Market Segmentation & Expansion Strategy for Airline Company

This assignment involves identifying the best target market segment for an airline company, which is expense-sensitive travellers, particularly short and middle haul passengers. The company aims to reduce prices for business travellers to increase profits by 15%. To mitigate losses due to market saturation in Europe, recommendations include expanding to Asia and Africa, as well as diversifying strategies without investing all resources into the same segment.

Running head: STRATEGIC MANAGEMENT
STRATEGIC MANAGEMENT

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Table of contents
Introduction......................................................................................................................................2
Background information..................................................................................................................2
External: Airline Industry analysis..................................................................................................3
Competitor analysis.........................................................................................................................5
Internal: Strategic capabilities.........................................................................................................5
Strategic Direction options..............................................................................................................6
Strategic selection and Justification.................................................................................................8
Future Recommendations and Conclusion......................................................................................9
References......................................................................................................................................10

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Introduction
Strategic management process is an essential aspect for business organization as business
organizations are able to achieve competitive advantage for success and growth with the help of
this strategic management process. It is worth saying that, the process of strategic management
helps to avoid stagnation through experimentation and continuous self examination. A number of
studies show that, with the help of this concerned strategic management process, business
organization becomes able to scan the environment so that, the company will be able to get
critical information to improve the work methods. For this purpose, the aim of the study is to
focus on the strategic management analysis for Easyjet which is one of the top airlines
companies in United Kingdom.
Background information
Easyjet is a British airline based at London Luton Airport and operates under the low cost
carrier model. As mentioned by Hill, Jones & Schilling (2014), the company now operates
domestic and international scheduled services in more than 30 countries. Based on the statistics
of the year 2016, the annual revenue of the company is near about £ 4.7 billion and operating
income is more than 500 million. It employs near about 11,000 people and holds 34.62% share
from the market. Therefore, it can be stated that, the company is one of the top listed company
and has that potential to give tough competition to the other airlines. Besides this, the strategy of
the concerned company to develop business in terms of work pattern is different from the other
company. As mentioned by Wheelen & Hunger (2017), easyJet focuses on establishing strong
positions in Europe’s leading airports through cost effective fares. The company is able to offer
more affordable fares to the customers because of some of the factors that include
● Aircraft configuration able to hold a higher number of seats per aircraft
● Higher load factor
● Point to point model drives aircraft utilization

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External: Airline Industry analysis
To understand the market condition and strategic decision of a company, Porter’s five
forces can be used as a tool and therefore, this tool helps to build sustainable competitive
advantage for easyJet Plc in Travel and Leisure industry.
Threats of New Entrants
New entrants in this industry bring new ways of doing things, innovation and put pressure on the
concerned company through reducing costs, lower pricing strategy and new value proposition to
the travellers. Therefore, the company has to manage all these issues so that, the company will be
able to build barriers in order to safeguard the competitive advantage. In the year 2015, profit
margins in case of airline industry was near about 4% which is equal to £5.90 per each of the
customer (Theriou, 2015).
Ways to tackle such threats
● By innovating services and products so that, the company will be able to attract new
along with old customers
● By developing economies of scale to lower the fixed cost per unit
● Developing abilities to spend money on research and building.
Bargaining power of buyers
The airline industry at present time is composed of two types of customers. The first type of
customers is single flyers and the reason of their buying tickets is either private or business
related. This category is diverse. However, in the second category of buyers there are online
portals and travel agencies. It is worth saying that, this kind of buyer plays as an intermediate
between travellers and airlines. It can be seen that, the buyers want to buy a lot and get best
services by providing a minimum price. This put pressure on the concerned company in the long
run. According to the viewpoint of Rothaermel (2015), smaller and powerful customer base of
this company has the higher bargaining power to seek enhancing offers and discounts.
Ways to tackle the bargaining power
● By developing a large base of customers
● By innovating new products
● New products have that ability to reduce the defection of existing buyers of the concerned
company to its rivals.
Bargaining power of suppliers

