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Blue Air – Romanian low cost air carrier - case study

Our team: Cristi Tinta

Costin Dragan

TABLE OF CONTENTS

Chapter 1 – Company's profile…………………………………………………………………………………………………………3

Chapter 2 – Blue Air's competitive strategy analyze – Bowman's strategy clock….………………………….4

Chapter 3 – Now and then strategy………………………………………………………………………………………………….6

Chapter 4 – Osterwalder canvas……………………………………………………………………………………………………………………7

Abstract

In the latest decades the low cost air carriers industry growth, due to coherent strategy, gaining an important benchmark over traditional carriers, offering low fares for aircraft journeys, and turning air transporting into more accessibility way of transport for a large number of people. Once an important number of Romanian's leaved their country seeking better jobs within Europe's countries, this business became appealing for Romanian businessmen. During the last decades strategies had been changed driven by fast development of competition, geo-political decision and changings into consumer behavior. Therefore we think would be interesting to see what the strategy they used, what customer approach they used, and how they succeed starting with a single aircraft and with 30 employees back 14 year, becoming an important low-cost airline in the south-east part of Europe.

    

Chapter 1 – Company's profile

Blue Air was Romania's first low-cost carrier, commencing operations in Dec-2004. The carrier's main hub is at Bucharest Otopeni International Airport, with smaller operational bases at seven European airports and is now offering flights to over 100 direct routes in Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Israel, Italy, Norway, Portugal, Romania, Sweden, Spain and the United Kingdom. The airline's route network comprises of eight operational bases: Bucharest, Bacau, Cluj-Napoca, Constanta, Iasi, Larnaca, Liverpool and Turin.

Since its first operations began, the hybrid airline has transported over 21 million passengers, on the over 100 European routes. Moreover, the airline plans to launch several new routes in 2018, namely Torino – Paris, Charles de Gaulle, beginning March 25, 2018; Torino – Stockholm, March 27, 2018; and Liverpool – Palma Mallorca, beginning June 2, 2018, which will set the ground for co.'s turnover organic increased for FY2018 with two figures.

At the same time, beginning 2019, Blue Air will be the first Boeing 737 MAX operator in Romania. This June it ordered six Boeing 737 MAX aircraft.

Recently, Blue Air entered a codeshare agreement with Alitalia. As such, beginning next year, Blue Air will be able to sell all Alitalia flights from the Roma Fiumicino and Milano Linate airports under its own flight numbers, thus gaining access to new markets and passengers.

Currently, Blue Air operates 29 Boeing 737 aircraft series 737-300, 737-400, 737-500, 737-700 and 737-800 with a capacity between 120 and 189 seats. In the summer of 2017, company announced the firm order of twelve Boeing 737 MAX 8 and six Next-Generations 737-800, that will enter the fleet starting with 2019. Network-wise, the airline introduced two new operational bases in 2017, Liverpool and Constanta, with the former being Blue Air's future focus in diversifying its product development across international markets.

So far in 2017, Blue Air has made several improvements to its network, by introducing new services with a favorable mix of passengers that will support a strong and unseasonal volume of traffic all year long, namely:

 From Bucharest: Tel Avi (12 January), Copenhagen (2 June), Bordeaux (3 June), Oslo Gardermoen (15 June) and Helsinki (16 June);

 From Turin: Copenhagen (27 March), Malaga (28 April), Seville (1 June), Lisbon (1 June) and Trapani (29 June);

 From Liverpool: Rome Fiumicino (26 March), Milan/Bergamo (31 March) and Alicante (29 April);

 From Constanta: Rome Fiumicino (27 April), Paris Beauvais (29 April), Brussels (19 May), Cluj-Napoca (15 June), Timisoara (16 June), Iasi (19 June) and Oradea (19 June);

 From Iasi: Turin (3 June), Valencia (4 June), Munich (15 June), Milan/Bergamo (15 June) and Glasgow (17 June);

 From Cluj-Napoca: London Luton (26 March), Larnaca (9 April), Nice (10 April) and Tel Aviv (19 October);

 From Larnaca: Birmingham (27 March) and Liverpool (17 June).

