Syndicate 2 - Internal Analysis - Flybaboo Revision [PDF]

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MM5012 Business Strategy and Enterprise Modelling



Flybaboo: How High Can we Fly? Presented by Syndicate 2 Ayda Khadiva Hari Gusti Firnando I Gusti Komang A T Salma Muqitaputri G



(29120578) (29120358) (29120351) (29120353)



Background Flybaboo is an LCC airline company start-up founded by Julian Cook. Flybaboo began its debut by serving regional flight and aimed to take advantage of the growth potential of low-volume routes with high yield. It’s business was initially framed in highly opportunistic terms, Cook as its CEO having emphasized speed and opportunity rather than strategic planning. In the four months since the inaugural flight from Geneva to Lugano, Flybaboo had generated revenues of over SFr 1.4 million. Moreover the airline was already serving the Geneva-Venice route and could look forward to breaking even (58% load factor per flight) in the foreseeable future through healthy sales growth.



Timeline 2000



Founded Newline Airways Ltd., Julian Cook Founded a UK-based start-up airline that aim at the transatlantic business market



2001



Crisis Crisis on airline industry and services caused by 11/9



2002



Founded Baboo S.A In October, Cook bounced back and co-founded Baboo SA. His attention back to airline industries



2003



Granted the route concession FlyBaboo gained support from government and granted the route from DETEC on September 19.



2003



First flight On November 2, Fly baboo made its virgin flight from Cointin to Agno.



Flybaboo's Strategy Start-Up Strategy



Operating Strategy



Marketing Strategy



The company was operating with the Cirrus Airlines wet lease Build credibility with investor, passengers, airport, and regulator The initial focus was on building traffic Point-to-point and short-haul flight, and increase the frequency of fight with point--to-point basis (GenevaLugano-Venice) Obtain its own AOC (coupled with a two-year dry lease on a Dash 8 aircraft) No Catering on Board Low fares to passengers who booked early Targeting business & leisure customers to limit market volatility Driving ticket sales through their website



Pricing Strategy Communication Strategy



Growth Strategy



Adopting low-cost airlines strategy by selling seats on a first-come, first-served basis Pointing a PR Agency Using billboard and local newspapers Cook tries to use his personal charisma to achieve positive PR impact Short-Term: Offering daily flight to increase frequency on The Geneva-Venice route Medium-Term: Adding interesting short haul destinations, such as Marseilles, Valencia, Berlin, etc. Long-Term: Expanding to medium-haul destinations using second aircraft type & open a new operating base



The European Airline Industry World economic recession, the events of 11 September, and war in Iraq pushed airline industry into crisis. New breed of carriers emerged, the low-cost carriers were reshaping the airline industry. Five main types of airlines most common Europe: International Airlines Generally had a broad international hub-and-spoke network and strong customer base National Airlines Offered connecting facilities through other international and national carriers. However, their limited network made them unattractive for membership of global alliance Charter Airlines Charter carriers operated on tourist routes and offered their seats for “charter” to tour operators and agents.



Regional and Commuter Airlines The airlines provide point-to-point services. The cost structure was higher than Charter and LCC Low-Cost Carriers Offered point-to-point flights, a single aircraft type, uniform setting layout, and no-frills service underlay their operating model. LCCs’ opertaing cost were half of network carriers A number of airlines were seeking opportunity to launch or expand their operation in Switzerland after more routes were abandoned by Swiss International Air Lines, therefore increased potential entrants--increasing competition.



Political



LETSEP



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Unstable Political Environment because of Iraq War Switzerland - European Union "open skies" accord the events of September 11



Technological Internet Telephone



Economic World Economic Recession in 2001 Demand of Geneva-Lugano is forecasted for 50,000 passengers a year



Environmental The Alps seperates Geneva and Lugano making land transport slow.



Sociological Customers preference to use faster transportation The doubling markets to Nice and Barcelona, & the 50% increase for flights to London



Legal FOCA bans landings at Agno by aircraft not certified to descents at 6 degrees. Air Operator Certificate is needed to operate within open skies accords



External Analysis Porter's Five Forces Analysis Threats of the New Entrants Players need to have licenses, insurance and other qualifications. The industry have a high costs, so players need to have large capital Players with good branding has an advantage. Experience could lower the costs.



LOW - Favorable



Bargaining Power of Buyer Diversity in product offered to the buyers. Easy to access price information can lead customers has more information to compare. Low switching cost There is a large number of customers, each with relatively small purchase



MODERATE - Moderate



Bargaining Power of Supplier Pretty much players in the industry makes suppliers able to compare "supplier" of wet lease have high bargaining power. (In Flybaboo's case, without wet lease, Flybaboo won't be able to operate its business)



MODERATE - Moderate



Threats of Substitutes Another transportation service using car or train. Currently the portion of airlines : car and train is 40:60 Customers will incur costs in switching to substitutes. Customers are not likely to go for substitutes.



