis

Mergent. (2012, Decemeber 14). _Company Detail: Southwest_. Retrieved June 8, 2014, from Mergent Investor Edge: http://www.mergentinvestoredge.com/companyDetail.php?compNumber=7750&companyName=Southwest%20Airlines%20Co&ticker=LUV&cik=0000092380&pagetype=detail&exchange=NYS&country=USA#

Southwest Airlines. (2013, December 31). _LUV Investor Relations_. Retrieved June 8, 2014, from 2013 Annual Report: http://southwest.investorroom.com/company-reports

Southwest Airlines. (n.d.). _Company Profile_. Retrieved June 8, 2014, from LUV Investor Relations: http://southwest.investorroom.com/

Tellex, T. (2012, March 20). _Southwest Airline SWOT Analysis_. Retrieved June 8, 2014, from Exploring the World of Business: http://www.tamaratellezmba.com/blog/2012/03/20/southwest-airlines-swot-analysis/

United States Department of Transportation. (2014, May 15). _Airline Traffic Data_. Retrieved June 8, 2014, from Bureau of Transportation Statistics: http://www.rita.dot.gov/bts/press_releases/bts024_14

United States Government Accountability Office, (. (2006). _Airline Deregulation._ United States Government Accountability Office. Retrieved June 8, 2014

University of Phoenix. (2013). _STR/581 Week 3 Individual Assignment: External and Internal Environmental Analysis_. Retrieved June 7, 2014, from

Porter 5 forces for JetBlue Airway Essay

Potential Competitors: Low

– Rivalry among existing firms is intense, which affect the profits to be low. It¡¦s unattractive to the potential competitors.

– High initial investments and fixed costs such as lease a fleet of safe and reliable aircraft, negotiate reasonable gate access and landing fees as well as high labor and fuel costs.

– There are the price competitions in the airline industry, which some major airlines offer the low-price fares that is very difficult for new entrants to gain enough profit to cover the investment and fix cost in this industry.

Rivalry among Existing Firms: High

– Currently, there are many major airlines such as Delta, United and American that exist in the same market as Jet Blue.

Those airline companies have used similar strategies as JetBlue. United and American Airline flies to the same cities as Jet Blue and appeal to the business travelers who have the least sensitivity on price.

– Airline industry is extremely sensitive to economic cycles. Mature industry life cycle.

The Bargaining Power of Buyers: Medium to High

– Internet gives the power to the customers to search for the low fares.

– Leisure travelers who are not sensitive with the price and most of them are loyalty to the particular industry that offer the best service and offer the best flying experience.

– There are many airlines in the market that offers the same flying experience in the low-price.

Bargaining Power of Suppliers: High

– Boeing and Airbus are the only two suppliers of new aircraft for commercial passenger airlines. This allows them to have power of suppliers in the airline industry.

– Airline workers are unionized, which let them have power of labor supply.

– OPEC countries have the significant impact for airline industry. The reason is that the fuel is another substantial input cost for airlines, ranging from about 8% to 10% of revenues. Currently, the fuel for the aircraft are rising then the affect from oil price increasing push some airline companies to loss revenue in year 2005 such as Delta and Jet Blue.

Substitute Products: Medium

– For short flight, the substitute could be the automobile.

– Faxes, teleconferencing and videoconferencing can substitute traveling by plane for business travelers.

– Switching cost for customers from airplane to automobile and other technologies save the money for a lot of travelers.

Relative Power of Other Stakeholders

– Internal Revenue Service has just published the mileage deduction rate for 2006. It is 44.5 cents a mile. That’s down from 48.5 cents a mile for the last four months of 2005, which reflected a special adjustment for rising gasoline prices;

– Long Beach communities files charges against airlines for noise violations.

– Customers file against Jet Blue for showing the passengers data to the third party.

American Airlines Flight Essay

Through his 1997 Airframe novel, Michael Crichton describes Casey Singleton’s response after a plane that was manufactured by Norton Aircraft experiences an accident while in flight. Singleton is a quality assurance officer at Norton Aircraft. Does the story accurately portray an aircraft manufacturer’s response to an accident? By demonstrating that following the accident, Norton Aircraft works hard to ensure that it (Norton Aircraft) does not only ascertain the genesis of the accident, but also to try to exonerate itself from any culpability, Crichton presents an accurate picture of aircraft manufacturers’ reaction to plane accidents.

