Is the budget airline segment an attractive place to be? Why (not)?
Yes, the budget airline segment is very attractive in a country where the people are interested to travel in low cost airlines without much comforts like business class and food. And more over if the company can reduce its costs in the areas of operations and utilising the resources more efficiently, then budget airline segment is definitely an attractive place. Some of the areas where we can look into reduce the costs are like using the no frills strategy, reducing the number of travel agents, reducing the aircraft stay in a airport (which reduce the fees to be paid for the airports). The above are the some of the strategies used by the easyjet airways and also they used their resources to maximum extent like they operated Boeing flights for 11 hours per day compared to their rivals who used 6 hours per day.
Rising middle class all over the world is also another factor which makes the budget airline segment an attractive place because they can afford the air travel at such a low price there by increasing the volumes of air traffic and helps in increasing the profits of the airlines. As the prices are low for the aircraft, the profit margins are also very low and the airlines has to strictly adhere to its operating policies like punctuality and low fares to attract masses and generate revenues. If one cannot stick to their standards they may lose the market (as in the case it was mentioned some 60 out of 80 carriers went bankrupt). Some other aircraft carriers which are successful in this segment are American southwest airlines and Indian Spicejet (They generated profits after introducing the new strategy of low prices).
Also in the case it was mentioned the European budget airline segment was expected to grow by as much as 300% by 2004. So it is definitely a best place to compete and sustain. Also some of the business executives also prefer the low cost airlines as they might be travelling a lot and travelling low cost carriers reduces their expense and as they are available at any point of time. Porters five forces can be also used to know the attractiveness of a industry. Bargaining power of Suppliers: The suppliers of the industry are major aircraft manufacturing companies, some of the outsourcing firms, and travelling agents. Here in this case aircraft manufacturers like Boeing have their upper hand. When coming to outsourcing and travel agents airlines try to minimise their intervention to be competitive.
Bargaining Power of Buyers : Since there will be lot of competitors in the industry and ultimately the bargaining power rests with the majority of the customers or travellers in this case. Threat of New Substitutes : In many places in Europe, High Speed Rail network directly competes with low-cost airlines. Still 50% of people travelling in some of the routes preferred business class travel. Threat of New Entrants : As mentioned earlier there is scope of 300% growth by 2004 and so many new entrants try to compete in this industry but from the data available it is mentioned 60 out of 80 entrants went bankrupt. So this may restrict the new entrants to think before entering this sector. Intensity of Rivalry Among competetors: The intensity of competition is very high from the competitors like British airways which launched a separate airlines to tap the low budget airline segment
So overall considering the above all cases and if an airline can reduce their costs and increase their operational performance, then definitely budget airlines is the place it can compete.
How does EasyJet deliver its customer value proposition? Some of the value propositions offered to the customers by the Easyjet are 1. The airlines flew brand new fleet of Boeing 737s to impress the people and let them know they don’t compromise on the safety of the carriers 2. They hired the experienced pilots and crew at market rates and customers are pleased to find the smiling crew when they boarded the flight. 3. They operated strictly according to schedule and had the policy of refunding amount if they are late by 3 hours 4. The cost of changing to another flight was very less (€10+ difference of the fare) 5. Passengers are required to carry their 6 character reference number instead of the tickets. This reduces the paper wastage. 6. Stelios portrayed image of Man of the people by personal interaction with customers. 7. No pre-assigned seating offered. Allotment was based on first come first serve basis.
The Harvard Business School case study on Amazon Web Services (AWS) by Huckman, Pisano, and Kind, outlines Amazon’s expansion into selling “cloud” services. In 2002, 8 years after Amazon appeared as an online retail bookstore, the company started exposing product data in a “developer-friendly” format to its affiliates via an application program interface (API). The resulting positive response exceeded expectations and led Amazon executives to recognize a market for renting their highly reliable and scalable technical infrastructure to developers in the form of pay-as-you-go web services. By 2008, Amazon had introduced 12 services, including four core offerings described as “Infrastructure Web Services”: Elastic Compute Cloud (EC2), Simple Storage Service (S3), Simple DB, and Simple Queue Service (SQS).
While the move into cloud computing was an unexpected and bold step by Amazon that surprised the application hosting industry, was AWS a disruptive strategy or a new business model? Clayton Christensen describes a disruptive technology as “changes that toppled industry’s leaders.” While the idea of leveraging existing assets to create a new business opportunity and gain a competitive advantage was a unique concept and industry differentiator for Amazon, it was not disruptive by definition. Incumbent leaders on the server and computing side like IBM, Sun, and HP all had sophisticated back-ends and application frameworks similar to Amazon and each were starting to develop initiatives to provide infrastructure and software solutions in the cloud. In addition, many large corporations such as Network Appliance, EMC, and Dell already offered online storage capabilities comparable to S3, albeit few provided a similar pay-as-you-go model.
AWS was also in front of the other Internet giants, but not by much as each major player already had a mature web hosting business and was starting to develop web service offerings. Microsoft introduced two families of web services in 2005: Windows Live, a suite of consumer software services, and Office Live, a similar range of services targeted to small business. Salesforce.com established force.com in 2007, a platform for developers to create business applications, and Google introduced App Engine in 2008, which was expected to evolve and compete directly with AWS. Amazon first considered creating a broader developer-oriented business when the company realized it was spending “…70 percent of its time building and maintaining the back-end technology ‘muck’ that did not differentiate Amazon from its competitors.”
The company brilliantly identified the right new business model at the right time and Andy Jassy’s foresight and vision gained Amazon the first-mover advantage in the developer business. The company, however, did not redefine the back-end infrastructure technology supporting their services nor did they introduce a pioneering approach to data center management that significantly reduced overhead costs and destabilized competition. Amazon’s strategy introduced nothing that neither “toppled” the industry leaders nor prevented them from responding relatively quickly in offering their technology in the same manner as Amazon.
While Amazon‘s cloud computing and web services offering is rich, encompassing, and ahead of its competition, AWS is a new business model positioned to reduce costs and increase free cash flows through better asset utilization. It will be interesting to see the impact true technology companies like IBM, Google, and Microsoft have on AWS as their web services solutions mature. What if AWS cannot maintain the volumes needed to offset their costs? Does Amazon’s move away from their core business and heavy investment in technology leave them inflexible and vulnerable to the strategy of a new online bookstore that utilizes cloud computing in a disruptive way to reduce costs and sell books for less?
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Topic: Easyjet Case Analysis
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