LOW - Favorable



Rivalry Among Existing Competitors Low switching costs made the competition more intense. High fixed costs lead to high competitive nature. High bargaining power of buyers made it important to offer the best.



HIGH - Unfavorable



How well is the firm’s present strategy working? Key Indicators for the First Four Months Pre-Ops



Nov 03



Dec 03



Jan 04



Feb 04



ASK



2.73 mill



3.46 mill



3.46 mill



3.46 mill



Load Factor



45%



44%



37%



44%



Yield/RPK



0.19



0.25



0.27



0.33



No. Cust.



3188



3820



3228



3735



Sales



232 K



368 K



343 K



480 K



Increase %



-



65%



(7%)



40%



(718 k)



(765k)



(790k)



(502k)



Net Profit



(155 k)



Is the company achieving its stated financial and strategic objectives? Not yet. As of the case, Flybaboo has only achieved a load factor of 50% during the first 3 months of operation, generating gross revenues of around SFr 1.25 million. Flybaboo is still burning cash & achieving less than their BEP; which is 58% load factor; at around 29 passengers per flight.



Is the financial performance above the industry average? Comparatively, Helvetic Airlines which inaugurated the same month that Flybaboo did in November 2003, had a better performance due to a larger seat-capacity and more routes offered.



Is it gaining customers and increasing its market share? From the Key Indicator data, there hasn't been a significant increase, either from customer numbers or load factor. Ryanair and easyJet, Flybaboo's competitors also still accounted for more than 90% of LCC traffic.



What are the firm’s competitively important resources and capabilities? Resources Tangible Resources



Intangible Resources



Physical



Dash 8-300 aircraft



Human



An experienced & charismatic CEO



Financial



Personal investment of Cook & partner, as well as a group of investors



Brand



A global presence as a low-cost carrier with short-haul destinations



Technological



AOC through wet lease, partnering with Cirrus Airlines; website for booking



Relationship



Investors, Politicians, Partners (such as Cirrus Airlines & airports)



Organizational



Electronic ticket booking system exclusively via the Flybaboo website and call center



Company Culture



Opportunistic attitude and a principle to keep cost as low as manageable



What are the firm’s competitively important resources and capabilities? Resources by VRIN Analysis Valuable



Rare



Costly to Imitate



Nonsubstitutable



Competitive Consequences



Performance Implications



Dash 8-300 aircraft



Yes



Yes



No



No



Temporary competitive advantages



Average to aboveaverage returns



Investments



Yes



No



No



Yes



Competitive parity



Average returns



AOC



Yes



No



Yes



Yes



Competitive parity



Average returns



E-ticket booking through web & call center



Yes



No



No



No



Competitive parity



Average returns



An experienced & charismatic CEO



Yes



No



No



No



Competitive parity



Average returns



A global presence as a low-cost carrier with short-haul destinations



Yes



No



No



No



Competitive parity



Average returns



Investors, Politicians, Partners



Yes



No



No



No



Competitive parity



Average returns



Principle to keep cost as low as manageable



Yes



No



No



No



Competitive parity



Average returns



What are the firm’s competitively important resources and capabilities? Capabilities by VRIN Analysis



Easy-to-reach & cost-effective distribution channel



Valuable



Rare



Costly to Imitate



Nonsubstitutable



Competitive Consequences



Performance Implications



Yes



No



No



Yes



Competitive parity



Average returns Average to aboveaverage returns



Low fare offers to a limited number early bookers



Yes



Yes



No



No



Temporary competitive advantages



Manages to keep operating cost to a minimum



Yes



No



No



No



Competitive parity



Average returns



Utilizing media relations for public awareness



Yes



No



No



No



Competitive parity



Average returns



Value Chain Operations: Point-to-point, short haul flights One leased aircraft No catering on board



Primary Function



Marketing & Sales: Targeting tourists and business travelers First come, first serve Low price for early bookers Public relation (outsourced to Trimedia) Advertising plan (billboard and local newspaper)



Finance: Having support from reputable investors



Supporting Function



Human Resource: Lower cabin crew salaries



Distribution Electronic tickets can be purchased via Flybaboo website Call center



Customer Value Proposition



Comparative Value Chain & Customer Value Flybaboo



RyanAir, easyJet, Helvetic



International, National, Regional Airlines



Niche business and leisure travelers Point-to-point short haul destinations Lower fares, 49 Sfr for early bookers Progressive pricing, first come first serve



Larger market share Point-to-point short haul destinations Higher fare (99 euro for Helvetic) Standard Pricing



Wider target segment Full Service Worldwide Network High Price



Operations



Point-to-point short haul destinations No catering on board



Point-to-point short haul destinations Buy on board food option (RyanAir & easyJet)



Short and long destinations Catering on board



Marketing



Treats all customers the same Progressive pricing, first come first serve Public relation and advertising



Frequent flier programs Standard pricing despite destinations Public relation and advertising



Customers divided by class Public relations & advertising, airlines allieances Frequent flyer programs



Distribution & Service



Direct selling through company website and call center (85% through website)