To illustrate, Singleton puts forth great efforts to investigate the facts behind the accident (Crichton, 1996). It is notable that a Singleton is not interested in the numerous aspects that usually surround pane mishaps. Rather, she seeks to establish who erred with regard to the accident. This is the typical reaction of aircraft manufacturers after plane accidents; they seek to apportion blame rather than solve the problem.

Does the story accurately portray the media’s response to an aircraft accident?

Crichton also presents a credible description of how the news-hungry media usually responds after plane accidents. It is undisputable that media houses jostle to present that so-called ‘exclusive’ story to the public after air accidents. This trend is clearly exhibited by the plans by a local media house to air a sensational news program that has somewhat maliciously dubbed the ill-fated plane a ‘deathtrap’. The author thus describes and critiques the sensational attitude that the media shows towards plane accidents. What was your overall impression of the story?

After studying Crichton’s story, I was pleased with the author’s description of events that closely resemble real-life aviation accidents. For example, in describing the circumstances as well as the cause of the accident, Crichton draws parallels with the American Airlines Flight 191 fatal crash. In addition, Singleton’s investigations reveal that the accident was partly caused by the captain’s error of allowing his inexperienced son to take charge of the aircraft. Similarly, the Aeroflot flight 593 mishap in 1994 originated from the pilot’s mistake of permitting his inexperienced son to man the flight.

Discerning such parallels to real-life events makes me to like the novel owing to its seeming applicability in contemporary mishaps. On the other hand, after closely examining Crichton’s plot, I have deduced several themes which make the author’s text very significant. For example, the author describes events that seek to show that air accidents are usually blamed on the wrong parties. In this case, John Marder and his associates try to place the blame for the accident squarely on Singleton.

After her investigations, Singleton however detects that the fault was in the person who was operating the aircraft, particularity the pilot. The author thus demonstrates that innocent and vulnerable parties usually unjustly carry the blame for plane accidents. This candid portrayal of the blame games that accompany plane accidents is an aspect that makes the author’s work worthy of praise. In addition, I marveled at Crichton’s demonstration that humans, as opposed to mechanical failures, are the main cause of plane accidents.

The author thus eradicates the popular notion that machine failure is normally the major culprit behind plane accidents. To illustrate, the aircraft is functional as per Singleton’s investigations. Human error, in form of improper maintenance coupled with operational errors; make the plane to have the accident. Crichton thus debunks a popular myth related to aircraft accidents through the novel’s events. This aspect makes me to really like the author’s bluntness and originality. References Crichton, M. (1996). Airframe. New York: Knopf.

Environmental and Competitive Analysis of Easyjet Essay

This report has been written in order to provide an environmental and competitive analysis of the low-cost airline industry sector from the position of Easyjet. It will give a brief history into Easyjet and the low-cost airline industry. It will analyse the internal strengths and weaknesses as well as the external threats and opportunities. Competitors will be analysed through the use of porters 5 forces model. Recommendations will be made for EasyJet’s marketing strategies for the next three years.

Corporate History

Easyjet was founded in 1995 by Stelios Haji-Ioannou who based the firm around the low-cost, no-frills model of the US flight operator ‘Southwest’.

The concept of Easyjet is based on the fact that short flights within Europe are price elastic, meaning the lower the prices the more people will travel within Europe.

The deregulation of the European airline industry in 1992 authorised any European airline to operate, fly and land anywhere within Europe. This allowed airlines to expand routes and operate within Europe with much higher precision.

Easyjet was initially started from its ‘hanger’ headquarters at Luton airport with two Boeing 737-300’s offering flights from London Luton to Glasgow and Edinburgh at a price of £29 each way.

To date easyJet has now expanded into offering 125 routes from 39 major European airports using their fleet of 122 aeroplanes. EasyJet has also expanded into having large basis at not only Luton airport but also Liverpool, Geneva, and AmsterdamBack in 1999 easyJet gained free mass exposure to an audience of around 9 million viewers through ITV’s ‘fly on the wall’ documentary series ‘Airline’.

The launch of easyjet.com in 1997 has become an integral part of the business model and has seen a huge change in the culture of booking travel tickets. Currently easyJet.com provides around 90% of bookings today and in 2001 hit ten million sales making it the second busiest travel website in the UK.

