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State of the market

a) Demand; In the airline industry’s view, there is no reason to suppose that the fundamental drivers of demand-economic growth and people’s desire for travel-have changed and long term prospects for these drivers remains optimistic, partly as a result of continuing globalisation and, in particular, the integration and expansion of the European internal market. With the exist of Easy jet or Rynair, there could have been more demand for the services of Virgin Express as the choices would have been fewer.

Demand is changing with more leisure passengers wanting flexibility and being prepared to use the Internet to make their own travel arrangements and with business passengers becoming more prices sensitive. (http://www. dft. gov. uk/about/strategy/whitepapers/air/docs/airpassengergrowthandairport5663) b) Supply There are clear operational and philosophical differences between the network model, the no frills carrier (NFC) model and the charter model and there are intrinsic cost differences between these models although these differences may be exaggerated temporarily at least by differences in efficiency.

There is agreement that interlining odds cost and complexity. While Easy Jet and Rynair are adamant that they will not become involved in interlining some would not rule out the possibility, at some stage, of arrangements between NFCs and FSSs regarding transfer

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traffic. Luton, amongst others saw the potential for third parties to offer a service to facilitate connections. Virgin Express could succeed by filling this gap not covered by Rynair or Easy jet. (http://www. dft. gov. uk/about/strategy/whitepapers/air/docs/airpassengergrowthandairport5663)

c) Airport capacity There is a split between those who see long-haul services as likely to concentrate at major airports even in a liberalised environment because they are relatively thin and need feed and those who see a greater spread of direct long-haul routes as feasible because of NFC entry and the development of small but economical long haul aircraft. Passenger preferences have changed due to liberalisation of aviation in Europe and also greater access to information technology.

New models of airline business models have come up due to liberalisation. This makes it difficult for an airline to dominate the scheduled field of the network carriers and the leisure field of the package tour product. However, the appeal of an airport still depends on the strength and size of its catchments area. Virgin Express would have a more airport capacity for operations and this would mean success as it would have more customers. Short-haul and long-haul markets are not the same.

Long-haul markets are generally thinner and are more reliant on feed. As a result, there is usually likelihood for these services to cluster at major airports. Virgin operates as an airport to airport airline but it has been forced to do this because it has a limited number of allocations. With the exist of the two rival airlines, Virgin Express would be free to carry out its normal style of operation as there would be no stiff competition. d) State of the market

In Easy jet’s view, there has been a structural change in the market which was accelerated but not caused by the events of September 11. The market now expects and will continue to expect low fares. Easy jet also believes that passengers are increasingly seeking to put together the components of their trip and that “do it yourself” is the way of the future. Virgin Express would adopt this mode of operation for it to be able to take over Rynair’s or Easy jet’s customers. (Hedin and Kruger 2002)

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