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Group Assignment(Group – B, EasyJet-Virgin Atlantic)

Surrey Business School

MBA Executive Programme – 2011/12 MANM273 Operations Strategies

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Introduction

Market Overview

Brief History of Each Airline

Order Qualifiers and Winners

Operations Strategy

Industry Competition

Conclusions

Content

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Strategy in a business organization

Introduction

Business Strategy

Marketing Strategy: Defines marketing plans to support the business strategy

Operations Strategy: The plan and integration of the operations to achieve competitive advantage

Finance Strategy: Financial plan to support the business strategy

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EXCELLENT OPERATIONSPERFORMANCE IN . . .

GIVES THE ABILITY TOCOMPETE ON . . .

Cost Low price

Quality High quality

Speed Fast delivery

Dependability Reliable delivery

Flexibility Frequent new products/servicesWide range of products/servicesChanging the volume of product/servicedeliveriesChanging the timing of product/servicedeliveries

Operation Strategy Role

* Neely,A. (2008) 'Business Performance Measurement: Unifying Theory and Integrating Practice'

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Airline Industry Overview (UK)scheduled and non-scheduled

Overview

[McKinsey]

[Keynote-Market Report]-2010]

UK Market Size-Year 2010

71%

17%

12%

Operating Revenue (£)

Scheduled flights (12240000)

Non-scheduled flights (2990000)

Freight + Others (2078)

83%

17%

Transported Passengers (million)

Scheduled services Passengers (101.5)Non-scheduled services Passen-gers (20.9)

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Airline Industry Overview

BUSINESS MODEL Full Fare (service) Carrier

Low Fare (Service) Carrier

Strategy Global Strategy & High Cost Niche Strategy & Low cost

Network Hub & Spokes, Global alliance

Point to point between secondary airports

Fleet Different type of planes Standardization

Product Full Service Self Service

Sales Policy Sales Departments, Distribution by GDS

Direct sales, call centers/Internet

[P.Keller, 2002-P20]

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1995: Easy Jet founded by Sir Stelios Haji-Ioannou. Inaugural flights go from Luton to Edinburgh and Glasgow, with two leased aircraft, 16 teenagers as reservation agents and another company’s operating license. Initially booking was by telephone only.

1996: purchased four second-hand aircraft to replace its fleet of leased aircraft.

1997: entered to contract with Boeing to purchase 12 brand new 737s.

1998: buys 40% of Swiss charter operation, TEA Basel AG.

1999: Easy Jet’s staff and passengers, is shown on ITV.

2000: floats on the London Stock Exchange.

2002: purchases low-cost airline Go.

2005: takes delivery of its 100th aircraft.

2003~2007: opened bases in Germany, France, Italy and Spain.

2009: Easy Jet truly becomes a pan European airline.

2010: Easy Jet reaffirms its strategy of Turning Europe Orange.

[easyJet Annual Report 2010]

Brief History

13Operation

Volume

HighLow

Variety

Variation

Variability

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ORDER QUALIFIERCost Fare level and condition

Quality Convenience and Comfort(Basic)

Speed ….

Dependability Schedule adherence, DeliveryAbility to keep promises, Safety

Flexibility Points served and routingsFrequencyTimingsConnectionsPunctuality

15Order Winners

COST

Schedule adherence Selling Price

DEPENDABILITY

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1. Online sales/check in, paperless system2. Secondary airports3. Limited and customer paid catering4. No pre-assigned seats5. Fast turn around time6. Direct point-to-point flights7. Maximize use of aircrafts8. One aircraft type9. Highly incentivized workforce 10. Out Sourcing

How does easyJet do it?

[European Low Fares Airline Association (ELFAA) position paper (2004)]

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Value for money

Business Model

BUSINESSMODEL

MARKET OFFERING

TECHNOLOGY

NETWORK ARCHITECTURE

Tickets

Flight experience

Routes

Economy No Frill

Secondary AirportsFlight

Schedule

One type Aircraft

Aircraft, Pilot, Crew

E Commerce

B 2 C

InternetRelationshi

p

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EasyJet V.S. Ryanair

2004 2005 2006 2007 2008 2009 2010 20110

500

1000

1500

2000

2500

3000

3500

EasyJet(Rev.)

