aer lingus strategy presentation - final1
TRANSCRIPT
MSc International BusinessInternational Strategic Management Assignment 1(BM6928)Lecturer: Shay Lynch 5 April 2011Word Count - c. 750
Strategy Analysis & Formulation
Kerry –Ann Chemaly – 1590364 Isa Schaller
– 1395803 Olga Slastnikova –
1563707 Ricardo Gundin – 1560823
Doug Orme-Lynch – 1568333
STRIVING FOR SYNERGY
Flagship Irish airline
Undergoing major restructuring
New CEO, Christoph Mueller
In need of strategic direction change
High rivalry with competitor Ryanair
Proven track recordin strategy review & the airline industry
Solid understandingOf the Irish market
Assist in achieving profitable growth
Customer focus and engagement
Overview
ManagingChange
INTERNAL ENVIRONMENTResource Audit:
Classification & Micro/Macro Deployment Strategic Capabilities:
Cost EfficiencyAdding Value Internally & Externally
Creating & Keeping a Competitive Advantage Innovation
Knowledge Management Performance Management
TOWS (SW)
STAKEHOLDER Analysis
CULTURE Analysis
EXTERNAL ENVIRONMENTEnvironmental Forces – Key drivers
Scenario Planning Analysis of Industry Competitiveness
ConvergenceAnalysis of Industry StructureIndustry Life Cycle Analysis
Analysis of Industry Customers TOWS(0T)
STAGE 2 Strategic Choices
Resourcing
Processes
Practice
STAGE 3 Strategy in
Action
Organising Generating
Strategic Options
Evaluating7 Strategic
Options Choose a Strategy
STAGE 1 Strategic Position
CLIENT UNDERTAKE THEMSELVES Source: Adapted from Johnson, Whittington & Scholes (2008)
STRATEGIC POSITIONING
Macro External Analysis
Key drivers for Change Scenarios
KEY FACTORS DRIVING THE AIRLINE INDUSTRY ENVIRONMENT
DEREGULATION & LIBERALISATION
INSTABLE & RISING OIL PRICE
TECHNOLOGICAL ADVANCEMENT
ENVIRONMENTALLY-RESPONSIBLE AVIATION
INCREASING TRAVEL DEMAND
1 - TRAVEL DEMAND AND LEVEL OF COMPETITION
2 - OIL PRICES AND ENVIRONMENT REGULATION
3 - TRAVEL DEMAND AND ECONOMIC GROWTH
Micro External Analysis
Analysis of Industry Competitiveness
5HIGHLY COMPETITIVE INDUSTRY & REACHING MATURITY IN INDUSTRY LIFE CYCLE
Threat of Entry - MEDIUM* The Airline Industry is expensive and requires high investment. The cost of borrowing, restricted access to loans and slot availability decreases the threat of new entries. * Deregulation has lowered entry barriers with the entry of fifteen new airlines.
Threat of Substitutes –High*Rail Travel well developed in European cities. *High Quality continental roads*Substitutes are not always cheapest *Technological development has impacted travel demands
Bargaining Power of Suppliers-MED/HIGH*Standardized services, easy for customer to switch provider. *Consumers price sensitive, scan providers prices *Customers now deal directly with airlines.