Ryanair and easyJet are in fierce competition with each other as they are the two largest low-cost airlines operating within the UK. Since easyJet’s takeover of the low-cost airline “Go” in 2002 it has become Europe’s largest airline in this sector but still faces fierce competition.

EasyJet Mission StatementA mission statement should be the ultimate goal of a firm and should filter down into every department of an organisation.

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. (http://easyjet.com/EN/About/index.html)EasyJet’s environmental code based on three pointsTo be environmentally efficient in the airTo be environmentally efficient on the groundTo lead in shaping a greener future for aviation, for example:- carbon offsetting- shaping future aircraft design- for example, the ecoJeteasyJet high efficiency = lower emissions = low faresSWOT AnalysisA SWOT analysis analyses the internal Strengths and Weaknesses of easyJet along with the external Threats and Opportunities.

Strengths•Well known, respected and memorable brand name•Strong and well known leadership figure in Stelios: “No Bullshit” approach•Motivated workforce independently trained at the easyJet academy•Very effective advertising strategies developed to reinforce the easyJet brand along with mass exposure through ITV’s ‘Airport’•Good knowledge of the market and effective responses to competitors attempting to steal potential customers•Fly to a large number of main holiday destinations•Lower carbon emissions due to using newer fleet of aircraft•Cost reduction with the removal of travel agents•High passenger volume•Low operating costs•Diversification into other markets, car rental, internet cafes and hotels•Flat managerial hierarchy, thus reducing costs•Innovator with regards to online booking and ticket-less travelWeaknesses•Fly only within Europe and no current intentions to expand outside of the continent•Rely on computer bookings to such extent that business would be unable to operate with computer failure or virus attack.

•No customer retention/relationship policy.

•No points scheme to reward frequent flyers•Access to European airports allowed by the deregulation of the industry, which may vary in the future•Outsources many of its services to third parties which may be damaging to its reputation•Success of Easyjet makes it difficult and expensive to train staff quickly enough.

Opportunities•Lower costs further•Increase fares•Introduction of more countries into the European Union has increased potential customers and flight destinations•Expand into new routes, outside of Europe, and long haul•Decrease turn around times•Improve aircraft utilisation•Vertical integration to eliminate outsourced functions of easyJet’s procedure•Gain first mover advantage with regards to using alternative ‘greener’ fuel cells•Introduction of points scheme to reward and retain frequent flyersThreats•Rising fuel prices

•Introduction of a carbon emission tax or other environmental regulations•New emerging competition•Competitors undercutting prices or offering similar prices for a more efficient/better service•Aircraft maintenance problems•Terrorism reducing air travel numbers•Emerging alternative modes of transport•Reputation lost in event of well publicised incident•DelaysPEST AnalysisA PEST analysis analyses the Political, Economic, Socio-Cultural and Technological factor influencing the low-cost airline industry.

Political Factors•Threat of terrorism upon airlines•Governments applying taxes upon carbon emissions•Introduction of more countries into the European unionEconomic Factors•Increasing fuel costs and other environmental restrictions•European Union regulations•Prospect of higher security and insurance costs due to the increased risk of terrorism.

•Continuing growth of air travel through continuing globalisation•Introduction of the Euro single currency is likely to integrate Europe even moreSocio-Cultural Factors•Travel and holidays are becoming more and more typical for a large percent of the UK population•Continuing growth of multi-national enterprises has caused business travel to become more common•Gaining customers from France and Germany may cause problems as these nations are still very reluctant in using credit cards over the phone and on the internetTechnological Factors•Advancements in e-commerce resulting in increased online competition•Improvements in engine technology will allow easyJet’s planes to run more efficiently and reduce emissions•Increases in fuel technology offering easyJet alternative fuel sources

Porter’s 5 forces model

Porter’s 5 forces model looks at: the threat of substitutes, the threat of new entrants, the power of suppliers, the power of buyers and the rivalry among existing firms to analyse the competitiveness within a certain industry.

The threat of substitutes•Fairly low threat from other modes of transport as the cost and time advantage clearly separates the low cost airlines from the luxury and comfort offered from substitutes such as high speed train services. For example London to Glasgow takes 6 hours on a train and costs around £80 whereas Easyjet offers the service in 1 hour only costing £29.

•Regarding travel into mainland Europe the distance is far too great for train, car and ferry travel to be a realistic worthwhile substitute. For example if a customer was to drive to the south of France for a short weekend break the travel would take too long for it to be realistic and practical trip .

