Introduction
This last assignment is to study and investigate the probability to launch a new entrant airline that it is already in the airline industry and the following debate the implication of Deregulation. This assignment is divided into two sections:
On the first section, a debate of the influence strategy for the new entrant in the open sky will be analysed following a PEST analysis. On the second section the suggested new airline London Stansted- Barcelona El Prat will be analysed, as the company want to set up scheduled airlines with the EU. Last but not less important in order for the company reach and gain the entry barrier to start up, The Porter’s Five model will be critically analysed to justify some actions taken and on the end a conclusion will be made in order to clarify if it is possible to create a new entrant in the airline industry.
First Section
The Airline Deregulation
Government and politician have regulated the airlines company industry thru years since the beginning of the history. The government had the authority over the airlines company by taking control and decide where airlines could operate, deciding their policy pricing and also the product planning of the airline company. They have also regulated the access of inbound frequency and capacity of the airlines companies.
Shawn (2011) debate that in Act 1978 before the concept of deregulation started, carriers were able only to access the new routes only by using a clumsy, inconvenient and very quite bureaucratic method. Shawn (1993) suggested that the new concept of deregulation as a deregulation or the creation of an ‘open sky’ ruled for domestic airlines to facilitate the new aspirant or entrant carriers to improve its business and service in order to offer a range of distinctive air travel by using the new employee to work inflexible condition, given the ability of freedom to operate and provide new routes and also being able to variety the price of the commercial tickets if its suitable but Forsyth (2005) and Maynard (2008) argued that the deregulation permit airlines to design its own business and the services of its itinerary so it will be able to give time to adapt the flight frequency depending on the seasonal demand, therefore, the airline entry barriers has decreased significantly on its opponents due the large variety of new company getting in the market which increases more competitors.
Bureaucracy
Bureaucracy is a designed organisation that operates like machines. Morgan (1997) define it as ‘the levels of department inside an organisation that have been attributed and created for a specific function by implying a strict routine nevertheless have enough time for creativity and innovation.
The biggest challenge for companies nowadays is to replace mentally function and have different ways to approach new ideas and this often creates a slow response to solve the issues that the organisation is facing which it can cause downward spiral to the organisation hierarchical and structure.
Morgan (1997) also debated that changes could transform products and service meaning that any newer smaller airline company must be well organised and placed to meet customers need therefore with the efficient operation, the organisation will focus to improve and renew the customer-focused on technology.
One of bureaucracy advantages is that scheduled departure and arriving are well organised by checking and updating regularly the safety and security of the airline operation. Occasionally bureaucracy limited the markets creativity but if the external competition or the competitions are secure they can solve any upfront issues.
Morgan (1997) suggested that whether a new entrant or bureaucratic organisation fuel price increases depends on the demand. Now that the deregulation has eliminated all the bureaucracy between the airline companies it is an advantage for the new entrants small airline because there is no bureaucracy and having the limited hierarchy it helps to have a quick response for challenges and also create new opportunity on the market.
Second Section
PEST Analysis
Political Deregulation: insecurity affecting new entrants
Airport framework: shuttle bus
Economical Bankruptcy and Economic decline: leisure and business
Fuel Prices: prices vary every time which affects the 30 % of airline budget
Socio-Cultural Ageing population: airline need to improve its product in order of passengers need (reduce mobility)
Unemployment: boost up worldwide cheap ticket
Family structure: depending on marital status to suit or personalize the type of holidays need.
Technological Network: direct access to book
Innovate: direct check-in to reduce queues
Environmental CO2 Emission: airline forcing to reduce international and national CO2
Global Warning: reduce contaminate pollution
Choose route
The proposed route for the new airline is London Stansted Airport to Barcelona-El Prat, the aim of this new airline is to have 2-4 aircraft’s, with the possibility to bring up to 10 flights weekly, due the high demand of passengers wanting to fly constantly.
London Stansted Airport (STN) is an international airport based at Stansted Mountfitchet, is 48 km northeast of central London. London Stansted airport is the third busiest airport with good transport connection between London city centres, which it makes the journey easy and accessible for passengers. The airport also supplies Stansted express rail services that runs from Stratford Station and changing train in Tottenham Hale (50 min journey) to easy the access to tube connections to London West End for passengers going to or coming from public transport such as National Express coach, Terravision, which is situated in front of the terminal with services to London areas like Victoria, Liverpool Street, Stratford and other areas of London like Birmingham, Manchester. There is also taxis that operates 24 hours from any area of London that the time and price vary depending on the passenger demand. Normally the journey from London to Stansted airport is between 50-60 min.
Barcelona- El Prat, well-known as Barcelona Airport, is the principal airport of the city and is situated at 13 km in South West of the city centre. Passengers find the airport very easy and accessible, as there is a good connection from the city centre to the airport and vice versa. Passenger can use the train (20 min) or use the Metro, called L9 Sud that stops at the Terminal 1 and 2, which runs every 7 minutes depending where passengers are coming from or going, maybe some passengers need to take another metro line that connects with the airport line which is the orange Line that has interchanges with Zona Universitaria, Collblanc, Forrassa and Europa Fira. As all the method of transport service are situated just in front of the airport and that makes the connection more accessible for travellers and passengers thru the city and the airport.
