By analysing the airline industry, we can look at two airline companies that have very different business approaches, therefore looking at the different corporate strategies being used. Firstly, an industry analysis will be used to help present the airline industry. This will be based on Michael Porters (1980) 'Five Forces' framework, introducing the five forces of competition. This model was chosen to help analyse the current position of the airline industry. This is then followed by a Strength, Weakness, Opportunity, and Threat (SWOT) analysis to show the external and internal views of each organisation.
This will enable an understanding of the strategies adopted by each airline both internally and externally. Then finally, Michael Porter's (1980) 'Three Generic Strategies' will be used to understand the position of the organisation in terms of their pricing policy and service standard. New strategies implemented since the events of September the 11th 2001 have led to previously unseen levels of price competition. Revised businesses practices, developments in technology, and cost savings were necessary to keep up with efficient low cost carriers whose business plans were based on operational efficiencies.
Easyjet is a well-known budget airline and has become successful with its 'low service/no frills' airline within Europe. It is a rather young company, beginning its operations in 1987. Previously Easyjet like Ryanair, Buzz etc targeted solely leisure and first time buyers but have recently moved into more convenient, business orientated primary airports, which has led to a convergence in the market. Whilst British Airways (BA) is a typical well-recognised airline company, which services countries around the world. Compared to Easyjet it is a mature airline scheduling flights as far back at 1919.
BA is renowned within the airline industry for its superior and innovative services, particularly those aimed at business class travellers (Brown and Eisenhardt, 1998). Like many European flag carriers, BA has maintained high levels of employment, a restriction on prices and high fares. When an organisation wants to achieve sustainability according to Looy et al (1998) there are two questions that need to be answered, what needs to be done to safeguard the organisations long-term survival and how can this be done?
For the organisation to answer these questions they need to develop a strategy by considering the following issues, the company's objectives, environment, resources and corporate values etc Michael Porter's (1980) framework the 'Five forces', started with an analysis of the investigation of the external environment. It states that organisations need an understanding of the rules of competition that affect industry attractiveness in order to be successful within the market. The organisation needs to be able to deal with the rules of competition as well as trying to change them to fit their own objectives.
According to Porter (1980), the rules of competition are presented in five competitive forces: In general, the five forces are the same for all industries in domestic and international markets, however their strengths may differ in each context, and their power may change due to the evolution of industry. By using Porter's (1980) 'Five Forces' framework we can then look at the airline industry. Currently, the airline industry is facing a recession period mainly due to the events of September the 11th 2001; therefore, entering the airline industry is quite difficult at the moment.
There are a vast amount of charter airlines and low fair airlines, within the market all offering a wide range of products and services that are satisfying consumer needs. Product differentiation and companies requiring high capital investment to purchase or hire aircrafts, technical support etc. are causing entry barriers to be high. Newcomers will also need to be able to access the distribution channels, which is important to achieve access to ground facilities i. e. take-off etc. In addition, the government has to grant the organisation permission to enter airspace.
There has also been a deregulation policy, which has allowed low budget airlines like Easyjet & Ryanair to enter the airline industry. Once an organisation has entered into the market, it is not easy to resign from it due to the rise of switching costs. Therefore, the threat of new entrants is relatively low due to the current business environment of the airline industry. Within the airline industry substitute products can come in the form of alternative travel possibilities such as trains, coaches etc.
However, these substitutes do not fulfil the need to travel worldwide in the shortest time available. Technology in the form of emails and videoconferencing can also decrease the need of travel. There has also been a rise in organisations purchasing corporate jets rather than flying their employee's first class. It has been estimated that there will be a 10% drop in first class travellers by 2005. Buyers can influence competition, as they are able to push prices down and are able to bargain for better quality and service.
However, as consumers that purchase plane tickets do not purchase large amounts they therefore do not have strong bargaining power. Buyers do however have low switching costs and can decide to switch airlines or alternatively decide to travel by other means instead. In general, the threat of buyers is comparatively low. Suppliers within the airline industry consist of aircraft manufacturers, suppliers of fuel and technical support etc. As the airline industry only has a small number of companies which produce aircraft. This means that they have concentrated suppliers, which leads to stronger bargaining power.