The threat of new entrants•Limited capacity at suitable airports means any new airline would find it hard to find suitable take off and landing slots.

•Huge start up capital required for the purchase of aircraft•New entrants would be working as a ‘loss leader’ for a number of years due to the large initial expenses•The low cost airline industry within the UK is fairly mature but as easyJet were one of the initial firms into this industry they hold a strong position. However within the rest of Europe there are many holiday operators who are attempting to enter the low cost airline industry themselves.

The power of suppliers

•The price of fuel is directly related to the cost of oil which is ever increasing. Easyjet rely on being able to obtain fuel but have no control over the price.

•Aircraft manufactures are extremely concentrated within the industry with Boeing and Airbus the two main manufactures. The dependence of spare parts from a certain manufactures could pose a risk.

•The more Easyjet expands the more power it will hold over its suppliers through gaining ‘economies of scale’.

The power of buyers•Buyer power within the airline industry, especially the low cost sector is especially strong as customers often shop around and try to find the best price. This factor has been extended through the introduction of many online flight search engines such as travelsupermarket.com and lastminute.com.

•The Civil aviation authority (CAA) provides protection against(1) the consequences of travel organisers failure for people who buy package holidays, charter flights and discounted scheduled air tickets and(2) licences airlines and ensures compliance with requirements of European and UK legislation relating to financial resources, liability and insurance of airlines.

•Customers experience no negative feature of switching supplier so are happy to do so.

Rivalry among existing firms•Ryan Air, BMI baby, MyTravelite, Jet2 and Buzz are all competitors with the UK low cost airline industry but Ryan Air is the only one of these to have succeeded and shown a continuously yearly profit.

•British Airways and other traditional flight operators flying from the UK are competitors but on a much lower scare as they are targeting different market segments•There are over one hundred European based low cost airlines, many of them are very small but still act as competition for easyJet.

Different Types of competitorsSimilar specific – same product, technology and target marketSimilar general – Same product area but serving different segmentsDifferent specific – Same need satisfied by very different meansDifferent general – Competing for discretionary spend(Brassington, pg 866)In relation to Easyjet the similar specific competitors are the other ‘no-frills’ low cost airlines, operating within Europe. The largest firm that fits this specification is Ryan Air thus they are easyJet’s prime competitor. Other ‘no-frills’ low cost airlines operating within the UK include Jet2, bmibaby and Flybe.

The similar general competitors are other airlines that operate within Europe but which are targeting a different type of clientele. Within the UK the largest operators are British Airways and Virgin but both of these operators tend to concentrate on the more upper class expensive business flights. They are also not in direct competition with Easyjet as they offer flights all over the world and are not restricted to just within Europe.

The different specific competitors are firms which offer travel into Europe by means other than air travel. This would be the channel tunnel operator Euro tunnel and the English channel ferry operators such as P&O, Brittany or Stena Line.

These are not in direct competition as the main differentiation is that on both the channel tunnel and the ferry crossing people can take their cars onboard. It is also a much longer process so unless visiting the west coast of France weekend breaks would seem rather pointless as the duration of the ferry would be too long.

Different general competitors could be firms offering holidays and trips within the UK where no air travel is needed at all. Different general competitors could also be firms supplying other luxury items that may be bought instead of a holiday, such as a new car.

Competitor analysisAs the range of competition throughout these groups (above), is at varying intensities the similar specific and similar general groups will be broken down into four segments for ease of analysis. Competition will be analysed through a competitor analysis.

Who are our competitors?Segment 1Ryanair: Easyjet’s direct competitorsSegment 2Other UK based low-cost airlines: Jet2, flybe, bmibaby,Segment 3Standard UK based airlines: British Airways, Virgin Atlantic, KLM and BMISegment 4European based low-cost airlines: There are over 100 European low cost airlines such as: Condor, g’wings, SkyEurope and Blu Express.

AssumptionsIt is inevitable that the continuous growth in the low cost airline industry will begin to slow down as the industry is becomes saturated. It is believed that the current mass of operators will be whittled down to a handful of major airlines. A large number of the smaller low cost airlines that will unavoidably struggle to compete will be involved in take-overs allowing the bigger players in the industry to continue to grow.

