Question 1

Low-cost airline is an airline offers transportation services at lower prices in exchange for the

elimination of many services provided by traditional airlines. The concept was created in the

United States of America, and was then, at the beginning of the 90s implemented in Europe

and the rest of the world.

In recent decades we can clearly see increase in the number of airlines worldwide. All this

started from U.S as early as in 1970’s as when the low cost carriers were introduced. . Southwest

Airlines was the earlier one which started their operations in 1971 and made their first profit in

year 1973 (Oliveira and Huse, 2008). As in Europe the LCC was started in 1990’s. Even though

there are many LCC operators the 2 famous once are Ryanair (Ireland) and Easy Jet (UK).

The most significant representatives of LCC in Europe include Irish Ryanair, that started to

operate in 1991 and easyJet, founded in 1995. The low-cost airlines in Asia and the Oceania

marked their beginning in 2000 by founding the airlines Malaysia's Air Asia and Australia's

Virgin Blue. Today the model is used in the whole world and the deregulation of the market

has been favorable to their fast expansion and development.

The differences between low cost carriers and others are as follows:

1. Connections with airports and not always focused mainly due to lower taxes and a rotation

higher flights.

2. A standardized offer with a single class for travelers, a single model of aircraft for the same

company as well as the absence of call organized by the company directly.

3. Simplified services as free placement within the aircraft, having a meal but only by paying and

a lack of loyalty program to reduce the costs of most loyal customers (Always apply in

companies’ traditional air).

4. Maximum capacity utilization on the Internet for various services.

5. A process of production through optimized to obtain more seats, the largest rotation of aircraft,

reducing the time to stop using secondary airports, maintenance and maintenance improved since

the fleet is quite young and staff training very precise for it to be as productive as possible.

Characteristics of the operation of low-cot airlines

Great expansion of LCA is favored by their extreme adaptability regarding the market. The low-cost airlines base their operation on constant elimination of non-profitable lines and introduction of new ones.

Characteristics of the concept of low-cost airlines :

· focus on the minimal costs and prices and maximal efficiency,· using secondary and regional airports,· point to point service,· single fare class,· direct service between regions,· short-haul flights,· no service onboard aircraft,· one type of aircraft in the fleet,· younger and environmentally-friendly fleet,· low operative costs.

Advantages of low-cost airlines:

· single (one-way) tickets without restrictions,· no free in-flight service,· cheaper airport taxes,· single transport class,· no in-advance seat reservations,· travelling without ticket,· frequency of flying,· short handling time (up to 25 minutes),· using secondary airports,· direct flights,· lower labour costs,

· flexibility in personnel planning,· fleet standardization,· lower costs of maintenance, spare parts and personnel training,· minimal space at airports,

· strong promotion,· interne and telephone booking,· lower distribution costs,· few administrative staff members

As we discussed earlier basically Ryanair and EasyJet are the 2leading LCC in Europe. Ryanair

strategy is to use secondary airports at relatively low frequencies and focuses on new leisure

markets with no direct competition. The focus on cost leadership strategy is highly applied by

Ryanair compare to other strategies. EasyJet serves primary -high costs airports at high

frequencies and focuses on existing, business and leisure, markets and also new markets,

accepting competition from incumbent carriers. The other LCC’s could not achieve cost

leadership even after they tried to follow the above LCC’s.

The differences between Low cost airlines and the full service airlines is mainly on cost

standardization.(Barrett, 2004). Branding also becoming very important since there are too many

of LCC players in the market and all are tent to offer lower price in order to stay competitive in

the market. The only best way that so far have identified is through product and service

differentiation strategy. This will allow the LCC players to stand out compare to their

competitors among the LCC operators. Achieving brand recognition in such a competitive

environment enables low cost airlines to compete (O`Connell and Williams, 2005).

In the case of EasyJet, their ticket charges seems to be one of the lowest compare to their

competitors especially Ryanair. Looking at the current competitive edge among the LCC’s the

low flight ticket price gives competitive advantage to the company compare to their competitors.

On the other hand the good customer service also gives some competitive advantage. In

EasyJet’s case their low baggage cost also an advantage for them. This helps EasyJet to provide

quality service at low price compare to their competitors.

Porter’s 5-Forces Analysis

Bargaining Power of Buyers

As there are many LCC’s in Europe at the current situation the Bargaining power of buyers is

high. This could allow the customers to enjoy the service from different providers. This can be

considered as threat to these airline companies.

Bargaining Power of Suppliers

As per the author’s understanding there are only 2 main aircraft suppliers in the market.

Furthermore since the demand from LCC is low on price of the aircraft, the bargaining power of

suppliers here is considered high. Besides that the bargaining power of aviation fuel suppliers is

quite high as there are only a few major suppliers. The threat is quite high as well.