Lastly, Blue Air operates charter flights on behalf of leading tour operators and holiday destinations throughout Europe, mainly within the Mediterranean region.

Chapter 2 – Blue Air's competitive strategy analyze – Bowman's strategy clock

Bowman argues in its theory that is so many different paths to choose for an entity either to compete on price or on added value to its product/services or do a mixture of both.

In our case, Blue Air gravitates between no.2 and no.3 clock position, into the low price strategy and hybrid, given by its competitive advantage which is cost leadership and differentiation, from other rivals companies (such as: Wizz Air, Ryan Air, Fly Malta or Ernest Airlines) and with its choice of competitive scope and due to the fact a low-cost strategy can't be sustained for a long run.

Low price - low value added. It is a category in which companies prefer not to position themselves, dominated mainly by products that differ very little one from another. Also here the price is low and the only method by which efficiency can be achieved is by increasing the volumes and the number of new customers. In this category differentiation cannot be achieved, the goal is to reach the customer by any other method than the product features or price (e.g.: higher numbers can be reached by a bigger distribution and a strong sales team).

Lately, Blue Air it starts a smooth strategy changing toward hybrid strategy, leaning investing its gains for enhance services offered to its passengers.

Blue Air started activity with only one aircraft and around 30 employees having the main hub at International Airport Henry Coanda Bucharest. The trigger for starting such activity was increasing number of Romanians choosing working abroad all over the Europe. Therefore, number of customer getting higher and higher each year, pursuing the lower prices for air freight. Co.'s activity had tremendous boost after 2007 once Romania was accepted as a member of European Community, thus Romanian citizens had no longer needed visas and only Romanian identity card was needed for travelling. Management of the company bet on the nationalism Romanians instinct which may conduct choosing Blue Air as Romanian company instead others.

Rivals competing in this category are the low cost leaders. These are the companies improve their supply chain in such meaner being able to drive prices down to bare minimums, and they balance very low margins with very high volume. Business sustainability depends of high volume or strong strategic reasons why consumers choose their product or services.  If they don't succeed with this plan in order to consolidate market position or gaining an important strategic position often price war is the tool for short long run that only benefit is customers. It's so “clearly in the long run, a low price strategy cannot be pursued without a low cost base”. (Johnson et al, 2005, p.246).

Taking into consider that Blue Air's numbers are getting better and better yearly, we are tempt to give fully credit managerial team, but except few particularities, business strategy has almost the same pattern like other low cost carriers. Co struggles to cut-off all supplementary services offer by traditional airlines companies, which from their perspective are unusual and cost generating for the company. Meanwhile, Blue Air charged any supplementary service, which for the customers may be hard to accept, but for the company generate important incomes.

The goal of the company is to be the best low cost airlines in region and to offer low cost travel with care and safe. In the same time, keep pace with new technology acquiring new aircrafts and more effectiveness internal procedures.

Blue Air concluded agreements with main rental cars providers now you can book car reservation directly from company platform.

“Strategy is a combination of the company's resources and capabilities as the product/service market is about choosing their activities” (Porter, 1996).

Being part of one of the most expensive industries, low cost carriers in order to survive on this market have to develop a performing supply chain, having a strong bargaining position with stakeholders.  The ability to put into practice this strategy can make the difference between profit and loss.  

Chapter 3 – Now and then strategy

 “All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and producer cost.” (Competitive strategy technique, Michael E. Porter, 1985). According with this, company focused each expenditure, part of supply chain, struggling to diminish as much as possible, given the same attention no matter how big or small counts in the total expenses structure. Blue Air gains competitive advantage by performing strategically important activities more cheaply or better than its competitors.

Blue Air concentrates on costs therefore achieves overall cost leadership. It inhabits a low cost Niche position, by doing the followings:

Restricted luggage measures at 55cm x 40 cm x 20cm, with max. 10 Kg weight, for those are not fit in a 60 Euro fares is applied. Its employees are well instructed not to make any concession of this rule.