What are our competitor’s strengths and weaknesses?RyanAir Strengths•Well known and respected brand name•Low costs due to low airport charges•High internet booking ratio•High aircraft utilisation•Use single type of aircraft•Fast turn around times•High seat densityRyanAir Weaknesses•Recent reports of poor customer service•Negative press•Airports are often long distance from travellers end destinationUK based low cost airline Strengths•All have their own website for bookings and ticket-less travel•Some have strong financial backing•Fast turnaround time•Low operating costsUK based low cost airline Weaknesses•Relatively small in comparison to easyJet and RyanAir•Large advertising costs•Small network of routes•Competing in competitive industry resulting in many mergers and take-overs•Restricted to the use of certain airportsStandard UK based airlines Strengths•Respected and well known brand names

•Worldwide service•Strong financial backing•Respected standard of serviceStandard UK based airlines Weaknesses•Low aircraft utilisation (compared to easyJet)•High costs•High pricesEuropean low-cost airline Strengths•Use of single currency (Euro) can reduce costs•Closer to emerging markets (Eastern Europe)•Low costs•Well know brand names, in their respected home countriesEuropean low-cost airline Weaknesses•Relatively small compared to easyJet and RyanAir•Virtually unknown in the UK•Competing in fierce industry•Restricted use of certain airportsWhat are our competitor’s objectives?RyanAir – “RyanAir’s objective is to firmly establish itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fares service.

RyanAir aims to offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.” (Ryanair.com)UK based low cost airlines – Initially the UK based low cost airlines objectives are to survive in the industry by increasing their market share. The inevitable saturation of the market will cause many of the smaller low cost airlines to be merged or taken over by the larger players. In order to avoid this smaller low cost airlines need to differentiate themselves from the crowd or gain a unique selling point through lower costs, excellent customer services or exploiting new routes.

Standard UK based airlines – Aim to continue their dominance of flights in and out of the UK by emphasising the quality of the service they provide. They also plan to reduce prices in order to shorten the gap between themselves and the low cost airlines.

European bases low cost airlines – European low cost airlines need to survive in the market by increasing their market share. This could be established by increasing their network routes or branching into un-targeted countries within Europe. It is also plausible that mergers will occur within this sector to reduce the risk of failure.

RecommendationsEasyJet can not avoid the increasing oil and petrol prices which is bound to effect the industry sooner rather than later. It may be recommended that easyJet start looking into using alternative renewable fuel sources. If easyJet can get hold of the technology to run their fleet of planes on a ‘greener’ fuel they may gain first mover advantage and capture large amounts of the competitions customers.

Over the next three years it would be recommended that easyJet focus on ‘joining the dots’ of their European network rather than attempting long haul flights as this would be difficult and would carry a large initial risk. If easyJet could ‘join the dots’ in their European network it would fight off the competition from the emerging low cost airlines attempting to grow within the industry.

Conclusion

In conclusion easyJet have built a strong brand which has positioned them in an excellent spot within the low cost sector of the airline industry. With this sector of the industry predicted to grow, competition is likely to intensify even more but as easyJet has already built a strong brand and customer base it is unlikely they will be forced out of the market. EasyJet need to continue its advertising strategies, reinforcing its image and brand name to continue as one of the industries leading airlines. As the UK market is saturated and offers small or no growth opportunity, it would be logical for easyJet to focus on the expansion of their route networks within Eastern Europe. EasyJet should accomplish this through providing the routes themselves or merging with a competitor that already does.

Reference List

Bird’s eye view. SWOT analysis of low cost carrier industry (April 2007)http://www.air-scoop.com/downloads/SWOT_Low-Cost-Carriers_Air-Scoop.pdf [7-12-2007]Blythe, J (2006) Principles and Practice of Marketing, Thompson Learning, Bedford Row, LondonBrassington, F. Petit, S. (2003) Principles of Marketing, page Pearson Education, Harlow, EssexChannel 4 news. How green is easyJet? (May 2007) http://www.channel4.com/news/articles/society/environment/factcheck+how+green+is+easyjet/509642 [20-11-2007]Crawford,C. Easyjet SWOT Analysis (2004) http://www.marketingprofs.com/ea/qst_question.asp?qstID=3412 [25-11-2007]Hoffmann, J. Ryan Air – Environmental Analysis, Discussion of core competencies and Strategy Proposal (2004)http://www.grin.com/en/preview/39017.html [25-11-2007]Manzoor, M. Easyjet (2005) http://www.marketingprofs.com/ea/qst_question.asp?qstID=9339