EasyJet(Pro.)

Ryanair(Rev.)

Million Pound

[Companies Annual report]

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Air Berlin

EasyJet

Ryanair

0 10 20 30 40 50 60 70

No. of Passenger (million)-year 2010

EU Market Main Competitors

Competitors

[Companies Annual report]

33%

28%

17%

5%17%

EU market share, Low fare carriers - Year 2010

Ryanair

Easyjet

Air Berlin

AerLingous

Others

[Eurostat-Air transport passengers & European parliament study 2007]

20Performance

Airport+route charges(m £)

41%

Fuel cost (m £)28%

Crew(m £)13%

Maintenance (m £)7%

Others (m £)11%

EasyJet-Operation costs

Airport+route charges(m £)

35%

Fuel cost (m £)40%

Crew(m £)15%

Maintenance (m £)4%

Others (m £)6%

Ryanair-Operation costs

Total Revenue (m £)

Operation cost (m £)

Anciliary Revenue(m £)

Profit A.T. (m £)

2973.1

1851.1

571.4

121.3

1806.2

1463.7

574.0

275.8

Financial Performance-2010

Ryanair EasyJet

Passenger/Personnel (x10)

Seat length (mile)

No. Route Serving

No. Airport Serving

No. Aircraft

load factor (%)

No. Personnel (x100)

No. Countries Serving

Aircraft operation/day(hr)

662.0

701.9

509.0

125.0

196.0

87.0

73.6

29.0

10.8

775.5

661.0

904.0

150.0

232.0

82.0

70.3

27.0

8.9

Operation Performance-2010Ryanair EasyJet

€= 0.865 £ (Ave.2010)

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EasyJet Costs are a focus but not the driver of its overall strategy Attempts to differentiate from its low-cost airline competitors

◦ Dealing with major hub airports ◦ Provide meals and accommodation in case of delays or cancellations◦ Relaxed hand luggage restrictions ◦ Has Loyalty Scheme◦ Fleet age between 7-10 years

Ryanair dealing with secondary and regional airports provide NO meals and NO accommodation in case of delays or cancellations Limit of 15 kg per passenger(below the industry standard of 20 kg) excess charge of €7 per kg Charge €2.50 per passenger per flight (purchasing by credit card –credit card purchase is the only

payment option) Tickets are non-refundable(taxes and airport charges are not refunded) taxes and charges are paid for

passengers actually travelling on the flight. No Loyalty Scheme Fleet age 3.5 years

“Two drivers of growth, the focus on price and convenience”

ConclusionDoes Easyjet’s Operations Strategy help it achieve competitive advantage?

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1984: Virgin Atlantic operated its first scheduled service

1986: Added another Boeing 747 and started a scheduled route from Gatwick to

Miami

1988: Club Air operated two Boeing 727 jet aircraft on behalf of Virgin

1990: Had increasing financial problems

2000: Sold 49% of the airline's holding company to Singapore Airlines

2002: The first airline to use the Airbus A340-600

2003: Carried 3.8 million passengers

2005: Operated a humanitarian aid charter flight to the Pakistan

2006: Carried 4.6 million passengers(seventh among UK airlines)

Brief History

24Operation

Volume

HighLow

Variety

Variation

Variability

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Order QualifiersCost Fare level and condition

Quality Convenience and Comfort (Basic)

Speed ….

Dependability Schedule adherence, DeliveryAbility to keep promises, Safety

Flexibility Points served and routingsFrequencyTimingsConnectionsPunctuality

26Order Winners

QUALITYPerformance

Features

Perceived Quality

Aesthetics

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How does Virgin Atlantic do it?

