CA1F07C Introduction to Aviation Marketing FdSc
Introduction
In this assignment I will be examining the market structure of Jet2.com to determine the key issues that they need to consider in order to be leaders in the low cost airline industry. We shall discuss its history in brief and analysetheirkey issues such as their ageing fleet, route expansions and the impact on their business and marketing strategies.
In order to fully achieve this,Michael Porter’s five forces model will guide us to analyse the industry in a more enhanced depth. It will help us determine the intensity of competition, profitability and attractiveness of the industry.
We will incorporate a Pest analysisto audit the environmental influences upon the industry so as to achieve a strategic solution to increase jet2.com’s market shareas compared to its competitorsRyanair, Easyjet and Bmi.Similarly we will use the BCG Matrix toclassify Jet2.com’s services according to the present market share and its future market growth. Finally to assess their future plans and to enable us look at their goals, we will use Kaplan and Norton’s balanced scorecard as well as Jet2’s 2008 financial balance sheet to perform an internal audit. The use of a swot analysis will guide us to outline the key internal and external factors affecting their company and strategies of future growth.
Background
Mission statement
“Our aim is to be the safest, most responsive and reliable operator of low cost services in Europe”
Jet2.com, a British low cost carrier based at Leeds/Bradford Airport since 2006 and a wholly owned subsidiary of the Dart Group plctraces its History back to 1978 as Channel Express (Air services)operating daily services to the Channel Islands using Handley Page Dart Herald Aircraft, under Art carpenter. Originally based atBournemouthithas been flying commercially for over 25 years and launched its charter passenger operations in 2001.
With Philip Meeson as Chairman and chief Executive of the group, jet2.com,launched low cost operations in February 2003 and have flown over 2.5 million passengers, 20 percent of whom are visitors flying into the UK.
With other bases in the North (Belfast, Blackpool, Edinburgh,Manchester and Newcastle) they focus on ‘European routes’ and core leisure routes providing ‘point-to-point air services’ to its customersas well as targeting business customers “with friendly low fares”
They operate 30 aircraft of which 29 (21 Boeing 737-300s and 8 Boeing 757-200s)are fully owned by the Group.
The company’s subdivision-Cargo operates 8 of theirQuick Change B737-300F, and benefit from a successful, contractual relationship with Royal Mail for overnight transportation of First Class Mail. Jet2 flew 2.6m scheduled passengers in the 6 months to 30 September 2008 down from 2.3m in 2007. Subsequently this projected an increment in both yields and load factors, and was achieved by focusing on popular routes, at convenient departure times to its customers. Their profits before tax almost tripled to £33.5m up from £12.2m in 2007.
Ink publishing (2008)
In January 2007 the company branched out in to the package holiday market withJet2holidays.com (ATOL protected), andmanaged todifferentiatethemselves from the tour operator market by offering various Unique Selling Points, including the ability to book a flexible duration holiday from 1 to 21 nights and low cost package holidays on scheduled services from regional airports.
They have also scooped a number of prestigious awards including: the world’s most punctual airline into Amsterdam Schiphol; the number one UK-based ‘Best Short-Haul Airline’, and in 2005 the favourite British low cost airline from both Holiday Which? and Wanderlust magazines.
Competitive Analysis
Porters Five Forces
By using this model, we can determine which of the forces are relevant and to what extent.
Barriers to entry
Deregulation of the airline industry brought along lifting of restrictions that were a barrier to entry. As much as there are many competitors in this industry, this may appear to be too easy to enter orfor anyone to start an airline, but this is far from the truth. The real stumbling blocks come only after they have entered into the market. Financial aspect is one of the high deterrents of this industry. Cost implications of starting up; fuel, acquisition of slots , security cost, airport spaces all act as a barrier against new entrants. A new entrant would most likely have to be a loss leader in the early stages of the product life cycle. This would then allow them to compete with the established low cost airlines.
Threat of substitutes
Minimal- Though the low-cost carriers have taken over some share of car ferries and buses, high-speed trains in Europe, short-haul routes are posing an increasingly serious threat. The Northern region, however seem not to be threatened yet, as there are no high speed rail links to compete with up to 400miles. But with the recent plans of the government to invest on this,it would mean that routes like London to Manchester would be achieved in 1h20m, a reduction of nearly an hour, and London to Glasgow would reduce from 4h45m to 3h.Consequently, if such plans come into effect, thenthe threat of substitutes would be great.
Bargaining power of customers
Like any industry, the customers have a powerful bargaining power; this is mainly due to the amount of competition within the industry. Consumers tend to have a wider range of choice available in terms of which airline to use.
Low cost airlines attract customers that are looking for the best possible price. This has been facilitated by the internet as a vast majority of the tickets are sold online. This makes it possible to find price differences amongst various airlines more easily, thereby putting more pressure on airlines to keep a closer eye on the prices they offer.
Bargaining power of suppliers
The airline industry tends not to have much control over the larger suppliers, but do so over the small suppliers. A close examination of the main suppliers is considered and their impacts to the industry.
