European Airlines 1993-1997 Essay

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⇨ Back ground and PEST analysis

For many years, European Airlines are considered to be feed by the government. Before 1990s, the introduction of deregulation, this market was highly controlled by the government. Automatically, the result is high price as well as poor management and service. Consumers, of course, complained about the bad perform of them. Like most of the state-owned businesses, although some of the airlines intended to lower their price by cost cutting, redundancies and reorganization because of the increasing competition pressure, most of them failed because of the government interfere and strong labor reaction. Back in 1978, Airline deregulation first introduced to Americans.

The new act allowed new airlines to come, permitted them to choose lines individually and release the pricing power. Till 1993, the price had decreased about 20%. A highly profitable service, transcontinental long haul flying, had exceeded 35% of the total. There in another one thing needs to mention: U.S. applied aggressive strategy, which is considered illegal in Europe. Refer to the fifteen years innovations in U.S, European politics finally made up their minds to repeal their restrictions in 1993. It is predicted that the European airlines environment might be completely open up in 1997 hopefully. In other words, there is five years for domestic airlines to adjust their strategies.

Poter’s 5-force model

➢ The extent of competitive rivalry/industry competitors. Considering European market as a whole, the threat comes from airlines of other continents. This refers to those except cross-Europe and domestic routes. If we choose one airline specifically, for example Lufthansa airlines, its competitors most are inside the Europe. (E.g. British Airways, Deutsche BA, Air France, Alitalia etc. Further more, it was also threaten by some new entrants ➢ The threat of potential new entrants

This involves airlines that ready to enter during this period. Generally speaking, these new entrants are relatively small size but more flexible. It does not have much burden of either the government or labor responds. As a result, they usually have low-cost so that the price might be even half less than the original ones. As a small size of the firm, their service is usually short haul and has constant demand of customers. ➢ The bargaining power of buyers

This refers to organization/individual who buys the service. They are price/service sensitive. ➢ The bargaining power of suppliers

Before deregulation the suppliers are disjointed with the airlines. Being centrally controlled by the government, either suppliers or airlines cannot fit efficiently and effectively. However, both sides might be automatically matched after they are release from the control. This will be mentioned later.

➢ The threat of substitutes

Here means some other transport tools that cause airlines loss their consumers.

⇨ Analysis of Strategy

Look back to the U.S. strategies. The whole model was set up based on a mass computing network, complex operating technique and pricing system, large investment and continuously attention to cost cutting. However, although this serious of activities are effective and improve the productivity and investment ability, it does not exceed the increasing marketing pressure. Potentially, these tactics might fit for specific European airlines, but not all of them. Except the political factors as I have mentioned before, another problem is that most of the companies operate separately form check-in to maintaining the motor. What they really need is set up a new competitive strategy in order to reorganize the business structure with their core ability.

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