Strategic Analysis of Aer Lingus - low cost airline

Résumé du document

This analysis has been made to show the various key points that define Aer Lingus as an organisation, which results in choosing the most adapted strategy when they are in a difficult phase.

The airline industry is currently facing the consequences of the global economic crisis, i.e. higher price of fuel, growth in the air market and high instability in international currencies.
Concerning low-costs carriers, the situation is even harder, as these companies must try and maintain the lowest prices possible, regardless of the economic, political or social environment.
Aer Lingus' board has recently adopted NCB Research Analysis proposal that will enable the company to save €74m per year by outsourcing one quarter of the workforce by permitting cutbacks in running costs; which will be relevant to underline the uncertainty of the board and in making the decision. It is vital to understand that Aer Lingus falls under the agency theory and thus everyone's desires and objectives may not be compatible with the company's best interest.

In this difficult period, it appears Aer Lingus is motivated by financial achievements and we must keep in mind that financial plans are meant to help momentarily, while marketing and organisational strategies are the ones that bring durable changes and hopefully profits.

Extraits

[...] Strategic Analysis of Aer Lingus - Low cost airline This analysis has been made to show the various key points that define Aer Lingus as an organisation, which results in choosing the most adapted strategy when they are in a difficult phase. The airline industry is currently facing the consequences of the global economic crisis, i.e. higher price of fuel, growth in the air market and high instability in international currencies. Concerning low-costs carriers, the situation is even harder, as these companies must try and maintain the lowest prices possible, regardless of the economic, political or social environment. [...]

[...] To begin with, Ryanair has taken advantage of the sale of Aer Lingus shares by the government; it now owns of the shares; the Irish government owns and finally, the Employee Share Ownership Trust (ESOT) owns Ryanair being the main competitor of Aer Lingus, a close attention must be paid by the Irish government in order to assure that no quasi- monopolistic is created, in case where Ryanair should buy over Aer Lingus. One offer has already been made which has been refused after long discussions. About the ESOT, it has lost some of its influence, as staff cuts are about to be made via the recently adopted financial plan; however, the presence of the trade unions is still consequent, and the employees still have an important word to say, compared to other companies. [...]

[...] In addition to this, Aer Lingus must choose whether to merge with another company or not. The company could refuse any merger, but then only two options will be left. It couldsimply cut its cost base, that is basically to use cash resources for restructuration, bring the unit costs down like Easyjet or Ryanair, and dismiss a great number of employees in order to immediately reduce staff expenses from taking the company down; or Aer Lingus could carry out an acquisition programme of faltering European airlines, in order to gain more airport slots and widen its fleet and therefore passenger capacity, which would be a good strategy given the massive net cash balances of the company. [...]

[...] The strength of the Euro compared to the US Dollar has also permitted Aer Lingus to avoid catastrophic expenses in fuel costs. However, this also led to a reduced operating income, as Aer Lingus has signed an agreement which stipulates that 15% of its flights must be linked to USA. Socio-cultural environment Globalisation has helped flights spread their way into international destinations. It has become a well-acknowledged transport when one travels abroad, as everyone has lesser time to dispose than before, it has become obvious that flights are the fastest way to travel. [...]

[...] Apart from these products it also provides cargo services to the USA and Europe. Price Aer Lingus tries to keep prices minimum as a low-cost airline would, but attempting to maintain a quality and not minimising its service. Thus we see that its price positioning is slightly higher than one of its main competitors, Ryanair. In order to compete with it in terms of price, it periodically offers reduced fares in case of low passenger expectation on a particular route or even plane. [...]