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Every airline companies buy raw materials from various suppliers and suppliers in case of
dominant position has that ability to reduce the margins the concerned organization can earn in
the market of UK. It is worth noting that, powerful suppliers use their negotiating power in order
to extract higher prices from the airline companies. The entire impact of the supplier’s
bargaining power is that, it can lower the profitability scale of the company. Operation costs are
very high and fuel accounts for near about 10 to 12 % and labour accounts for approx 35%
(Rothaermel, 2015).
Ways to tackle the bargaining power
● By developing supply chain
● By experimenting with various product designs
Threat of substitutes
It is worth saying that, when a new service or product meets similar customer demands in some
other ways, industry profitability suffers.
Ways to tackle threat of substitute
● By enhancing switching cost
● By being service oriented
● By understanding the requirements of customers
Rivalry among existing players
easyJet operates in an intense Airline industry and this competition takes tool over the entire long
term profitability of the concerned company.
Ways to tackle
● By developing sustainable differentiation
● Collaborating with rivals to enhance the market size
Competitor analysis
The main competitors of the concerned company easyJet in the airline industry are
Ryanair, British airways, Air France, Air Berlin. All these companies are targeting the same
customer groups along with the same kinds of customer services.
Short term
Amongst all the competitors, Ryanair is the most competitive LCC in the market of easyJet. In
the year 2015, easyJet flies around 20 m travellers which is less than Ryanair.

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Long-term
As mentioned by Chiang, Chen, & Ho (2016), Europe has the slowest global passenger growth
and it is evident that, this growth is near about 2.7% per year until 2034.
Internal: Strategic capabilities
The study provides an entire SWOT analysis for the concerned company easyJet so that,
it will be possible for the company to understand the recent market condition and the position of
competitors.
Strengths
● The company is able to develop a brand reputation in the market of UK and Europe for
the cheapest flights so that, it becomes possible for the company to reach to the young
travellers and business men.
● The company provides an on time and reliable travel service along with the value added
features that involves ticketless travel, online booking and travel services.
Weakness
● The low cost airlines industry is competitive with numerous brands that are targeting for
the same customer base (Chiang, Chen, & Ho, 2016).
● The service format of the company does not cater to all groups of customer as older
travellers do not like the party environment of the concerned company
● The company do not offer a free food service
Opportunities
● The airline industry has announced that, the industry is going to add more frills. This can
be an opportunity for easyJet to differentiate itself.
● easyJet could looks for its strategic partnerships along with airports to expand its route
system.
Threats
● Increased airport fees can be a threat to the company in terms of reducing all the profit
margins.
● Legacy airlines become a greater competitive factor in this particular industry as the
company seek to sustain by focusing on services and features.

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Besides this SWOT analysis, the study focuses on VRIO analysis so that; the researcher will be
able to find out competitive advantage of the company in the market of UK.
Value Rarity
· Attractive features
· Lower price of tickets
· Never compromise on safety
· Only few companies possess
· Exchange rate fluctuation makes it able
for other companies to lower their fares
Imitability Organization
· Unable to buy or develop at a
reasonable price
· Ryan air – Yes
· Air Berlin – No
easyJet is always ready to exploit all new
resources to provide better product and
services and the organization structure of
the concerned company is well organized.
It provides a good support to its travel
agencies.
Table 1: VRIO analysis of easyJet
Strategic Direction options
As mentioned by Bäder (2015), strategic direction is all about a course of action that
helps to achieve the goals of an organization’s strategy. The concerned company also follows
some strategy and ethics that can be applied in this context so that, the researcher will be able to
find out the condition of other firms in this industry. For this purpose, the study includes generic
porter’s strategy and Ansoff matrix in this context.
Generic porter’s strategy
According to porter, there are three significant generic approaches to outperform all other
companies in this industry. All those factors are
● Overall cost leadership
● Focus
● Differentiation
Cost leadership

