Question A Contents1.0 Introduction page 32.0 Attractiveness of the budget airline sector page 3-42.1 The Far Environment page 32.2 The Near Environment page3-43.0 Is the budget airline industry attractive? Page 4-54.0 Appendix 1- BCG Strategic Environments matrix page 65.0 Appendix 2- Five Forces, or Six? page 6IntroductionThe national flag carriers who together accounted for the majority of passenger traffic traditionally controlled the European airline sector. These national carriers were protected by regulation allowing them to monopolise the industry.However, over the past decade the industry has seen some drastic changes. European aviation has moved from a highly regulated industry, ...view middle of the document...
With increased competition in the sector, customers are now expecting complete flexibility to change their travel plans.Probably the most significant change in the budget airline sector has been through technological development and more specifically the use of the Internet as a distribution channel. Most companies have a website to promote their products and create a positive corporate image, however this sector has shown that it makes sense to embrace the growth of the Internet and make it one of the core aspects of their sector.Historically air travel has been considered expensive and will strongly be influenced by economic condition. However with the introduction of competition into the market, the budget airline sector has been able change this image and can now offer affordable flights to the masses.The Near EnvironmentThe introduction of the budget airline sector into the European market has brought far greater competition for all aspects of the airline industry. Although the defined target customer of the budget sector is aimed at different consumers than those traditionally using flag carriers (travellers visiting relatives, leisure travellers as well as entrepreneurs and managers working for small firms, rather than business travellers), 50% of the passengers flying with budget airlines are those business travellers who historically would use the national carriersAlthough customers are important to every organisation there are other resource issues that will have a greater impact on the industry. The number of airport slots is a problem that will cause barriers to entry for any new competitors looking to compete in the budget airline sector (Appendix 2). There are many destinations in Europe that have the population big enough to make it work, however London stands out with having a large centralised population and customers willing to travel.With such a large number of companies joining the budget airline sector, many would suggest that the buyer power is strong within the competitive market. However this is not the case, although there are a number of strong competitors in the market, very few compete directly on the same routes. For example easyJet is the only low cost carrier flying into Athens . However looking at the complete airline industry there are a number of flag carriers that will fly the same routes. Therefore buyers have the choice of switching carrier, yet this will be at a much greater cost . Unless the customer is extremely unhappy with the budget airline, the option to switch to a national carrier is very unlikely (Appendix 2).Since deregulation in the 1990s the European market has spawned fewer competitors than experienced in the US industry. It is believed the main reason for this is the cost of entry. Industry experts believe that the cost of running an airline in Europe is on average, 40% more than that in the US . Although many of the political barriers have been lifted the cost of entering the European market...