Blue Air tickets can be procure from a large number of collaborators and by using co.'s web sites, this allowing Blue Air to cut cost with personnel who were taking care selling tickets. Moreover, co. inform customers that are responsible for personal information correctness submitted and any changes request will be charged extra (5 Euro). Blue Air advice its customers to make on-line check in, otherwise the check-in made at the airport will be charged with 10 Euro/ticket. Co. had implemented a virtual ticketing system, now passengers are able to present only the reservation code at the co.'s desk without printed ticket.  Regarding of reservation policy, there are cases when for some flights with a few days before departure date still there are available sites, for those co set very low prices, preferring to cash some instead nothing.

 Often, endless line of people is formed at boarding. Blue Air thought that are people who are willing to pay extra avoiding staying the line, therefore co. is offering skip the line service against of 10 Euro/person.

In the co.'s aircrafts there are not business class sites, thus allows co. to use the aircraft space more effectiveness. The sites are mounted in such manner as a person with a normal size and weight to have enough space for legs, in order to optimize entire surface of the aircraft. For those who want to have more space during the flight, there are specific rows, but they need to pay extra (10Euros/seat). Recently, according with press release Blue Air state that changed the type of aircraft sites being more comfortable for passengers, but the trigger for this change wasn't to increase customer's comfort in fact those sites are lighter and smaller which means less fuel consumption and more available space within the aircraft.

Whilst some low cost carriers continue to operate on big airports, Blue Air changed the strategy and reoriented to small airport which are close with destination cities, but are way much chipper. For instance, for Rome destination co. is using Ciampino Airport instead of Fiumicino; For Paris destination co. is using the Charleroi Airport instead of Charles de Gaul. Once with increasing number of routes Blue Air sets 8 hubs from with operates its flights, but also there are use for maintenance works for aircrafts. 70% of the employees working in those hubs are Romanians, co. is using a rotation personnel system according with every core employee will work abroad at least one month per year. The advantage for Blue Air is the fact that the Romanian workers salaries are lower that foreign people, but also for the employees is an advantage, Blue Air is using incentive program for its employees who agrees to work outside the country.

At the board Blue Air' planes there is no free meal or free beverages, but company offer a wide range of snacks, sandwiches, soft drinks against price. Besides of this, during the flight fly attendance are selling wide range of cosmetics and other products. Those two activities are part of the company strategy to increase the incomes no matter what.

Other source of money is represented by advertising spaces inside the aircrafts or into co.'s magazine, which is free for Blue Air customers and it can be found it in every each sites pocket.

A few years ago one of the founders of Blue Air had been charged with corruption, and then he was convicted. Should be underling the way co. manage this situation with high reputation risk. At that time people from the Blue Air in charged with PR issued a lot of press release in the media, claiming that he was just shareholder with insignificant percentage of shares, he also holds shares to other company. Blue Air is strong company and never had been involved in corruption acts. They tried to break the bond between convicted shareholder and company.

From our perspective we can advise company to:

 promote Blue Air brand more aggressively, to be more present in Romanians minds, therefore becoming first choice low cost carrier;

 trying to conclude agreements with national travel bloggers to include co.'s services in their post, thus promoting holidays destinations operated by Blue Air;

 taking into account that Romanian high streets network is still not enough developed and important infrastructure are continuous be postponed by the government, domestic flights remain an important niche with very growth potential.;

 To intensify collaboration with tourism agency in order to be the first choice for charter flights;

 For regular customers a loyalty program is needed, a card upon every miles to take into account for a future discount, after reaching at every 10,000 mile or 100,000 miles depends of an assessment, and the discount can be between 10% to 50% for next flight or even free one trip;

 Operating with one type of aircraft - this will enforce barging position upon supplier and also operating cost (spare parts) will be lower;

 Also company can set prices for anniversary of a round number of passengers, let say every 1 million or if is too much, every 500,000 passengers. The price can also consist into a free trip. This contest should be clear and at each and every flight to number of passengers to be announced by the crew personnel.