Competitive Rivalry- HIGH*Fierce competition*Decisions based on price*Fixed costs impact decision*Competitive rivalry is high
Government Regulations & Other Stakeholders –MED/HIGH*National/ EU regulations for airlines*Regulations impact competences*Governments control airports, impacts airlines significantly
Bargaining Power of Suppliers-High*Boeing and Airbus are the only suppliers of commercial airliners.*Therefore the bargaining power of suppliers is high*The supply of fuel is a major issue for airlines; there is a risk of price fluctuations due to international political and economic events. Source: Adapted from Porter (1993)
Strategic Group Analysis
6INDUSTRY CONVERGENCE HAS MADE COMPETITIVE GROUPINGS TIGHTER
QU
ALI
TY
PRICE
LOW
FRILLS
HIGH
NO FRILLS
RO
UT
ES
SERVICES
Aer Lingus
BMI BABY
EasyJet
Rya
nair
LOW
HIGH
LOW HIGH
Source: Adapted from Johnson, Whittington & Scholes (2008)
Market Segmentation
7INDUSTRY CONVERGENCE HAS MADE COMPETITIVE GROUPINGS TIGHTER
Opportunities & Threats
8
Opportunities• Expansion of the EU opens access to
new markets• Increasing demand to fly through
Dublin to America• Dublin Airport to become a
European hub• Increase in consumer purchase
power• Enter into new strategic partnerships • Enter into a global airline alliance • Possibility to increase market share
in Ireland• Expand to new routes
Threats • Increase in low fare competition• Increase low-cost carriers• Volatile oil markets and fuel costs • Carbon emission taxes and pressure
from environmental activist groups• Weather conditions • Increased power of unions and strike
action• High bargaining power of Airbus• Alternative transport methods across
the EU
MAXIMISE THE OPPORTUNITIES & MINIMISE THE THREATS
INTERNAL STRATEGIC CAPABILITY
9
1 – Resource Audit and deployment 2 – Capabilities analysis
RESOURCES
Resource Audit
ACTIVE HUMAN RESOURCES MANAGE AND DRIVE THE TANGIBLE & INTANGIBLE ASSETS
• Fleet of 41 Aircraft • Financial Resources - equity of €1,026,040• Headquarters in Dublin and overseas
subsidiaries• Online booking system• T2 Dublin Airport
Tangible Resource
s
• European customer base of 8.802million• Reputable brand image• Codeshare partnerships with United, KLM
and British Airways• Franchise agreement with Aer Arann and
JetBlue Airways
Intangible Resources
• The knowledge, skills, abilities and talents of employees c.3844
• Head office/support staff = 600• Cabin Crew = 1200• Pilots = 450• New CEO, Cristoph Mueller• 20 Board members
Human Resources
RESOURCES
Resource Deployment
ACTIVE HUMAN RESOURCES MANAGE AND DRIVE THE TANGIBLE & INTANGIBLE ASSETS
• Macro Level - Organisational Structure
• Micro Level - Business Processes
• How many steps?• How long does it take? • How much does it cost?
Strive to become better, cheaper and faster
CAPABILITIES
Cost Efficiency • Recent turbulent past in regards to managing costs• Cost reduction a necessity for financial success • Introduction of “Greenfield” program in 2009
– €97million – Reduce inefficiencies , increase competitiveness
• Staff costs the major cost differentiator for the airline industry• Long haul and over-served short haul capacity cut
12
€74million Staff Cost Cut
• -20% workforce • -40% management positions • Pay freeze until 2012/2013• Reductions in pay
€23m of other savings
• - €3m in advertising• - €10m in airport charges• - €2m in maintenance• - €3m in distribution• - €4m in other non-staff
”GREENFIELD” PROGRAM TO DRIVE COST EFFICIENCY & INCREASE COMPETITIVENESS
CAPABILITIES
Adding Value Internally
Source: Adapted from Johnson, Scholes and Whittington (2008)
SUPOPRT
ACTIVITIES
FIRM INFRASTRUCTURE - The structure is relative hierarchical; however the organization is de-layering its organizational structure. They also abolish the grade of cabin manager.HUMAN RESOURCE MANAGEMENT - There is an apprenticeship programme for engineers. Besides, the company has a training programme as a pre selection for the cabin crew. TECHNOLOGY DEVELOPMENT - E-commerce is available in the company, flight scheduling system in its webpage, roster system.PROCUREMENT - There is a good relationship with the aircraft supplier, Airbus. Moreover, Aer lingus has codeshare agreements with other airlines like KLM, British Airways and United among others.
PRIMARY ACTIVITIESINBOUND LOGISTICS
Adoption of a disciplined approach to yield management.The company have airport agreements with the main European airports. In addition, it is the main company at the new terminal 2 Dublin airport.