•Type of aircraft•Interior configuration and design•Individual space•On-board service•Ground/terminal service•Airline lounges•In-flight entertainment•Customer Service •Empowered, not unprofessional people: Sales, Airport staff, Crew

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B 2 C/B2B

Business Model

Transport and

Service

BUSINESSMODEL

MARKET OFFERING

TECHNOLOGY

NETWORK ARCHITECTURE

Professional Flight

Experience

Aircraft Seat

Value Added

Different class, Full

Service

Primary Airports

Flight Schedule

Mixed type Aircraft

Internet/Personal

Aircraft, Pilot, Crew, Airport Staff

E-Commerce

Agents

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Market Main Competitors

Competitors[www.the beat travel.com]

30Performance

http://www.airport-la.com/airlines/compare-VS-DL

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Virgin Atlantic

Delta Air

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Delta Air Virgin Atlantic

Route New York-London London - New York New York-London London - New York

Flights DL1/DL3/DL148 DL2/DL4/DL149 VS4/VS10/VS/46 VS/3/VS9/VS45

Delay(Minute)Avr./Max 19/87,38/122,49/458 28/148,14/107,16/44 38/197,45/162,30/106 28/144,30/107,29/102

Price- Economy 503.4 £ 675.1 £

Price- Flexible Economy 1349.9 £ 1374.1 £

Price- Business 3190 £ 3804.1 £

Operation Revenue 2010 604.703 million € 1226 million $ Atlantic (883.09 €) (5238 million $ total airline)

[Delta Annual report-2010, Average 1€ = 1.3883 $ -2010 ][Flightstate.com-2010 ]

ConclusionDoes Virgin Atlantic's Operations Strategy help it achieve competitive advantage?

Virgin is an internationally recognized brand

The Virgin Group: more than 20 separate umbrella companies,

operating some 270 companies worldwide

Virgin now uses its brand as a capital asset in joint ventures

Virgin contributes the brand and Richard Branson’s PR profile,

whilst the partner provides the capital input

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Books

1.Course Material

2. Jones,P. and Robinson,P. 3rd E.(2009) Operations Management. Pearson Custom Publishing

Journal Articles

3.Sull, D.(1999)”easyJet $500 Million Gamble”, European Management Journal,17(1),pp.20-38.

4. Assef, A.G. and Josiassen, A. (2011) “The operation performance of UK airlines: 2002-2007” Journal of Economic studies, 138(1), pp.5-16.

Electronic documents about companies

5.Data Monitor (2011) ”Virgin Atlantic Airways, Ltd.”[online] Available at: http//www.datamonitor.com (Accessed 16 May 2011)

6. Report (2010) “Virgin groups corporate responsibility and sustainable development”. [online] Available at: http//www.virgin.com

Electronic company annual reports

6. Ryanair (2010) Annual report for the year 2010. Available at: www.ryanair.com.

7. easyJet (2010) Annual report for the year 2010. Available at: www.easyJet.com.

8. Delta air (2010) Annual report for the year 2010. Available at: www.deltaair.com.

9. Air Berlin (2010) Annual report for the year 2010. Available at: www.airberlin.com.

Discussion papers

10. G.Morrison, W. and J.Mason, K. (2007) What is a low cost carrier?. The university of British Columbia/Vancouver

11. European Organization for safety of Air Navigation. (Euro control) (2010) Available at: www.eurocontrol.int/statfor

Web Pages

12. Virgin Atlantic (Undated). Virgin Atlantic – For Students [online] Available at: www.virgin-atlantic.com

13. Trans Atlantic airline market share (2008) [online] Available at: www.The best travel.com

14. Airlines compare (2010) [online] Available at: www.Airport-la.com

15. Airline performance (2010) [online] Available at: www.Flightstate.com

16. Air transport passengers (2007) Available at: http://epp.eurostat.ec.europa.eu

17. European low fare airline association (elfaa) position paper (2004) Available at: http://www.elfaa.com

18. Virgin spreads (2005) Available at: www.brandchannel.com

19. Virgin Atlantic success (2009) Available at: www.eventmagazine.co.uk

20. Virgin Atlantic annual turn over (2010) Available at: Amadeus

Market research reports

21. Key Note (2010) Air travel market: Market report: Key note

22. Key Note (2010) Air travel market size: Market report: Key note

References

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