Aircraft manufacturesare concentrated in the industry, with Boeing and Airbus providing the majority of commercial aircrafts. Jet2 are dependant on Boeing as the supplier of any spare parts. As they operate aircrafts from one supplier this puts them at a high level risk. Therefore they need to expand their range and aircraft supplier so as to reduce the bargaining power of the manufacturers. Since this will increase its strategic options when placing orders in the future.
Competitive Rivalry within the industry
High competitive rivalry results in pressure on prices, margins and hence on profitability for every single company in the industry. In the UK, the main competitors of jet2 are Ryanair and EasyJet. The low cost industry is very aggressive as all these airlines have the same strategies. Therefore for jet2 to compete with them, they differentiate their product from the actual low cost tariff which aims at offering the customer low fares.With innovations such as jet2plus which offers the customer an opportunity to reserve their seat,
The next section shall be examined using a PEST analysis of the industry.
Political Environment
As much as Deregulation of the airline industry has opened doors for further growth, political issues and governmental interference, limits the extent of the expected growth as these issues still interfere. This can be clearly evidenced by the proposed merger between British Airways and American Airlines as it remains a legal battle with the regulators. Privatisation and expansion of airports as well, brings its menaces alongside its development as these get to face the fierce and angry attitudes of environmentalists as they protest against all the side effects in favour of the environment.
Economic and legal environment
The growth of the industry may need to be controlled to keep pollution to a minimum. As consumerssuffer in the current recession then the airline industry continues to be threatened as they are forced to either lower their fares to remain competitive and opt for more economical aircrafts with long ranges for further diversification or simply consider consolidation for survival. Another aspect to bear in mind is the fluctuating oil prices as well as the VAT the government keeps on increasing. Even despite the recent lowering of interest rates in the UK people still have less disposable income and as a result are less likely to travel abroad
Social and Cultural Environment
The UK population as a whole is aging. The number of people between the age of 25 and 34 has been decreasing but the age group between 55 and 64 remains constant and was expected to increase from 2008 ( Mintel report 2007). The older age group tends to have more disposable income (SAGA Holidays target this group) and therefore should be a targeted as well for Jet2Holidays.com. Having said this, younger people who have less disposable income go abroad for their holidays. This means that the low cost industry is attracting more potential passengers because of their low fares.
Technology
Jet2 has enhanced its use of the internet. Currently 97% of their seats booking are done online. Press release (2009) Jet2.com. This brings cost savings that are in turn passed over to the consumers. This makes them more competitive in price. The development of eco-friendly aircrafts such as the B757-200s with long range of 3,500 nm enables them to diversify further cost effectively. This is further proved by the JFK flights from LBIA in November 2008.
Also a look at their Internal Audit and balance sheet for the Financial year 31march 2008 on the appendix A. will help us see the feasibility of all these. A further explanation of this will be given later on in the assignment
Whilst using the BCG Matrix we can classify Jet2.com’s services according to the present market share and the future growth of the market.
Table 3.The BCG Matrix
StarsJet2Holidays
B757 ETOPs fleet conversion
New York route / Problem Child
B757 – Burn High fuel.
Declining traditional city break destinations.
Cash Cows
Mixed Pax/Cargo Operations
All aircraft are owned by the company. / Dogs
B757 only efficient with high load factors.
Parma route
As shown above, the high growth rate but still relatively low market share suggests that the New York route is, according to the BCG analysis, in the “star” phase.
Whereas its mixed passenger and cargo operations tend to be their “cash cows”, as this type enables them to maximise the use of the Quick Change fleet at night when operations are at their lowest phase.
The decline in traditional city breaks due to the economic recession constrains this to be a “problem child” as the vast majority of the consumers face this, therefore the traditional city breaks end up suffering the pinch.
The macro-environment may be defined as the collection of uncontrollable forces and conditions facing a company or industry. We shall examine jet2’s external marketing environment and audit it in more detail using a
SWOT Analysis
StrengthsMonopoly at LBIA.
Increased flexibility with B737 and B757 aircraft.
B757 for busy routes.
No expensive leasing costs. asown their Fleet
Internet sales
Secondary hubs
Punctuality
“Adhoc” charter flights / Weaknesses
Ageing B737 and B757 fleet
B757 operational issues at LBA.
Growth in size means complexity
Weak brand loyalty between low cost carriers and passengers
Opportunities
Versatile B757 aircraft.
Large consolidation in the Inclusive Tour market.
Domination of markets could lead to price increases. / Threats
Ryanair
Rising Fuel costs.
Large competition at MAN,
Economic downturn
Taxes and subsidies
Table 4
Strengths
One of the key strengths has been the utilisation of the internet. Jet2.com’s internet bookings, relate to 97% of the total ticket sales and this is expected to increase. Also with the financial back up of the Dart Group, they can manage to boost their revenues without thinking of repayment of leased aircraft unlike other low cost airlines. Their financial stability was earlier on portrayed by their internal financial Audit shown in the Table 2. These factors further support the fact that Jet2 is financially capable of expanding its routes and replacing its ageing fleet.
