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Airplanes cannot be substituted for another product therefore it is an important input for the airline, which strengthens the manufacturer even more. In addition, the fuel providers have a bargaining position, which allows them to increase prices without consideration towards the airlines whom are their important customer group. The threat of forward integration is low as it is presumed that aircraft manufacturers or fuel provides etc. will not purchase an airline.
However, the strong position of the fuel providers and the strong position of manufacturers need to be taken into account.
Within the airline industry there are two groups of competitors, the mature airlines and the low cost airlines. The mature airlines have been established for more than 100 years and with the recent crisis that the airline industry has encountered has led to a process of consolidation and the formation of a basis of agreement within the airline industry, therefore they are no longer competing against each other. Low cost budget airlines are also not competing now.
This is mainly because this part of the industry is mainly controlled by Easyjet and Ryanair and both are targeting customers at different ends of the market.
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Although there is a distinctive place within the market for both the mature and low cost airlines it cannot be excluded that they do not overlap. British Airways are already modifying their strategies to be able to compete on the low fare market. In 1998, they launched a local ad campaign to target no-frills travellers. Whilst Easyjet are opening more routes to obtain the market share of the mature airlines.
Therefore, competition between competitors within the airline, industry is very high.
An organisation can influence the five forces of competitors by applying certain strategies, which will restyle the attractiveness of an industry. If an organisation reshapes its structure, it can then lead to a change in an industries attractiveness, which could be for the better, or worse. Porter's 'Five Force' analysis provides an uncomplicated overview of the competitive environment of an industry and can be used to introduce an industry structure.
The SWOT analysis, as previously mentioned, is another tool used by organisations to allow them to look at both the internal and external elements, enabling them to formulate a strategy. Therefore, we can look at the strengths, weaknesses, opportunities, and threats that both Easyjet and British Airways may face. British Airways are able to formulate long-term strategies especially in investment and partnership policies. They are also able to focus on domestic, regional, and European routes as they have a strong British market as a base.
They also have a strategy orientation to strengthen the future of the organisation by repositioning themselves within the low cost part of the industry. With Easyjet, their low cost strategy is their main strength. They can utilise this by using simple company logistics, effective use of airtime and an appreciation of its UK market. With its main concentration on primary airports, it does not come under direct competition with Ryanair. Easyjet, have developed a powerful brand while invigorating demand with low prices. Repositioning can also be a threat for British Airways as their main customers are business travellers.
In 1998, British Airways adopted a new marketing approach to try to win back disaffected and first class customers. One customer was quoted in saying, "Flying with BA today is a hassle - you're not made to feel special and it's out of it's depth if anything goes wrong" (Dwek, 1998). Customers were clearly not satisfied with their in-flight service and felt their issues were not being addressed, as British Airways were to busy concentrating on attracting new customers. This led to confusion on BA's strategy orientation.
As Easyjet operates on low costs, this means it limits its attraction for certain groups of customers. In addition, as it does not operate in secondary airports so as not to compete with Ryanair, it means that they will not be able to capture new customers. Its heavy reliance on computers for booking and for the storing of information could be risky due to failures and viruses. Easyjet may also face problems on the domestic markets, where there is already high competition and other full service airlines provide only slightly higher prices compared to what Easyjet already offer.
British Airways due to its maturity has reached a certain size and has a well-established culture, however this does make it difficult for them to adapt and make use of opportunities made available by the environment. Its orientation towards partnerships, hence the recent one with Spain's Iberia airline this month, may reinforce its position worldwide. British Airways produced a new aircraft 'Boeing 737-400' in 2002, which can be seen as a sign of confidence in future recovery. "... an airline only invests heavily if it sees sustained growth and high utilization" (Costa et al, 2002)
The new aircraft fleet will be used to serve routes between Johannesburg to Cape Town. The 140-seater aeroplane it the first kind in Africa, allowing for expansion into other areas such as Nairobi and Luanda which were previously out of range. Easyjet's opportunity came from the crisis the airline industry has been through in recent years. Due to being a young organisation, it does not face problems with adapting to new environments. They are also seeking opportunities on mature airlines by targeting business travellers.
In 2002, they targeted the corporate travel market with the launch of a dedicated online facility. Chief executive, Ray Webster said the link would enable corporate account managers to oversee accounts in the same way as with full-service carriers, he stated that "It will allow an implant to come in and review what travel has been booked". The main threat that faces BA is new competitors that are coming into BA's home market. They are threatening BA's strong position within its market. It is also threaten buy the general economic crisis and the necessary reduction in production costs.
Whilst the main threats that are facing Easyjet are the general losses within the low budget business and the rise in fuel prices. "It is important when undertaking the analysis not just to relate it to the historical situation. " (Johnson and Scholes, 1993) Both BA and Easyjet may find that their strengths may not be relevant, depending on how their environment is developing. It is also important to note that an analysis of their weaknesses should recognise that their importance will vary depending on what strategy BA or Easyjet are likely to pursue.
Next, we can analyse both BA and Easyjet's strategies using Michael Porters (1985) 'Generic Strategies'. Porter's three generic strategies are cost leadership, differentiation, and market focus. "Firm's relative position within an industry is another important question when it comes to competitive strategy. Positioning determines whether a firm's profitability is above or below the industry average. " (Porter, 1985) A cost leadership strategy is when the company sets out to become the low-cost producer or service provider within its industry.
A differentiation strategy is when an organisation seeks to be unique within their industry and is rewarded for their uniqueness with a premium price. A focus strategy is based on the choice of a narrow competitive scope within an industry. Porter argued, that for a company to ensure long-term profitability, it needs to be clear as to its primary generic strategy otherwise there is a chance they will become 'stuck in the middle'. British Airway and Easyjet's position in the 'Generic Strategy Matrix' is illustrated below based on Porters framework.
British airways serves a broad customer base and with their new price concept, they are targeting a wider range, as it no longer focuses on business travellers, but now on price sensitive customer with their introduction of the airline card in 1998. "... creating something that is perceived industry wide as being unique. ... differentiation strategy does not allow the firm to ignore costs, but rather they are not the primary strategic target" (Porter, 1980)
Competitive Advantage of British Airways Company. (2020, Jun 01). Retrieved from https://studymoose.com/competitive-advantage-of-british-airways-company-essay
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