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Aer Lingus Strategy Presentation - Final1

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MSc International Business International 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
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Page 1: Aer Lingus Strategy Presentation - Final1

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

 

Page 2: Aer Lingus Strategy Presentation - Final1

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

Page 3: Aer Lingus Strategy Presentation - Final1

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)

Page 4: Aer Lingus Strategy Presentation - Final1

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

Page 5: Aer Lingus Strategy Presentation - Final1

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)

Page 6: Aer Lingus Strategy Presentation - Final1

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)

Page 7: Aer Lingus Strategy Presentation - Final1

Market Segmentation

7INDUSTRY CONVERGENCE HAS MADE COMPETITIVE GROUPINGS TIGHTER

Page 8: Aer Lingus Strategy Presentation - Final1

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

Page 9: Aer Lingus Strategy Presentation - Final1

INTERNAL STRATEGIC CAPABILITY

9

1 – Resource Audit and deployment 2 – Capabilities analysis

Page 10: Aer Lingus Strategy Presentation - Final1

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

Page 11: Aer Lingus Strategy Presentation - Final1

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

Page 12: Aer Lingus Strategy Presentation - Final1

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

Page 13: Aer Lingus Strategy Presentation - Final1

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

Page 14: Aer Lingus Strategy Presentation - Final1

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

Page 15: Aer Lingus Strategy Presentation - Final1

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

Page 16: Aer Lingus Strategy Presentation - Final1

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

Page 17: Aer Lingus Strategy Presentation - Final1

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

Page 18: Aer Lingus Strategy Presentation - Final1

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)

Page 19: Aer Lingus Strategy Presentation - Final1

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)

Page 20: Aer Lingus Strategy Presentation - Final1

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.

Page 21: Aer Lingus Strategy Presentation - Final1

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

Page 22: Aer Lingus Strategy Presentation - Final1

STRATEGIC CHOICES 1 - Generating Strategic Options 2 – Analysing Strategic Options

22

[1

Page 23: Aer Lingus Strategy Presentation - Final1

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

Page 24: Aer Lingus Strategy Presentation - Final1

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

Page 25: Aer Lingus Strategy Presentation - Final1

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

Page 26: Aer Lingus Strategy Presentation - Final1

Thank you for your time Questions & Answers

Page 27: Aer Lingus Strategy Presentation - Final1

References • “Aer Lingus Group plc Preliminary results (unaudited) for the year ended 31 December 2010.” 2011.• Aer Lingus Investor Day Report. 26 January 2010.• AerLingus. n.d. htttp://www.Aerlingus.com (accessed April 4, 2011).• “Annual Report, Aer Lingus.” 2009. http://www.aerlingus.com/Corporate/EIALR300410.pdf (accessed March 26, 2011).• DataMonitor. “AerLingus.” 2010.• David, F.R. Strategic management : concepts and cases. 12th. Upper Saddle Rive: Pearson Education, 2009.• Doganis, R. The Airline Business in the 21st Century. New York.: Routledge, 2001.• Easyjet, Official Website. n.d. http://www.easyjet.com (accessed March 25, 2011).• Flying Ireland .com. n.d. http://www.FlyingIreland.com (accessed March 15, 2011).• Griffiths, P. “KEY POLICY ISSUE: EUROPEAN POLICY PERSPECTIVES FROM A FORMER DGCA.” IATA. May 2009.

http://www.iata.org/whatwedo/Documents/economics/Griffiths_Policy_Perspectives.pdf (accessed March 26, 2011).• “International Air Transport Association (2011) Industry Expects 800 Million More Travelers by 2014 - China Biggest

Contributor. .” 2011. http://www.iata.org/pressroom/pr/pages/2011-02-14-02.aspx. (accessed March 26, 2011).• Johnson, G, K Sholes, and R Whittington. Exploring Corporate startegy. Harlow: Pearson Education Limited, 2008.• Lynch, R. “Corporate Strategy.” London: Prentice Hall, 2006.• Marketingteacher. 4 April 2011. http://www.marketingteacher.com/lesson-store/lesson-generic-strategies.html - strategy

(accessed April 4, 2011).• Milmo, D. “Why consolidation is airlines' only viable route.” Guardian.co. 3 May 2010.

http://www.guardian.co.uk/business/2010/may/03/airline-industry-mergers-acquisitions (accessed April 4, 2011).• Ryanair. 2011. http://www.ryanair.com/en (accessed April 3, 2011).• Saint-Onge, H. Knowledge Management: According to Saint-Onge. 1999.• Shaw. Airline marketing management. 6th. Hampshire, England: Ashgate Publishing Ltd, 2007.


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