Harvard Case - European Airline Industry, 1993 - 2009: Flying into Turbulence (A)
"European Airline Industry, 1993 - 2009: Flying into Turbulence (A)" Harvard business case study is written by Venkat Subramanian, Samuel Tsang. It deals with the challenges in the field of Strategy. The case study is 38 page(s) long and it was first published on : Jun 29, 2010
At Fern Fort University, we recommend that European airlines adopt a multi-pronged approach to navigate the turbulent industry landscape. This strategy involves leveraging digital transformation, business model innovation, and strategic alliances to achieve sustainable competitive advantage. The focus should be on value creation through product differentiation, cost leadership, and customer-centricity, while simultaneously addressing environmental sustainability and corporate social responsibility concerns.
2. Background
The case study 'European Airline Industry, 1993 - 2009: Flying into Turbulence (A)' analyzes the tumultuous period of deregulation and consolidation in the European airline industry. The industry faced intense competition from low-cost carriers like Ryanair and easyJet, which disrupted traditional business models. Legacy airlines like British Airways, Air France, and Lufthansa struggled to adapt to the changing landscape, facing challenges like overcapacity, price wars, and rising fuel costs.
The main protagonists of the case are the legacy airlines, who are grappling with the need to transform their operations and strategies to remain competitive. The case study highlights the key challenges and opportunities facing these airlines in a rapidly evolving industry.
3. Analysis of the Case Study
This case study can be analyzed through the lens of several frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: High due to low barriers to entry for low-cost carriers.
- Bargaining Power of Buyers: High due to the availability of numerous airlines and online booking platforms.
- Bargaining Power of Suppliers: Moderate, with fuel prices being a significant factor, but airlines have some leverage through volume purchasing.
- Threat of Substitutes: Moderate, with alternative modes of transportation like high-speed rail emerging as viable options.
- Rivalry Among Existing Competitors: Intense, driven by price wars, capacity expansion, and the emergence of low-cost carriers.
b) SWOT Analysis:
- Strengths: Established brand recognition, extensive route networks, existing infrastructure, and loyal customer base.
- Weaknesses: High operating costs, inflexible business models, slow to adapt to technological advancements, and lack of focus on customer experience.
- Opportunities: Leveraging technology for efficiency gains, expanding into emerging markets, developing new business models, and focusing on niche markets.
- Threats: Growing competition from low-cost carriers, volatile fuel prices, economic downturns, and increasing regulatory scrutiny.
c) Value Chain Analysis:
Legacy airlines need to re-examine their value chain to identify areas for cost reduction and value creation. This includes:
- Inbound Logistics: Optimizing procurement processes, negotiating better fuel prices, and exploring alternative fuel sources.
- Operations: Improving operational efficiency through technology and analytics, optimizing aircraft utilization, and streamlining maintenance processes.
- Outbound Logistics: Leveraging information systems for efficient baggage handling, passenger check-in, and flight scheduling.
- Marketing and Sales: Developing effective marketing strategies to target specific customer segments, utilizing social media for engagement, and offering personalized services.
- Customer Service: Improving customer experience through digital transformation, providing seamless online booking and check-in, and offering personalized services.
4. Recommendations
To navigate the turbulent industry landscape, European airlines should consider the following recommendations:
a) Embrace Digital Transformation:
- Implement AI and machine learning for route optimization, pricing, and customer service.
- Leverage digital platforms for seamless online booking, check-in, and baggage tracking.
- Develop mobile applications for personalized travel experiences and real-time information.
- Utilize data analytics to understand customer preferences and optimize operations.
b) Innovate Business Models:
- Explore niche markets by offering specialized services like premium economy or business class.
- Develop hybrid business models combining elements of low-cost and full-service airlines.
- Implement dynamic pricing strategies based on demand and competition.
- Offer value-added services like airport lounges, priority boarding, and in-flight entertainment.
c) Forge Strategic Alliances:
- Partner with low-cost carriers for code-sharing agreements and access to wider route networks.
- Collaborate with technology companies to develop innovative solutions for passenger experience and operational efficiency.
- Form strategic alliances with other airlines to share resources, optimize routes, and reduce costs.
d) Focus on Sustainability:
- Implement environmental sustainability initiatives by reducing fuel consumption, investing in fuel-efficient aircraft, and offsetting carbon emissions.
- Promote corporate social responsibility by supporting local communities, promoting ethical practices, and contributing to environmental protection.
5. Basis of Recommendations
The recommendations are based on the following considerations:
- Core competencies and consistency with mission: Leveraging existing strengths in brand recognition, route networks, and infrastructure while adapting to the changing industry dynamics.
- External customers and internal clients: Focusing on customer experience, offering personalized services, and creating a seamless travel experience.
- Competitors: Staying ahead of the competition by embracing digital transformation, innovating business models, and forging strategic alliances.
- Attractiveness: Utilizing data analytics to assess market demand, optimize pricing strategies, and measure the impact of initiatives.
6. Conclusion
The European airline industry is characterized by intense competition, volatile fuel prices, and evolving customer expectations. To thrive in this challenging environment, legacy airlines must embrace digital transformation, business model innovation, and strategic alliances. By focusing on value creation, customer-centricity, and sustainability, they can achieve sustainable competitive advantage and secure a place in the future of air travel.
7. Discussion
Other alternatives not selected include:
- Mergers and acquisitions: While this can be a viable option, it carries significant risks and regulatory hurdles.
- Cost leadership: Focusing solely on cost leadership can lead to a race to the bottom and erode brand value.
Key risks and assumptions:
- Technology adoption: The success of digital transformation depends on the successful implementation and adoption of new technologies.
- Customer acceptance: New business models and services must be appealing to customers to drive adoption.
- Regulatory environment: The airline industry is subject to strict regulations, which can impact strategic decisions.
8. Next Steps
To implement the recommendations, airlines should:
- Develop a comprehensive digital transformation strategy: Identify key technologies, prioritize investments, and establish clear timelines.
- Pilot new business models: Test innovative concepts in select markets before widespread implementation.
- Build strong relationships with strategic partners: Establish clear agreements and communication channels.
- Monitor industry trends and competitor activities: Stay ahead of the curve by analyzing market data and adapting strategies accordingly.
By taking these steps, European airlines can navigate the turbulent industry landscape and emerge as leaders in the future of air travel.
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Case Description
This case illustrates the evolving structure of the airline industry in Europe and the competitive determinants in the industry. This case initially outlines the context of the airline industry prior to deregulation. The industry's evolution subsequent to deregulation is then examined. We examine the competition between incumbents and new entrants and the arrival of low-cost airlines into the industry structure. The case illustrates incumbents' differing responses to the change in the industry's structure and the evolvement of new customer segments. The case further illustrates the differing competitive requirements as the structure changes in the period between 1993 to 2000 and beyond, and the incumbents' and entrants' choices as the basis of competition changes in the industry. Incumbents' and entrants' competitive positioning and the changes in positioning are also examined. Finally, the case also illustrates the possible new business models and their link to competitive positioning and industry structure. This case is placed in the years 1993 to 2000 when the deregulation unfolded in the industry bringing in significant and substantial changes to the industry's structure.
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