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As mentioned by Bilotkach, Gaggero & Piga (2015), the concerned company easyJet keeps an
eye on cost leadership strategy in order to gain competitive advantage in the market of United
Kingdom. The business is able to achieve average profits by focusing on the each activity of
value chain. The company sells all its seats via online portals and therefore, the company
becomes one of the largest retailers.
Differentiation
As mentioned by Borenstein & Rose (2014), average aircraft operation duration in case of
easyJet is near about 11.6 hour per day and under this condition, the average turn time is
approximately 0.30 mints. This makes the company more profitable.
Focus
The company focuses on the young generation and business men so that, it will be possible for
the company to maintain its cost effective fares.
Ansoff Matrix
Besides this, generic porter’s strategy, the study focuses on Ansoff Matrix to have better
understanding about the company. The concerned company focuses on existing strategy to
develop the strategies for recent along with future products in the current market. In addition, for
new product, the company considers some strategies to promote itself in the new market.
Market penetration
This particular strategy includes increment in sell of existing product in case of new and existing
market within which the company operates. In case of easyJet, market penetration is all about to
persuade existing customer so that, it will be possible for the company to generate revenue in
terms of family bonus, discounts and some other.
Product development
The demand for existing product is declining. For this purpose, the company is focusing on
developing new services so that; it will be possible for them to increase customer retention.

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Figure 1: Ansoff Matrix
(Source: Borenstein & Rose, 2014)
Market development
All companies want to develop their markets so that, it will be possible for them to increase the
customer base and financial profitability. For this purpose, the concerned company is expanding
its market into other countries to serve more customers.
Diversification
Diversification refers to create new product and services to expand in the new market. In case of
easyJet, diversification refers to create new services for young generation (Borenstein & Rose,
2014).
Strategic selection and Justification
The best target market segment for the concerned company is the expense sensitive
travellers. Moreover, most of the people in this particular domain are short and middle haul
passengers and therefore, it occupies more than 82% of Europe. Therefore, according to the
viewpoint of Fu & Oum (2014), the price sensitive short along with middle passenger group are
the target segment of the concerned company. For this purpose, the concerned company has
decided to reduce the price for business travellers as more than 18% of the total passenger of the
company are business men. With the help of this strategy, it will be possible for the company to
increase the profit by 15% in comparison to present time (Narangajavana et al. 2014).

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Future Recommendations and Conclusion
The concerned company operates in the market of Europe for 3 to 4 years. Because of
market saturation, the concerned company faces some lose in this existing market. For this
purpose, it is recommended to the company to expand its market to Asia and Africa to reduce the
percentage of loss. This strategy has that potential to develop the customer base of the company.
Another recommendation for the company is diversification. Without investing all the money
into the same segment, the company can go for a diversified strategy to increase the profitability.

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References
Bäder, M. (2015). Quantitative and Qualitative Analysis of EasyJet's Annual Report 2013.
Bilotkach, V., Gaggero, A. A., & Piga, C. A. (2015). Airline pricing under different market
conditions: Evidence from European Low-Cost Carriers. Tourism Management, 47, 152-
163.
Borenstein, S., & Rose, N. L. (2014). How airline markets work… or do they? Regulatory
reform in the airline industry. In Economic Regulation and Its Reform: What Have We
Learned? (pp. 63-135). University of Chicago Press.
Chiang, Y. M., Chen, W. L., & Ho, C. H. (2016). Application of analytic network process and
two-dimensional matrix evaluating decision for design strategy. Computers & Industrial
Engineering, 98, 237-245.
Fu, X., & Oum, T. H. (2014). Air Transport Liberalization and its Effects on Airline Competition
and Traffic Growth–An Overview. In The economics of international airline
transport(pp. 11-44). Emerald Group Publishing Limited.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an
integrated approach. Cengage Learning.
Narangajavana, Y., Garrigos-Simon, F. J., García, J. S., & Forgas-Coll, S. (2014). Prices, prices
and prices: A study in the airline sector. Tourism Management, 41, 28-42.
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.
Theriou, N. G. (2015). Strategic Management Process and the Importance of Structured
Formality, Financial and Non-Financial Information. European Research Studies, 18(2),
3.
Wheelen, T. L., & Hunger, J. D. (2017). Strategic management and business policy. pearson.