Weakness
Their business model also relies on people flying more. However, there’s a limit as to how often people fly. The growth is not infinitive; it is possible that the low cost market will be saturated. It will come to a point when low cost airlines will not be able to stimulate any more demand from low prices.
CPRE. (2003).
Their ageing fleet is a key issue. The combined average age of their B737 and B757 fleet is 21.1 years (airfleet.net) aged fleet means more consumption, maintenance and servicing cost.
Its growth in size means that they will be moving from the low cost business model and that will bring complexity in operations.
Threats
The UK government is concerned, that the forecast growth in the air industry could have negative effects on air pollution, public safety and traffic congestion. At the moment the airline industry is heavily subsidised by the government. It is estimated that the UK airline industry receives approximately £6 billion worth of subsidies a year as explained by the department for environment, transport and regions.
Ryanair’s move to LBIA also poses another threat if they were to expand their routes fully then jet2 might be forced to relocate. They need to think of launching new routes at their bases in Manchester and Newcastle as they face stiff competition.
Opportunities
With their versatile B757’s they need to consider expanding their route network focusing on Intra European as well as Trans Atlantic routes. Jet2 could diversify into full holiday packages as they have already gained their market share as domination of the market would lead to price increases.
They should use extensively their Quick change Combi aircrafts and try and broaden their cargo network.
They should consider buying new aircrafts as this reduces the cost. Bearing in mind that they have the financial back up from Dart Group, they should exploit this, as a result they will be able to fly more hours before maintenance and a long term cost advantage. (Transcript of Harvard Business Interview)
Conclusion
In this assignment we have been able to examine jet2.com’s market and determined the key issues such as extending and expanding their route network, diversifying into full holidays as well as replacing its ageing fleet so as to become key leaders and gain a larger market share. We managed to achieve this by having a glance at its background, performing a PEST analysis of the industry to audit the environmental influences upon their operations and industry. Porter’s Five forces helped us to look at how attractive the industry and how profitability is affected by the level of competition. Similarly we looked at the BCG Matrix and classified Jet2.com’s services according to the present market share and the future growth of the market. To assess their future plans and to enable us look into their possible goals, we used Kaplan and Norton balanced scorecard and their 2008 internal audit plus jet2’s financial balance sheet.
The swot analysis enabled us to establish the foundation of jet2’s marketing plan and the threats of external factors. This helped us reach to a conclusion of the need to readdress their strategic planning and diversify their Jet2Holidays product.
Word count 2050
Referencesand Bibliography
ACCA (2004) Strategic Business Planning and Development paper 3.5Foulkes Lynch, Feltham
CAA.(2008). UK Airline Statistics.Available at Last accessed 20 March 2009
CAA. (2008). UK Airline Financial Tables: 2007 2008. Available: [Accessedon 20 March 2009]
Curtis J. (2007) Airline Industry Information. June, 20 (7) p 5[online] Available at
[Accessed on 25th march 2009]
CPRE.(2003). Future development of Air Transport in the UK.
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CA1F07C Introduction to Aviation Marketing FdSc
Appendix A. Internal Audit and balance sheet -Financial year 31march 2008
JET2.COM BALANCE SHEET 2007(£000)ASSETS EMPLOYED : Financial year ended -31 MARCH 2008
OPERATING EQUIPMENT AND PROPERTY (Owned and Leased)
Aircraft fleet (including spares) / 10 019
Less: provision for depreciation / -
Aircraft fleet after depreciation / 10 019
Property and other equipment / 15 488
Less: provision for depreciation / 8 409
Property and other equipment after depreciation / 7 079
Payments on account of aircraft under construction / -
TOTAL / 17 098
CURRENT ASSETS
Stocks and work in progress / 49
Debtors and prepayments / 30 230
Short term loans / -
Bank balance and cash / 59 300
Group companies advances and debts currently receivable / 43 734
Other items / -
TOTAL / 133 313
LESS: CURRENT LIABILITIES
Creditors and accruals / 49 899
Traffic revenue received in advance / 93 095
TOTAL CURRENT LIABILITIES / 142 994
TOTAL NET CURRENT ASSETS /(LIABILITIES) / ( 9 681)
INTANGIBLE ASSETS
Pre- operational training and development / 433
TOTAL INTANGIBLE ASSETS / 433
OTHER ASSETS
TOTAL OTHER ASSETS / 102 100
AMOUNTS RECEIVABLE (more than one year)
TOTAL ASSETS / 1 894 700
Financed by: SHAREHOLDERS FUND
Share capital / 104 800
Share premium account / 633 900
Capital reserve / 427 400
Revenue reserve / -
Revaluation reserve / -
Other reserve / ( 13 700)
BORROWINGS ETC (repayable more than one year ahead)
Advances from other Group Companies / -
Bank loans / 389 600
Other loans / 95 300
Hire Purchase Liabilities / -
DEFERRED LIABILITIES
Taxation / 34 600
Other / 222 800
TOTAL FINANCE / 1 894 700
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