Aegean Airlines Business Strategy: Internal and External Environment

EXECUTIVE SUMMARY

The aim of this report is to examine and analyse Aegean Airlines ' strategy as well the internal and external environment. The first chapter presents the concept of study of the Porter's Five Forces. Next, in the second chapter, the author presents Porter's Generic Strategies and the Blue and Red Ocean Strategy. And the third and final chapter seeks to clarify the company's Strategic Implementation / Evaluation.

INTRODUCTION

Nowadays, air transport is one of the fastest-growing sectors of the world economy. The aircraft continued to engage many industries around the globe with a lifespan of just over a century, in both the primary and secondary and tertiary markets, where many airlines are developing and increasing services for the global passenger population. One such air carrier is Aegean Airlines which is Greece's largest airline. The aim of this work is to evaluate the factors influencing Aegean Airlines, analyse the resources and capabilities of the organisation and assess its competitive advantage by using strategic analytical methods which will lead to proper analysis and evaluation of the current strategy of the business and evaluation of its potential.

STRATEGIC ANALYSIS

Porter’s Five Forces analysis model

Porter has developed the five-force model as a widely used method for assessing an industry's competitive environment. Here Porter said there are five driving forces important for influencing the role of a company within the industry. This measures the industry's attractiveness and works out the firm's place within the industry. It also highlights whether the industry is competitive or not, which lets the business determine whether they will succeed on the market. (Dess et al, 2007). A study of the five forces model and the factors influencing them will show us the strength and form of an industry's competition. It can decide the profitability which a company can have in the sector it operates. The model also helps businesses collect all the knowledge they need to enter a new market or sector and can eventually provide them with the factors that affect their competitiveness.

Figure 1:  Porter 5 Forces Model

Bargaining power of suppliers                                       

The daily operations and operations of Aegean are based in large part on its good relationship with its suppliers. As an air carrier, Aegean requires a range of supplies such as aircraft fuel, technical support, navigation and safety systems, the use of cargo and trolleys, food and beverages supplied to in-flight passengers, gift items and cosmetics during overseas flights (Healy & Palepu, 2012 / IATA 2013).  Aegean has collaborated with unique suppliers such as Goldair and Hertz for all of these needs, with whom there is a partnership of confidence and respect (www. Aegean airnines partners). The delivery of the services and products of these companies contributes greatly to the reputation of Aegean, and the quality of its services depends on the quality of its suppliers. Therefore, it can be argued that their capacity for negotiation is very strong.

Bargaining power of buyers

This force applies both to individual customers looking for tickets and to distributors and agents of tourism products like travel agencies. The introduction of technology and information technology has led to the development of tools for comparing and finding the best rates on travel packages, such as finding and comparing the cheapest tariffs on specific dates for each destination. These systems also have access to individual clients who can perform such online searches (Healy & Palepu, 2012/IATA 2013). So, they have many carriers to choose from. At the same time travel agents have even more advanced related programmes like Galileo and Amadeus, offering even more complex deals. The ability to use such tools in conjunction with the liberalization of the airline and co-operative market makes buyers of all types very powerful in their purchasing decision on tickets (Fountoulaki et al. 2015). The opportunity to use such tools in combination with airline and cooperative market liberalisation makes customers of all types very effective in their ticket purchasing decision (Fountoulaki et al. 2015).

Threat of new entrance

Access to the Greek airline industry is limited because it requires high entry costs, technology ownership and know-how to penetrate such a start-up market. Confidence is also a key factor that takes time obviously (IATA, 2013). The possession by large players of large market shares makes the market heavily oligopolistic (Gizis, 2016), which by definition is a form of market with limited capacity to enter the sector (Papadakis, 2007). Thus the decision to enter the Greek airline market is extremely difficult and thus the scope for the emergence of new entrants is very limited.

Threat of subsitude products or services

The Greek territory's peculiarity strongly supports choosing alternative modes of transportation beyond the plane. The short inland distances characterising Greece enable more than ever the use of a train, bus and motor vehicle. The explanation for this is that major construction work has been completed in the past few years, such as the new Egnatia Motorway, which makes commuting by car and bus quick. Furthermore, alternate modes of transport at such distances have the advantage of lower costs in comparison to aircraft use. The ferry continues to be a classic choice for travelers on island destinations, but airlines have gained ground in comparison to the ferry companies in the face of intense competition in the aviation sector (Metaforespress gr, 2016). So it can be claimed that replacement goods have reasonable bargaining power.

