Operations Strategies of EasyJet vs Virgin Atlantic
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Transcript of Operations Strategies of EasyJet vs Virgin Atlantic
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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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Han
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Infli
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tain
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t
Airpor
t Ter
min
al
Fligh
t Atte
ndan
t Atti
tude
Seat
Com
fort
Aircra
ft
Brand
App
eal
Fligh
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ay
Overa
ll Rat
ing
Check
In /
Sequ
rity
Term
inal
Infli
ght F
ood/
Drink
Carry
on
Lugg
age
Handl
ing
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5 Industry Standard
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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