Threat of Substitute Products or Services

Consumer might switch to alternate mode of transport like train or bus is always a threat to

Airline industry. But at this moment for point to point transportation within Europe, especially

for island countries like Ireland & UK, flying is the most convenient option This threat is quite

low

Threat of New Entrants

There are many new entrants even the set-up cost of airline company is always high. On the

other hand it is not as easy since the new comers have to face challenges in applying for landing

slots and gates. The existing airlines have stranglehold on most of slots and gates. So this

indicates low threat.

Rivalry Amongst Existing Competitors

Since these existing competitors have their own marketing strategy, sales strategy and product

differentiation strategy, they will not compete or clash directly in approaching their customers.

This threat is quite low

This industry is attractive for existing low price airlines. The low price airlines is about 30% of

the overall airline industry and there is quite a lot of opportunity to grow.

Question 2

The environmental factors as refers by the question can be concluded as PESTLE or PEST analysis which analyses the current environmental factors which is affecting the organizations business operation which could lead towards future business operation. Here the Author would like to apply the PESTLE analysis as it the most common once in service industry.

PESTEL Analysis

Environmental influences on Low Cost Carriers (LCC)

Political

As the political scenario in Europe is very stable compare to other continentals, the routes of the

European LCC’s looks stable. The local government’s support could be the only worries for their

support on their own national carrier.

Economic

The downturn of European economic along with the terrorist attacks which may reduce in the

customers preferences on flying may affect the LCC’s economy. Besides that the increase in fuel

price also could affect their business.

Social

It is undeniable that poor customer service always an issue in LCC. But the cheap or affordable

ticket fare encourages those budget conscious customers.

Technological

The high traffic at LCC providers website has shown the technological advancement towards

customers in Europe. This allows the providers issue their tickets online.

Environment

As LCC’s (Ryanair’s) fleet is one of the youngest it’s producing less emissions and more

environmentally friendly than other carriers, especially the legacy carriers. This could be one of

the USP’s for Ryanair in the future.

Legal

LCC’s currently involved in quite a few legal battles with cases filed against it and cases filed by

it. Whether they wins or loses the court battles it will still incur a lot of legal expenses and

management’s attention could get diverted from running the business to fighting in courts.

Industry Environment of Easy Jet

The industry that currently LCC’s competing is a very difficult industry environment. EasyJet is

also facing difficult industry environment. There are not many of low fare business survived to

continue a strong operation withis their industry. Many factors contributes the future of these

business. As the others in aviation industry EasyJet have faced issues on fuel cost, limited

demand from customers during economy slowdown, and restrictions on growth opportunities as

too many players in the market EasyJet have faced high airport charges and certain routs being

decline. (easyJet plc, 2012, p. 12). They also face other environmental difficulties as currency

rate fluctuations from the current European and world market besides the inflationary condition.

These macro environmental factors have being an impact to the company and reduces the

organizational revenue.

Industry Competitors

In response to the difficult operating environment, many carriers have chosen options such as

exiting the industry or changing ownership. EasyJet’s top competitors from the remaining

carriers include Europe’s largest discount airlines, such as Ryanair Ltd., Air Berlin plc, and

Flybe Group plc. EasyJet competes directly with these carriers in providing ultra-discount short-

haul flights to European consumers.

Internal Environment

Tangible Resources

As of the current condition they owns 214 aircraft both A319 and A320, 23 bases, and they also

operating at 605 routes. Most of the routes are within UK which allows them to remain as the

market leader in their local market. Their £317 million (20120) profit shows their standing at

current market competition. The company also has the ability to hedge forward on a rolling

basis, between 65% and 85% of the next 12 months’ anticipated fuel and currency requirements.

Intangible Resources

The employees trust and knowledge on product is known as the intangible resources. The five

core strategic of easyJet toprovide excellent customer service and satisfaction are: effectiveness

at organization, HR service delivery, leadership, management and development, high

performance culture, and talent and succession. In addition, the company’s partnership with

UNICEF allows it to market its brand through a charitable cause.

The challenges

Managing Increase in Operational Costs

In order for EasyJet to keep its airfares low, it will need to manage its operational costs

efficiently. Airport fees and fluctuation in fuel prices, for example, are the main costs that

EasyJet incurs from its operations. Thus, in order for the airfares to stay low, the company will

need to absorb these cost increases. Since EasyJet continues to be a cost leader, its margins will

not be as high as its competitors. Therefore, it can mitigate its costs by hedging oil prices by

agreeing on suppliers’ terms and landlords’ contracts.

The advantage of traditional airlines is that the passengers have greater comfort regarding

seats, catering service onboard aircraft, possibilities of purchasing return tickets, landing at

major airports that are as a rule as much as 30km nearer the city centre. The fare and the

paying ability of the passenger will represent in the future the crucial factor in selecting an

operator, and in this sense the low-cost companies will certainly be a more acceptable version.