Rivalry among existing competitors                                                                              

The prevailing conditions in the Greek airline industry make the market rather oligopolistic, with few large companies having the largest market share and few being small enough to compete for survival and profit. The merger of the Aegean and Olympic has made things even more oligopolistic, with the advent in recent years of low-cost companies such as Ryanair intensifying domestic flight rivalry (Centreforaviation.com Babic et al. 2014). In contrast, Aegean-Olympic kept market shares at 52% in 2015, Ryanair at 47% and smaller companies including Ellinair to earn the minimum remaining percentage of the overall market (Gizis, 2016). Companies compete strongly in bids as low as possible, more destinations and of course good value for money, therefore the scope of current competition is extremely high (IATA 2013).

STRATEGIC CHOICE

Porter’s Generic Strategies

The state of competition within an industry is based on five competitive forces according to Porter (1980) such as, Industry competitors, Suppliers, Buyers, Potential entrants and Substitutes for the product or service. These five forces also determine the profitability of the industry: the above forces are important because they determine return on investment, effect prices, costs and the investments required. In addition, the above competitive forces are influenced by the nature of the market and by the fundamental economic and technological characteristics of a given industry (Porter, 1980, pp. 3-5). A firm's reaction to these competitive forces determines its competitive strategy and well-positioned companies will gain competitive advantage over competitors with respect to these five powers.

Figure 2

Aegean has selected the Differentiation Focus approach, as the Group provides its passengers high-quality services throughout all travel stages. At the same time, taking into account each passenger's different needs, the Company adjusts the services offered at each stage of the journey, proving its commitment to the passenger. It should also be emphasised that the Company offers travellers high-tech options to facilitate all processes at airports Aegean  has been awarded in recent years by numerous international and domestic organisations and institutions in recognition of its contribution to Greek tourism, business growth, the quality of its services offered, as well as the ingenuity of its communication and promotional activities. The business ranked first for high-quality employee service by travellers for the eighth straight year and ninth time overall in 10 years. ΑEGEAN ANNUAL REPORT 2018

Blue and red ocean strategy

The strategy for the Blue Ocean involves a competitive-business strategy. Porter (1980) generally states: "Choose a specific strategy for your business that can give it a competitive advantage". The interest the company provides to the consumer is linked to a sustainable competitive advantage. This approach suggests that companies find a market segment that has not been found by others, resulting in no competition, and then adopt strategies for cost leadership or diversification until competitors appear. It's also ideal for companies that want competition to hold their course untouched. Instead of trying to gain greater market share from their rivals and compete in Red Seas '' bloody seas,' these businesses aim to create a new, untapped market area, the so-called Blue Oceans (Kim & Mauborgne, 2005). In hyper-competitive environments, like most in a globalised market, this theory is of great importance. Unlike Blue Oceans, the term Red Oceans, Kim and Mauborgne (2005) refers to those industries that exist in a well-known market segment today. In this case, competitors try to take market share from others with the low prices being the main weapon.

Figure 3

Aegean's approach has always been to give its customers quality services to lower the rate of customer loss and develop their loyalty. As a result, it invests actively in the modernization of its fleet, the development of new technology and the training of staff. It is a member of the alliance of the strongest airline, to offer an excellent experience for its customers. The company's aim is to remain the market leader in the domestic market by fully covering domestic transportation needs, countering Ryanair's efforts to gain control of the Greek aviation market and increasing its network of international routes mainly from Athens, hence the Group implements Blue Ocean Strategy. In addition, the business will also try to take advantage of the growing arrivals of visitors in Greece and the high demand for various types of tourism that arise. Aegean will also concentrate on a more effective cost structure, taking advantage of the synergies resulting from Olympic Airways acquisition. The mission of Aegean is to act responsibly, to strive to improve the customer experience and to invest in creativity. With that in mind, and taking into account the challenges faced by modern airlines, the Group developed the business development strategy that would bring Aegean Airlines ahead of the competition.

STRATEGIC IMPLEMENTATION / EVALUATION

Value Chain

Porter (1998) has presented a set of frequently interrelated general business activities As shown below (Figure 2), the resulting model is known as the value chain, where Porter defined the primary and supporting activities. Such practises are intended to generate revenue that exceeds the cost of delivering the product or service, i.e., making a profit.