Direct selling through company website and call center (90% through website)



Travel agents, Bundling, direct sales



Customer Value



Value Chain



Competitive Advantage of Flybaboo



Potential for sustainable competitive advantage



To determine the potential Sustainable Competitive Advantage, we should appraise the firm’s resources and capabilities in terms of: a. Strategic Importance b. Relative Strength Based on the VRIN analysis, currently Flybaboo's temporary competitive advantage lies on low fare offers to a limited number early bookers, and having to operate with the Dash-8 aircraft. Without having an inimitable and nonsubstitutionable resource and capabilities, then currently Flybaboo has no potential sustainable competitive advantage if they dont change their current strategy. By assessing Flybaboo's Strength, Weakness, Opportunity, and Threat, we can further strategize on how to utilize the strength and opportunity to their advantage, manage and minimize their weakness, and avoid threats.



Is the firm able to take advantage of market opportunities and overcome external threats? SWOT Analysis S1 S2 S3 S4 S5 S6



Low cost structure Flybaboo is backed by high profile investors Dash 8-300 is not stunted by the FOCA ban Offering low fares to a limited number of passengers who booked early Most bookings done through their website Their progressive pricing model allowed near-optimal yield management



O1 O2



Potential to take over slower rail & road transports between Geneva-Lugano The doubling markets to Nice and Barcelona, & the 50% increase for flights to London opens the chance to grow the Geneva-Lugano route FOCA regulation: banned landings at Agno with aircraft that did not have certification for descents at more than 6 degrees, this eliminates competitors Rapid adaptation towards internet use, capturing bookers though web



O3 O4



S



W



O



T



W1 W2 W3 W4 W5 W6



Only has one aircraft They have no capabilities that are difficult to imitate Most of their capabilities are not rare AOC is obtained through wet-lease, which costs a lot. As of the case, Flybaboo has not obtained their own AOC They have not passed their target load factor & BEP



T1 T2 T3



High availability of other airlines services World events (9/11, recession, Iraq War) Other potential entrants on low-volume routes abandoned by Swiss such as Lufthansa and Austrian Airlines, niche players such as NetJets (focusing on prime customers), and other well funded rivals



TOWS Matrix



SO: How can we use our strengths to take advantage of the opportunities? S3 O1 O2 S3 O3 S4 S5 O4 S4 S6 O2



Take over Geneva-Lugano using Dash 8-300 Offer routes that also applies the FOCA ban, which minimizes competition Strenghten website presence by partnering with car shuttles, putting attractive discount ads and new route ads on their website Widen the quota for early bookers for special deals to generate faster and more bookings



ST: How can we use our strengths to avoid real and potential threats? S1 T1 S6 T3 S1 S5 T2



Aggresively promote the lower price tickets locally, to absorb customer interest from going to foreign airlines with similar offers Utilize their progressive pricing model to create variations between business and leisure customers Utilizing booking through website to offer the lowest price in order to facilitate people affected by the recession



WO: How can we use our opportunities to overcome the weaknesses? W1 O3 W6 O4



Maximalize operations on airports with FOCA ban inorder to gain income to lease more planes and obtain AOC Utilizing the increase of internet use to advertize and market through online campaign and website activations to generate more bookings



WT: How can we minimize our weaknesses and avoid threats W4 W5 T3 Improve Sales and Marketing efforts in order to gain customer’s trust and loyalty W4 T1 Obtain an AOC to enable expansion without wet lease associations



Short & medium term strategies Medium Term



Short Term Operating Strategy W4 T1 W1 O3 S3 O3



Pricing Strategy S6 T3 Marketing Strategy S4 S6 O2 S1 T1



Obtaining their own AOC, which would cut 15% in their operating cost. This would accelerate their objective of 58% load factor and BEP Utilize Dash 8, to access destinations which implement the FOCA Ban Regulation. It would be strategic for Flybaboo to expand their routes to these steep-landing destinations to minimalize competitors. Optimalize the pricing strategy as they are its differentiating factors by promoting it agressively as website-only promos and discounts Strenghten their online presence to motivate online booking and add engangement to the rapid increase of internet users Direct their marketing efforts locally (Switzerland) in order to build a strong base to fend of foreign airline entrances



Growth Strategy S3 O1 O2 S6 T3 W4 W5 T3 S4 S5 O4



Increasing the number of their fleet to achieve their goal of 70.000 passengers on the Geneva-Lugano route by their second year Adding more seasonal routes like St. Tropez to further capture the leisure market Further develop their pricing strategies to suit their business and leisure segments and optimalize yield Open a new operating bases to capture foreign market Expand their types of airplanes to be able to expand their maximum distance in order to incorporate further routes Build strategic alliances with other FCCs like the International Airlines had done



MM5012 Business Strategy and Enterprise Modelling



Thank You! Presented by Syndicate 2 Ayda Khadiva Hari Gusti Firnando I Gusti Komang A T Salma Muqitaputri G



(29120578) (29120358) (29120351) (29120353)