The purpose of this report is to assess the competitive positions of two airlines companies within the European Airline Industry. My focus is on the low cost sector of the market and will begin by introducing an industry overview, looking at the growth of the market and the key players. I will examine the task environment using Michael Porters 5 forces model to analyse how competitive the industry is (I will add one more force as suggested in BusVol 1). The two companies I will be researching are Easyjet and Ryanair. To conclude I will suggest options for their growth and development taking into account the five forces.
Industry Overview The European Airline Industry was deregulated in 1997 allowing it to be market driven instead of government. This allowed any airline in any EU member state to offer domestic and intercontinental travel services to customers. The industry was dominated by large regional carriers that offered premium, economy and business class travel. Since deregulation the industry structure has changed due to the emergence of a new sector Low Cost Airlines (LCA's). This new business model was mimicked (Economist. com) on Southwest Airlines following deregulation in the US in 1978.
The low fares have captured a large market, offering new routes across a wider network. European traffic as a whole experienced a growth of 4. 8% in 2004, higher than the global airlines industry itself. LCA's offer lower fares than the traditional carriers through intense cost reduction, thus stimulating demand for air travel. This is evident as economy traffic was up by 68% in the first five months of 2006 (Airline Business Vol. 22) whereas premium traffic increased by just 1%. Currently there are approximately 50 airlines that use this model to an extent operating out of 22 states.
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Increased customer confidence has lead to industry growth following the terrorist attacks and SARS outbreak. LCA flights at present account for 30% of intra-European air traffic. The UK dominates the LCA segment with the pioneers Ryanair and Easyjet holding the highest market share of 50 % between them and carrying the most number of passengers, followed closely by Air Berlin. Although a relatively new sector of the industry it is reaching maturity within its life cycle and may reach saturation (Economist. com) with the possibility of diminishing returns. 1
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