Business Strategy in Transport - Essay Example

Business Strategy in Transport: London, Heathrow Airport to Brussels, National Airport Globalized world asks for nothing but traveling to all parts of the world. Traveling for business meetings, vacations, and other visits have become common in todays globalized for which there are numerous airlines offering their services throughout the year. Air travel facilitates economic growth, tourism, world trade and international investment which is central to globalization taking place in many other industries. IATA forecasts international air travel to grow by five percent per year and number of passengers will double by the year 2010 (http://adg.stanford.edu). Airline industry is increasing in the present booming economy encouraging new entrants new establish their service. Modern day airline industry follows low cost strategy so as to provide an alternative to the price sensitive clients which evolved during the period of crisis during 2000 followed by 9/11 strike by terrorist and Iraq war (Cento, 2008). Therefore entering into the market, the business entrepreneur must analyze the market situation, identifying the routes to operate and airports, main business centre, reaching time, etc. In a bid to enter the airline industry, a air route from London to Brussels has identified through Heathrow airport in London and Brussels National Airport. London to Brussels – Transport Analysis Heathrow airport is one of world’s busiest international airports with five terminals. It is situated 32 kilometers from the London city while used by more than 68 million passengers each year. Over 100 companies operate at this airport providing service the customers flying them to over 200 destinations. The airport is connected by road and rail making it easier for the passengers make it convenient for them to choose the mode of transport they would like to reach the airport. Nearby the airport, there are three international hotels and other 20 plus hotels in the city. There are plenty of buses of National Express from London to Heathrow airport which departs every 15 to 30 minutes from 4.30 am to midnight which takes about 45 minutes to reach the place. Few trains like Heathrow Connect, Heathrow Express connecting the city and trains. However in emergency, one can utilize of the services of taxi which may prove little expensive comparatively (Masters et al, 2010:375). Brussels International Airport is the main international touchdown for most of the airplanes and is second nearest to the city centre at the distance of 13 km after the small Antwerp Airport which is 4 km southeast of the city (Nevez, 2008;175). The airport is well connected with road and rails. Passengers can reach airport by taxi, airport buses and train services. During 1998, Brussels International Airport served 19 million passengers out of which 16 percent accessed airport by rail (Coogan et al, 2000:74). Brussels has an extensive efficient and easy to use public transport system, comprising the ultra reliable metro, trams, the premetro, and buses that connect the airport and the city (Newez, 2008:190). Global air travel demand has been growing over the past few years with increasing number of flights and passengers from various places to various destinations catering to the need of millions of people around the world. The demand for air travel between particular routes is largely a function of traffic generating factors like price and service levels which may also be influenced by price and relative attractiveness of competing destinations and other transport modes (ICAO, 2010). Heathrow airport has the daily average movements of 1231 with 89 airlines and serving 176 destinations in 90 countries with 65.7 million passengers in 2010. In the year 2009, European’s were among the largest to use the services of Heathrow airport with 40.3% (BAA Heathrow, n.d.). Airline industry forecasts that 78.8 million passengers will travel through Heathrow airport which makes it a potential area of investment for new entrants (Great Britain: Competition Commission, 2007:65). Heathrow airport alone served around 0.8 million passengers per annum to Brussels in the year 2006 in spite of the fact that these two stations are easily reachable by train (Great Britain: Parliament: House of Commons: Transport Committee, 2009). Due to the short distance, both the destinations are connected by road; rail and passengers are invited to fly through cheapest airlines available through the airports. Passengers at Brussels airport were mostly origin and destination passengers (91%) while 9% were transfer. Out of the total passengers using the airport, 4.4% were from the United Kingdom behind France and USA (AAF, 2008) During the year 2009, 9864 flights from Brussels Airport to London which came down drastically by 34 percent at 6411 flights in 2010 whereas there was 14.7 percent decrease in passengers destination from Brussels to Heathrow (BRU Trends, 2010). Going by the numbers and statistics, there is good number of passengers flying between these two destinations providing good opportunity to the new entrant to start its airline services. The fact that passengers at these particular airports are forecasted to increase by 2012 is also encouraging for the new company. Business Strategy Transport is the ultimate enabler putting development goals with reach by serving other sectors of a nation’s economy. The evolution of the airline business can be considered as driven by supply side factors like technological development that laid the base for new regulations which lead to change of business rules and subsequently to strategic success factors in the industry (Delfmann, 2005). According to ICAO (2010) there are 4200 airports around the world catering to 2.3 billion passengers and 39 million tonnes of cargo spreading across 35 billion kilometers of network with 62000 airlines in service. Air Transport network drives economic progress through promoting leisure and business activities and contributes approximately US$20 trillion to world GDP which is 3 percent of the world GDP. The air transport network is increasing globally due to strong economic growth, liberalization and open skies policies making it a cakewalk for the new entrants (Senguttavan, n.d.). The business plan to start a new airline on a route which already has good number of cheapest flights, road and rail connectivity seems risky but provides good opportunity with number of business and management people travelling on this