The market segment suggested for the new route, consist in visiting friends and relatives (VFR) and leisure. Groups or individual passengers will travel to Barcelona to visit family and friends and also take advantages of taking time to for relaxation and recreation and couples will choose the city for romantic getaways, weekend breaks, cultural tourism or gastronomy.
The suggested airline in London Stansted will benefit the short arrivals and departures facilities of the high demand, especially during weekends because flights are most of the time busy and on delays, which it produce long waiting on the queues and that cause controversy for the short-breaker passengers that maybe will be affected by the delay and be forced to cancel the trip or search for other option by choosing competitors services. Therefore, the new airline will have experience in how to increase the short-break passengers to choose Stansted express from other competitors, which it will give time to avoid the long queues on the check-in and the check-out by giving time to allocate luggage and pass the security area.
There are 7 existent airlines that supply already the suggested route from London Stansted to Barcelona-El Prat and it will not be easy for this competitor to give up on their share. Following below are the seven companies listed:
• British Airways
• Easyjet
• Iberia
• Monarch
• Norwegian
• Ryanair
• Vueling
As the Declaration Acts covers all the airlines which it generates an opening for the runways slots and stands of the low-cost carriers, as the spaces are limited, the cost of the flights or tickets will be more reasonable by offering a price in advance.
Visit Britain (2004) predicted that in terms of growth, the status of the price should remain stable because Britain just got out of the crisis and on the other hand is still potential to increase leisure market as domestic tourism by advertising and promoting it well all over the country I order to spread the aviation industry.
The off-peaks caused for the high demanding of travellers visiting families and friends during weekends or seasonality periods like Christmas, Easter, summer breaks, should make airlines be able to extend the volume of families, students and leisure travellers and with that the business will provide a regular flow of passengers in both direction.
Barriers to entry
a. Economic of Scale
In this case the measured by cost, seat and miles of the airline company which means that the highest is the volume of production, the cheapest it will be the unit but as there is no economic of scale for the new entrants which are a benefit but it could also be a disadvantage if the airline creates various routes by extending its fleet and its flying time.
b. Capital requirement of entry
New entrants could hold back or inhibit when it is come to invest a huge amount of capital, in order to avoid this the new entrant could consider the option of renting or hiring its third parties to protect and safeguard its aircraft, by that inventing also a large amount of money for specific new employer and future leavers. Harvard business review (2009) said that ‘ in terms to start the capital investment, there is no limit to entry or exit as the aircraft can be rented it out rather than purchased in order to avoid the exposure of bankruptcy.
c. Access to supply or distribution channels
Supplier winning the admissions in the aviation industry could possibly be a barrier to entry as it consists of just a few suppliers. Porter said that if an organisation relies on monopoly as it will over charged in rates due the restrict runway slots and the high numbers of aircraft flying to various destinations.
In terms of distribution is crucial for the new entrants to protect and safeguard the distribution channel by decreasing pricing without difficulty because new entrants should have full access for the runways slots purchases even tough incumbents still trying to block it.
d. Differentiation by incumbents
Having an unique and particular is the crucial element for the strategic plan, for that reason airlines want to differentiate itself from its competitors, but this could be also a disadvantage for new entrants if they are not able to answer or react due the demand changing of its unpredictable to persuade loyal passenger to change to other competitor fidelity.
Hitt El Al (2009) said that ‘ there will be potential customers tempted by the lower prices but this could mean that the new entrant profits are being kept to a minimum with the result of the airline experiencing losses.
e. Experience
According to Johnson at al (2005) the sooner an organisation enters into an industry, the more agile and competent at promoting pricing structure in customer loyalty and supplier. There are also advantage and disadvantages for new entrants when it comes to set up new airlines because there will be a lack of knowledge in the industry, which it can lead to unskilled or unqualified staff using poor quality of customers service which could instantly make business loose the airline company.
f. Expected retaliation from incumbents
As London Stansted airport has already seven competitors is normal to expect reprisal from its incumbents. New entrants should be aware of sabotage tactic and avoid an illegal decision which it could lead the company to justice and for that expending a high cost of money.
Tribe (1997) said that sometimes incumbents would intentionally pursuing new entrants that are constantly struggle to keep up decreasing the prices and that could make passengers go away as the company cannot match the lower prices.
g. Legislation or government actions
Since the Deregulation period, government intervention should not affect the aviation company but some unofficially national flag still have authority on its government adjunct form, which it can cause a problem to the free market deregulation.
Conclusion
According to Porter five Forces there is no considerable loss from economic of scale and neither in capital cost but in the other hand the differentiation of the expected retaliation and the lack of experience, which generates shock and collection for the new entrants and its passengers mainly caused for the several barrier entry. It is crucial that Balancing Act for new entrants has been created in order to gain a new customer for its business.