Air transport and the strategy of the low-cost airlines
Competitively, we can see that low-cost airlines have decided to adopt a strategy of cost leadership. This strategy is characterized by a minimization of total costs and allows companies to offer lower prices without reducing their net margin. This aspect still requires a high level of sales to increase the activity.
We will initially perform an analysis of the sector with the appropriate tools such as external and internal analysis or Porter’s five forces. In the second step, we will see how low costs, create value with their strategic positioning. The tools used are identical to those of the first part. To conclude, we will converge on the ideas developed in both parts and thus draw an analysis of the low-cost and traditional air transport sector.
The Key Success Factors are derived from the analysis of opportunities and threats. Master of all costs: in order to maintain satisfactory positive net margins, it is necessary to act on the "high Operating costs", that is to say the costs of raw materials (oil), the costs of labor (maintenance, crew), insurance costs etc.
Regularly utilize more hubs: the strategy, although defensive, is effective in the sense that it can provide significant productivity gains. From the perspective of competitiveness, this aspect is essential.
Market "business travelers": This segment provides a turnover of 40% while the sector represents only 15% of passengers. Attracting the customer represents an opportunity for the industry.
The airline industry is not a profitable business in the long term. Indeed, production costs are high. The largest cost is related to wages. It represents on an average, 30% of the costs. For some companies, they are 50% (United Airlines), for others they are only 12% (Ryanair).
The second is the cost of maintenance. Employees are paid high salaries. This represents 12% of overall costs. The opportunity to be seized would outsource maintenance as the savings would range from 30 to 50% of costs.
The costs of airport operations are divided between airlines and their passengers. The opportunity to circumvent the costs of managing airports is in more frequent attendance at secondary airports. The raw material costs vary depending on political decisions that airlines can not control. Other costs are those related to air traffic control, meteorology, insurance.
Tags: air transport, low – cost airlines, strategy used by low – cost airlines