Legal Factors & Environmental Factors

The Public Service Obligation routes and subsidies received restrict Aer Arann's control of these routes as they are legally bound to operate these routes until 2005, regardless of their profitability. Aer Arann's aircraft fleet is continuously expanding to service newly introduced routes. To accommodate the servicing and storage of new aircraft, Aer Arann may require new premises such as aircraft hangers or maintenance buildings. As Aer Arann operate from regional airports in rural regions, e. g. Knock or Kerry Airport, planning permission for construction may be difficult to obtain.

New Entrants: The EU's open skies policy has dramatically loosened the barriers to entry into the European airline industry. However, the capital requirement, brand loyalty and the scale of the market would be the barriers for new entrants. In Ireland, the scale of the market is small, Aer Arann is already experiencing very strong performance, therefore, it is unlikely to have new entrants to compete in the domestic market in the short-term. In the long-term, the national airlines such as Aer Lingus or Ryanair may operate enhanced UK routes as they are not currently serving some of the niches operated by Aer Arann, e.

g. Cork – Southampton. Power of Suppliers: The September 11th attack impeded on the airline industry, resulting in reduced buyer demand for aircraft, minimising the power of the supplier and allowing airlines to attain competitive prices. Substitutes: The new technology, such as, 'Net-conference' can be a substitute for the actual physical meeting. This may reduce the number of business passengers who fly with Aer Arann. The strength of this force is reasonably high because the Net-conference is cost efficient, and low cost management is the practice for business strategy in the current economic downturn.

Power of Customers: The current economic climate may be serving to weaken the power of Aer Arann's customers. But in the long term, when the economy is recovering and upon completion of upgrading the road network proposed under the National Development Plan, the power of the customer could increase, because they would have enhanced travel options. Competing Airlines: There are three main national airlines in Ireland, Aer Lingus, Ryanair and Aer Arann. As Diagram 2 below illustrates, Aer Arann is a regional airline which is focusing on the less lucrative national and international routes that Aer Lingus/Ryanair vacated.

It is evident from Table 1 that Aer Lingus do not operate Aer Arann's domestic/UK routes, and there are only two routes, Cork-Birmingham and Cork-Bristol that Aer Arann and Ryanair are both operating. For the short-term, Aer Arann are not competing with the other two national airlines, therefore the level of competition is relatively low. In the longer term, Aer Lingus/Ryanair are unlikely to compete on the domestic routes as it is already a serviced niche market, but they may enter the UK routes provided by Aer Arann. In general terms, there is a frequent scheduling of bus service between Dublin and the major urban centres.

However, urban centres in the northwest are poorly served. Sligo and Letterkenny for example have only 4 or 5 daily services from Dublin respectively. The bus offers a much lower quality of service than airline in terms of journey times and comfort. However, with the proposed improvements in the road network, it is likely that journey times will reduce. In addition, the government plan for privatising state-owned public transport will encourage private operators to enter this market. These factors will create further challenges to Aer Arann's service provision.

Iarnrod Eireann serves most of the major cities in Ireland. The increase in car ownership may have a negative effect on rail use. The rail system's infrastructure is constrained, thus their competitive position is poor. However, through the National Development Plan an investment of over i?? 50 billion has been allocated for the development of road and rail infrastructure. The NDP will result in reducing journey times, which may lead to Aer Arann passengers switching from air to other modes of transport. This poses a future threat for Aer Arann in the longer term.

In this regard, there is now a need to develop a long-term plan for Aer Arann, which would identify its future role and consider the level of capacity and service that it should provide. In the long term, Aer Arann should focus on the routes that rail/bus are inadequately serving, e. g. the route in northwest Ireland, and provide a low cost, efficient service, offering high passenger satisfaction. In the short term, Aer Arann should continue focusing on the niche markets and consolidate its market share by improving its brand awareness, widen its distribution channel and provide a low-cost but high quality of services.