Chapter 4 – Osterwalder canvas

The creator of business model canvas Alexander Osterwalder state that: “Lengthy business plans often increase the risk of failure”. This kind of business plan is often used by start-up companies, but is getting more popular among important companies, offering a better perspective upon key points of the business.

Blue Air had the courage to change its position. It is no longer a low-cost company, repositioning has turned Blue Air into a hybrid company - a combination of low-cost and legacy.

6. Key Partners

- Airports and related services provided by them (fuel, maintenance, etc.)

- Boeing being the only aircraft supplier for Blue Air

7. Key Activities

Air passenger transport

1. Value propositions

-accessible costs for air transport in Europe's prime destinations

- servicing the basic need - air transport from point A to point B without requiring the customer to bear the cost of additional services

4. Customer Relationship

Customer relationship is constantly developed and maintained, constant increase in passenger numbers demonstrates brand strength and promises made 2.Customer segments

- the approximately 4 million Romanians working in south-western Europe;

- Romanian tourists and more recently people traveling for business purposes both in Romania and other destinations in Europe

8. Key Resources

- 29 Boeing aircrafts;

- 8 Hubs;

- on-line reservation platform 3. Channels

- Using co.'s web sites;

- Partnerships with Ticketing Agencies and Travel Agencies

9.  Cost Structure:

Reduced operational cost due to the use of a single aircraft model and due to partnerships with airports that offer lower operational costs 5. Revenue Streams

Selling tickets at affordable prices leads to higher occupancy of airplanes than large airlines

Repositioning of Blue Air in a hybrid company was a fair one taking into account low-cost competition.

The trend in the aviation industry is that both segments - low cost and legacy - unify: low-cost companies start to go up, invest in additional services, give up to tax the use of WCs, the air they breathe and hand luggage, there are even "business" packages at Ryanair. On the other hand, low-cost legacy companies are slowly low-priced on intra-European flights - there are "no food, no luggage" at companies like TAP or British Airways, and others launch low-cost subsidiaries such as Transavia (Air France / KLM), Iberia Express (Iberia), Eurowings (Lufthansa), so at least for the next 3 to 5 years we will witness the "hybridization" of European aviation and Blue Air is one of the pioneers

A "price war" with companies like Ryanair or Wizz Air would not bring real benefits to Blue Air.

With this strategy he was able to take over the domestic flights, mostly abandoned by the national company TAROM, and thus he was able to develop new routes from Romania to South-West Europe. Today Blue Air is the largest operator of domestic routes.

Dynamism and speed of response is a characteristic of Blue Air's management team. The speed of reaction to exploiting various opportunities is extremely rapid in a hallucinating dynamic industry such as air transport, who is fast winning. (example: Blue Air announced the opening of the Bucharest - Lisboa route 6 hours after TAP Portugal announced its withdrawal from Romania, and 24 hours later, the races were already loaded with tariffs and timetables or that 12 hours after the Tarom (Romanian National airline company owned by the state ) announced the renunciation of the Iasi - Munich race, Blue introduced it, too, with prices and schedules).

In conclusion, Blue Air with a well-defined strategy succeeded in becoming the largest airline in Romania, surpassing Tarom national company both on the number of passengers transported and on the number of aircraft operated, routes and profitability indicators. With consistent investments in marketing, he manages to actively promote and gain market share constantly. A developmental segment that can be improved could be its own ticketing platform and its compatibility with smart phone technology

Bibliography:

 Competitive strategy technique, Michael E. Porter, 1985

 Competitive Advantage — Creating and Sustaining Superior Performance, Porter, M. (1985), Free Press, London;

 The limits of price leadership: Needs based positioning strategy and long term competitiveness of Europe's low fare airlines, Lawton, T. (1999), Long Range Planning, Vol. 32;

 Competitive and Corporate Strategy, Cliff Bowman, David Faulkner (1997);

 Exploring Corporate Strategy, Johnson, G., Scholes, K and Whittington, R (2005).

Web sites:

https://www.routesonline.com

https://centreforaviation.com

https://www.blueairweb.com

http://www.iata.org

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