route and 42 percent of the passengers are between 24 to 44 years of age who can be assumed as frequent travelers in this region (AAF, 2010). Business environment for airline industry has been in news for all the wrong reasons making it difficult for the companies to survive in the present. The recent incident of volcano resulting in ash cloud over the European countries forced the airlines to cancel their flights in that direction resulting in economic loss to the companies’ as well emotional loss to the passengers. Global recession of 2008 also had dampening effect on the industry forcing the prices to go down but Alamdari (2009) states the economic downturn has reached the bottom and recovery has begun which is a positive sign for the existing companies as well as new entrants. More recently rise in the prices of fuel are hitting the profits of airways making it the worst environment for business in airways (Riley, 2008). Climate change, labor are also other factors influencing the decisions in airline industry. Further analysis on the basis of Porters’ five forces would help to ascertain the business environment. Industry Competitors: The new entrant on the route of Heathrow to Brussels will have to compete with the world leaders like British Airways, Brussels Airlines, BMI, etc. who dominate the market industry Power of new entrants: New entrants could create hype in the market by offering direct and indirect connecting flights to the consumers. There is a need to attract the attention of passengers by using discounting strategy and offering incentives on each travel in way of points and extra travel time. Power of Suppliers: There is no competition in this area as this is dominated by two world leaders i.e. Airbus and Boeing. The new entrant has limited source of supply and it would be better to purchase from the leaders for the sake of quality and service. Power of Buyers: The buyers, passengers, have lots of opportunity to shift from one service to another as there are plenty of service providers. Passengers don’t have the bargaining power but have the freedom to choose the service provider; hence it is necessary to arrive at a calculated fare that would satisfy the passenger. Power of Substitutes: Operating on a route like Heathrow - Brussels offers the passengers with quite few opportunities to opt for other than flight. These two destinations are connected with road and trains which make it necessary for airlines to formulate a strategy that could attract the passengers. The new entrant needs to formulate a strategy to overcome the following barriers a) Economies of Scale: The Company will need huge funding to purchase flights and match or even better the standards of service that other service providers offer their passengers, apart from infrastructure and institutions. b) Capital requirements of entry: Capital investments are necessary for new entrant as it specifies the extent to which the firm’s assets can be utilized to provide more better services to the passengers. As the existing incumbent already possesses capital, this was act as threat for new entrant. c) Access to supply or distribution channels: Distribution channels are necessary for reaching the passengers through counters in both the airports which may be restricted by the leaders (QuickMBA, 2010). d) Differentiation: New entrants may not be given due respect by the existing companies and passengers. Companies formulate decisive strategy rewarding customer loyalty bringing in more sales. Hence, the new entrant will have to formulate extensive strategy that would attract the potential customers. e) Experience: The potential threat for new entrants where one mistake could even result in cancellation of their license. f) Retaliation: There is constant threat of retaliation from the incumbents in the industry who can spoil the image of company by false tricks and remarks. g) Government Regulations: Though the government restricts competition through anti-trust actions and regulations. Despite deregulation, new entrant face threat of eviction from the industry if they failed to fill the gaps and follow the rules of aviation industry. Conclusion London and Brussels are famous cities of the world and attracts large number of passengers from all over the world. Operating a route between Heathrow – Brussels is a viable opportunity for the new entrants in view of the diversified passenger profile, deregulation and estimated increasing trend of flights. The airline industry is recovering from the recession and booming in the present providing good opportunity for the new entrants to make an impact in the industry. References 1. AAF 2010. Brussels airport passenger profile, AeroWings Aviation Forum [Online] Available at < http://aerowings.goodforum.net> 2. BAA n.d Heathrow Airport – Facts and Figures, [Online] Available at 3. BRU Trends 2010. Brussels Airport Trends 2010, [Online] Available at 4. Cento, A. 2008, The Airline Industry: Challenges in the 21st Century, Italy:Springer 5. Delfmann, W 2005. Strategic management in the aviation industry, US: Ashgate Publishing, Ltd 6. Great Britain: Competition Commission 2007. BAA Ltd: a report on the economic regulation of the London airports companies (Heathrow Airport Ltd and Gatwick Airport Ltd), US: The Stationery Office 7. Great Britain: Parliament: House of Commons: Transport Committee 2009. The future of aviation: first report of session 2009-10, Vol. 2: Oral and written evidence, Volume 2, US: The Stationery Office 8. ICAO 2010. Traffic Forecasting and Economic Planning Workshop. Working Paper, Cairo:FEPW 9. Leigh Fisher Associates, Matthew A. Coogan, United States. Federal Transit Administration, MarketSense, Transit Cooperative Research Program, Transit Development Corporation, National Research Council (U.S.). Transportation Research Board, 2000. ‘Improving public transportation access to large airports’ US: Transportation Research Board 10. Newez, C.L. 2008. Brussels, Bruges, Antwerp & Ghent: encounter, ,US: Lonely Planet 11. Quick MBA 2010. Porters Five Forces, Strategic Management, [Online] Available at < http://www.quickmba.com/> 12. Riley J 2008. The worst trading environment the airline industry has ever faced, Tutor2U, [Online] Available at < http://tutor2u.net> 13. Senguttuvan P.S 2009. Global Trends in Air Transport: Traffic Market Access & Challenges, India 14. ‘The Airline Industry’ Aircraft Aerodynamics and Design Group, [Online] Available at : http://adg.stanford.edu/aa241/intro/airlineindustry.html Read More