Figure 4

Much of Aegean's operations are carried out by Goldair Handling. It is the first privately owned ground handling company to operate in the liberalized Greek market of ground handling services to third parties since 1999 after the abolition of the monopoly regime. It provides aircraft and freight passenger services. In particular, it provides passenger check-in, ticketing, lost luggage services, a distinguished passenger lounge, full on-board aircraft services, disabled services and flight monitoring. In addition, since 2009, Goldair Handling is the first ground handling company to systematically certify its services, participating in the inspection programme IATA-I.S.A.G.O.

Implementation

Strategy execution is all of the activities and options required to implement a strategic plan. It is the mechanism by which priorities, plans, and policies are enforced by plan, budget, and process development (Wheelen, 2012). Although implementation is generally considered after formulation of the plan, implementation is an essential part of strategic management. Therefore, decision-making and execution of the strategy should be seen as two sides of the same coin. The main focus will be on developing the route network to Eastern Europe, North Africa and the Middle East and the modest increase in routes in Europe but destinations with a large presence of Greek students, Greek immigrants and organising major cultural events with global resonance, always taking into account seasonality. The policy will be clear to the company's bottom line, the company's approach to its operating approaches and facilities will not change, with little modification to match the seasonality of the fleet usage techniques. Changes in the company's infrastructure will also lead to this, as a new marketing strategy is required to promote the company's brand and make its services available to both existing and new destinations, and a well-thought-out design of new routes using both the existing aircraft fleet and the new aircraft ordered or expected by the company in the future. With the conclusion of strategic alliances and partnerships with other airlines and supplier companies, changes in the company's capacities and skills will continue. Finally, there will be a structural change, establishing a department for Research and Development (R&D), promoting innovation and creating new quality products and services.

Evaluation

Generally, the current plan of the company is a detailed proposal of decisions and actions, primarily associated with the company's external and internal climate. The company's strategy is in line with the environment as, being dominant in Greece, it aims to develop internationally, leverage its strategic alliances and seek to expand them.Aegean is also making the most of its wealth and expertise, with its current strategy. Allied with its strong reputation and good financial status, it offers and continuously expands to the highest secure and reliable products and services, has a skilled and qualified human resource in which it continually invests and builds a spectacular young fleet of aircraft, always operating with integrity. Within culture and with the environment. Today, with good financial results, ever-increasing turnover and steady growth rates, this policy fulfils its expectations and demonstrates no internal inconsistency, as Aegean remains true to its ideals in all its decisions, actions and operations as well as its vibrant culture. Lastly, the risk of returns could be defined as reasonable and acceptable as the industry moves up with adequate growth rates worldwide.

Conclusion

To conclude, Aegean clearly is looking to continue its customer-centric approach, with high quality and safety featuring diversified products and services. The company managed to increase its market share and annual turnover, continuing its efforts for sound financial management and sound financial structure. It also continues to invest in Greek tourism, a profitability barometer for many European airlines (Zoltaszek, 2016), and is promoting its reputation, gaining popularity and recognition. It has successfully launched new and innovative ideas into the market in investing and looking for innovation, primarily through the advancement of its online services. After a comprehensive and cautious review, the organisation is introducing expansion strategies and slowly increasing its overseas network to market-empty destinations (Wulf, 2010) as well as emerging industry prospects (Europe / Middle East / North Africa) (Cento, 2009) and growing its aircraft fleet, preserving its young competitive edge. Aegean plans to continue its efforts for many years to be a significant cornerstone of the Greek economy and its Greek business partners, while at the same time creating value in society by helping disadvantaged social and environmental groups.

Recommendations

It appears from the summary of the previous strategic review that Aegean Airlines has adopted and continues to pursue a concentration strategy, characterised by both vertical and horizontal integration based on external growth. It should also focus on a horizontal policy of alignment with external development, but at the same time seek internal development with the acquisition of big aircrafts in order to fly on long haul destinations in Asia and the United States. It can also be implemented as part of a related diversification plan, offering technical support and training to third-party personnel and crew members. Finally, in terms of business strategy, in combination with online services and applications, Aegean Airlines should maintain its choice to compete with a diversification strategy, insisting on providing a quality customer service. It also has the power to extend the diversification scope by promoting environmental protection policies, reducing its energy footprint on services-related activities, such as meals and ticket printing.

References

• Dess, G.G., Lumpkin, G.T.& Eisner, A.B. (2007).Strategic Management Text And Cases, international edition. McGraw Hill. Pg. 9,10, 78,52,
• Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78. P27
• Kim, W. C., & Mauborgne, R. (2005), Blue Ocean Strategy, Harvard Business School Publishing Corporation, Boston, MA.