OPERATIONSCheck-in services online 24 hours before the departure. Secure online booking. It is also possible to add different services. There is an increase on baggage security.
OUTBOUND LOGISTICS
Offers an important amount of connections in long haul flight to US.Rental car and hotel reservation are available.
MARKETING & SALES
Internet sales and low-cost promotions.
POST SALE SERVICECommunication about other services, products and additional information is sent to its clients.Aer Lingus frequent flyer programme.
MA R G IN
CAPABILITIES
Adding Value Externally
Supplier
• Aircraft Supplier• Fuel• Airport Operators• Caters and Baggage
Handling• Aircraft Maintence
Aer Lingus Intermediaries
• Aer Lingus• Travel Agents• International
Alliances• Web Providers
Customers
• Business Travellers
• Leisure
EACH PLAYER IN THE SUPPLY CHAIN ADDS VALUE IN THE NETWORK
CAPABILITIES
Creating & Keeping a CA
15
RESOURCES COMPETENCIES TH
RESH
OLD
CAP
ABIL
ITIE
S
Threshold Resources Threshold Competencies Tangible • 41 Aircraft flying 86
destinations in 25 countries Intangible • Codeshare partnerships • Franchise agreements
• Human Resources • Head office/support staff • Cabin Crew • New CEO, Cristoph Mueller
• Online booking / website • Point-to-Point routing • On time take-off and landing • Low cost operations
CAPA
BILI
TIES
FO
R CA
CC
COM
PETT
ITIV
E AD
VAN
TAGE
Unique Resources Core Competencies Tangible • Sole access to Dublin’s
Terminal 2 Intangible • Reputable brand image
• Low Price • US immigration and customs
pre-clearance in new Terminal 2
CAPABILITIES
Innovate & Learn
16
INNOVATION
* IBM deal for check in kiosks * Investments in adding new routes. * Substantial investments in IT to improve passenger management and crew rosters.
KNOWLEDGE MANAGEMENT
* Sophisticated human resource development* Training and education aligned with technology changes.* Customer knowledge “booking readers” and feedback* Learning experiences* Databases, information systems and technology equipment
BEING A CREATIVE AND LEARNING ORGANISATION
CAPABILITIES
Performance Management – Benchmarking
17
Aer Lingus € Easy Jet £ Ryanair €Financial Ratios 2010
Share price earnings ratio Share price P/E 7.7 Share price P/E 1.202 Share price P/E 16.2
Return on Equity 6.1% 8.6% 10.7%
Basic EPS €cent 9.3€cent 28.4 £pence 20.68 €cent
Airline Specific Ratios
Revenue/passenger seat €130 £53.07 €45
Passenger Numbers 9.346m 48.8m 66.5m
Fleet at period end 45 196 232
Average number of employees 3,516 7,359 7,032
Passenger per average number of employees 2,658 6,631 9,457
Load factor 76.1% 87.0% 82%
Revenue per ASK 6.66 cent 4.74pence 6.8cent
Ancillary revenue per RPK (food drink) 8.4 cent 1 penny 1 cent
COMPARE PERFORMANCE WITH YOURSELF, COMPETITORS & OTHER INDUSTRY LEADERS
Strengths & Weaknesses
18USE STRENGTHS TO OFFSET WEAKNESSES
STRENGTHS* Exclusive franchise deal with Aer Arann* Access & routes to primary airports * Sole access to Dublin Airports terminal2* Young, modern and uniform fleet of aircraft from airbus* US immigration and customs pre-clearance in new Terminal 2* Friendly client facing staff* New visionary CEO
WEAKNESSES
* Inefficient organisational structure (bureaucracy and long process of decision making)* Negative press: HR issues and flight cancellations* Inefficient and old fashioned stigmatism* No diversity in the board (only one woman)
Stakeholder Analysis
19
LEVEL OF INTEREST
POW
ER
LOW HIGH
LOW
HIGH
KEEP SATISFIED·Trade Associations
·Regulators
KEEP INFORMED·Activist Groups
KEY PLAYERS·Government·Customers·Suppliers·Financial Institutions·Creditors·Employees·Managers·Unions ·Competitors
MINIMAL EFFORT
Adapted from Johnson, Scholes and Wittington (2008)
Cultural Analysis
20
PARADIGMMovement towards
a flatter, modern and new organization.
