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Aer Lingus Strategy Presentation - Final1

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PROJECT MANAGEMENT ASSIGNMENT 2 MSc In International Business

MSc International BusinessInternational Strategic Management Assignment 1(BM6928)Lecturer: Shay Lynch 5 April 2011

Word Count - c. 750

Strategy Analysis & Formulation

Kerry Ann Chemaly 1590364 Isa Schaller 1395803 Olga Slastnikova 1563707 Ricardo Gundin 1560823 Doug Orme-Lynch 1568333

1

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 CompetitivenessConvergenceAnalysis 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 PositionCLIENT 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

Micro External Analysis Analysis of Industry Competitiveness 5

Highly 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 demandsBargaining 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 highGovernment 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

6

Industry convergence has made competitive groupings tighter

QUALITYPRICELOWFRILLSHIGHNO FRILLS

ROUTESSERVICES

Aer LingusBMI BABYEasyJetRyanairLOWHIGHLOWHIGHSource: Adapted from Johnson, Whittington & Scholes (2008)

Market Segmentation7

Industry convergence has made competitive groupings tighter

Opportunities & Threats 8

MAXIMISE THE OPPORTUNITIES & MINIMISE THE THREATS

INTERNAL STRATEGIC CAPABILITY9

1 Resource Audit and deployment 2 Capabilities analysis

RESOURCESResource Audit

Active human resources manage and drive the tangible & intangible assets

RESOURCESResource Deployment

Active human resources manage and drive the tangible & intangible assets

Macro Level - Organisational Structure

Micro Level - Business ProcessesHow many steps?How long does it take? How much does it cost?

Strive to become better, cheaper and faster

CAPABILITIESCost Efficiency Recent turbulent past in regards to managing costsCost 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 industryLong haul and over-served short haul capacity cut

12

Greenfield program to drive cost efficiency & increase competitiveness

CAPABILITIESAdding Value Internally

Source: Adapted from Johnson, Scholes and Whittington (2008)

SUPOPRT ACTIVITIESFIRM 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 LOGISTICSAdoption 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 LOGISTICSOffers an important amount of connections in long haul flight to US.Rental car and hotel reservation are available.MARKETING & SALESInternet 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

CAPABILITIESAdding Value Externally

EACH PLAYER IN THE SUPPLY CHAIN ADDS VALUE IN THE NETWORK

CAPABILITIESCreating & Keeping a CA15

CAPABILITIESInnovate & Learn 16

BEING A CREATIVE AND LEARNING ORGANISATION

CAPABILITIESPerformance Management Benchmarking 17

Aer Lingus Easy Jet Ryanair Financial Ratios 2010Share price earnings ratioShare price P/E 7.7 Share price P/E 1.202Share price P/E 16.2Return on Equity6.1%8.6% 10.7%Basic EPS cent9.3cent28.4 pence20.68 centAirline Specific RatiosRevenue/passenger seat13053.0745Passenger Numbers9.346m48.8m66.5mFleet at period end45196232Average number of employees3,5167,3597,032Passenger per average number of employees2,6586,6319,457Load factor 76.1%87.0%82%Revenue per ASK 6.66 cent4.74pence6.8centAncillary revenue per RPK (food drink) 8.4 cent1 penny1 cent

COMPARE PERFORMANCE WITH YOURSELF, COMPETITORS & OTHER INDUSTRY LEADERS

Strengths & Weaknesses18

USE STRENGTHS TO OFFSET WEAKNESSES

Stakeholder Analysis 19

LEVEL OF INTERESTPOWERLOWHIGHLOWHIGHKEEP SATISFIEDTrade AssociationsRegulators

KEEP INFORMEDActivist Groups

KEY PLAYERSGovernmentCustomersSuppliersFinancial InstitutionsCreditorsEmployeesManagersUnions Competitors

MINIMAL EFFORT

Adapted from Johnson, Scholes and Wittington (2008)

Cultural Analysis 20

STRATEGIC CHOICES Generating Strategic Options 21

USING INTERNAL CAPABILITIES TO TAKE ADVANTAGE OF GAPS IN THE MARKET PLACE

[1TOWSINTERNAL FACTORSStrengths SWeaknesses - WEXTERNAL FACTORSOpportunities OS/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 reachThreats TT/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 23

USING INTERNAL CAPABILITIES TO TAKE ADVANTAGE OF GAPS IN THE MARKET PLACE

[1TOWSINTERNAL FACTORSStrengths SWeaknesses - WEXTERNAL FACTORSOpportunities OS/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 reachThreats TT/S Strategies* Join a global alliance* Use its brand image to T/W Strategies* Improve environmental policies

Analysing Strategic Options 24

Strategic OptionsSuitabilityAcceptabilityFeasibility1. Backward IntegrationReducing additional cost to suppliers . Not represent high levels of risks. Opportunity to negotiate tougher contracts.2. Market PenetrationPublicity & promotion to reinforce its image Satisfy all stakeholders.Promotion is affordable. 3. Produ

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