Evaluate Flybe’s chosen strategies
Flybe have announced further expansion of 3 routes, including from Belfast to Bristol, which it has taken over from Ryanair. Ryanair, along with eastJet, are the two leading competitors in the makret; Ryanair are said to to be ‘the largest airline by international passenger numbers’ in reference to the business review magazine. The additional flights should add strength to Flybe’s UK budget airline market share. However it is unknown whether the routes are known as ‘thin routes’ such as the Manchester to Jersey route; ‘thin routes’ routes will mean Flybe’s strategy of driving down unit costs will not work.
The acquiring of the routes therefore will likely help Flybe’s position in the UK market, by also detracting from a competitor, but would also use resources that Flybe may want to use elsewhere such as in Europe. Howver, the problem of being a ‘thin route’ appears likely to be non-existant seeing as the routes from from a major capital city to three busy and used airports. The acquiring of the flights will help Flybe’s position in the longer term in their UK market.
Another of Flybe’s strategies to initially purchase of 35 jets, with the option to buy a further 105 aircraft. The jets contain 88 seats, fitting with Flybe’s current 70-120 seater jets, thereby maintaining their current successful crop of aircraft. The purchase of the jets would likely reduce Flybe’s current average age of modern aircraft from the 3. 8 year current figure, helping to further save fuel efficiency whilst also to reducing their unit costs thus making Flybe more competitive.
The purchase of the jets will also mitigate Flybes’s claim as to being environmentally friendly, an ever-growing consideration that consumers are increasingly looking at when purchasing flights. With newer aircraft Flybe will also presumably have more modernised and desirable furnishing in their planes, a further attractiveness for consumers upon deciding which firm to book a flight with. However, just 35 aircraft are priced at a costly i?? 850 million, more than four times Flybe’s market valuation of i??
215 million; there is suggests that increased gearing brings risks, however there still appears to be a great deal of gearing required to purchase the aircraft. The purchase of the aircraft puts high financial pressure upon Flybe, and is a huge additional risk, though the purchase of new aircraft is a must to keep up with competitors. It is dependant of Flybe’s competitors as to how effective the purcgase of new aircraft will be; competitors may buy more quantity and quality of aircraft than Flybe therefore being in a better position towards consumers.
Flybe aims to continue growth in the companies ancillary revenues. Flybe introduced a baggage charge to its customers, helping to raise an extra average i?? 13. 12 per customers in 2011. This fee was additional to the i?? 70 fare that Flybe charge. The additional fee would help Flybe gain added revenue from their flights whilst still appearing that their flights are cheap. Although in the future problems may occur due consumers becoming increasingly aware of these charges and calculating them in when looking for a cheap flight.
Flybe’s competitors may charge no baggage charge at all, or a lesser baggage charge thus in reality may be cheaper than Flybe. Since Flybe’s competitors are more internationally known have many more people on busy routes, therefore they are able to in theory drive down costs to sell cheaper tickets than Flybe, though this will also depend on factors such as the average age of Flybe’s competitors aircraft. Based on Porters generic strategies Flybe can be seen as using cost leadership in order to achieve a sustainable advantage.
The aim of cost leadership is to become the lowest cost supplier in the industry; to do this by reducing costs whenever possible. Flybe has proposed a move to the European market, where it will face many more competitors and will encounter a ‘major price war in the budget airline market’. It is stated that for the UK Flybe has a successful business model where it aims to differentiate itself from competitors.
In Europe Flybe is less well known to consumers thus it will be hard for them to reduce costs, especially with competitors likely to be being much less accommodating if Flybe go for lucrative destinations in Europe. The vast amount of larger competitors in Europe, along with Flybe’s growing success in the UK, leads me to be believe Flybe shouldn’t expand into Europe in the short term and focus on the UK where their business model is successful.
The continuation of adding further UK routes and increasing the ancillary revenues should help Flybe improve in the UK. In the longer term, when they may have more chance to compete in the ‘major price war’, Flybe should then look to expand into Europe as they will likely be in a better position overall. The year 2017, where they then have the option to purchase 105 more aircraft may be a viable time to expand into Europe.