SYMBOLS The national airline
POWER STRUCTURESRole Culture – bureaucracy.
ORGANIZATIONAL STRUCTURE
HierarchicalCONTROL SYSTEMS
Its traditional approach slows
down the resolution of
diverse issues.
RITUALS AND ROUTINES
Difficulties on adapting new policies and
cultural changes
STORIESAccusations of
gender discrimination.
STRATEGIC CHOICES
Generating Strategic Options
21USING INTERNAL CAPABILITIES TO TAKE ADVANTAGE OF GAPS IN THE MARKET PLACE
[1
TOWS INTERNAL FACTORS
Strengths –S Weaknesses - W
EXTERNAL FACTORS
Opportunities – O S/O Strategies* Focus on additional /ancillary services* Join an Alliance (i.e. Asian alliances)* Take advantage of Dublin airport as a ”hub”
O/W Strategies* Improve HRM policy and people process * Improve IT/Technology infrastructure* Focus on markets that the fleet is able to reach
Threats – T T/S Strategies* Join a global alliance* Use its brand image to
T/W Strategies* Improve environmental policies
STRATEGIC CHOICES 1 - Generating Strategic Options 2 – Analysing Strategic Options
22
[1
STRATEGIC CHOICES
Generating Strategic Options
23USING INTERNAL CAPABILITIES TO TAKE ADVANTAGE OF GAPS IN THE MARKET PLACE
[1
TOWS INTERNAL FACTORS
Strengths –S Weaknesses - W
EXTERNAL FACTORS
Opportunities – O S/O Strategies* Focus on additional /ancillary services* Join an Alliance (i.e. Asian alliances)* Take advantage of Dublin airport as a ”hub”
O/W Strategies* Improve HRM policy and people process * Improve IT/Technology infrastructure* Focus on markets that the fleet is able to reach
Threats – T T/S Strategies* Join a global alliance* Use its brand image to
T/W Strategies* Improve environmental policies
Analysing Strategic Options
24
Strategic Options Suitability Acceptability Feasibility
1. Backward Integration Reducing additional cost to suppliers .
Not represent high levels of risks. Opportunity to negotiate tougher contracts.
2. Market Penetration Publicity & promotion to reinforce its image
Satisfy all stakeholders. Promotion is affordable.
3. Product Development “Air Bridge” satisfies consumer demands
Despite some reservations about its viability, the stakeholders
appreciate the return.
T2 provides the infrastructure. Close relationship Dublin -London
4. Retrenchment It is necessary after reporting losses in
2008 and 2009
Stakeholders realise it is necessary This strategy is not easy to develop; however the
company knows the process
5. Strategic Partnership Aer Lingus needs external support
This alliance will be considered highly beneficial.
Existing strategy to a new partner; easy to implement
6. HRM strategy Failure in HR policies Stakeholders know that this is needed.
More focused group of stakeholders make it possible.
7. IT infrastructure The Group’s current system is overly complex,
lacks integration
The stakeholders would welcome an investment in I.T,
Ireland has very well developed I.T industry
Conclusions
• Changed from being a traditional flagship to LCC after deregulation• Deregulation and direct competition with Ryanair has had a negative impact
on their operating performance and image • Greenfield project ‘issues’ • National Irish carrier with a recognised brand name & new visionary CEO
Christoph Mueller • Seven strategic options identified after the external and internal analysis to
improve strategic position and gain competitive advantage• HR and IT infrastructure have been identified as areas where there is vast
room for improvement.• Recommend a focus on consolidating its current market position before
external growth strategies are pursued
WE LOOK FORWARD TO WORKING WITH YOU IN THE FUTURE
Thank you for your time Questions & Answers
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