Pan-European low-cost airline carrier company – Swot Analysis
SWOT Analysts SWOT ANALYSIS asset is a pan-European low-cost airline carrier company. The company’s strong position in the key aviation markets of Europe backed by its competitive business model supports the company in delivering sustainable operational and financial performance. However, the regulatory price increases at the company’s primary airports could increase its overall cost base and negatively impact its efforts to tramline its costs.
Strong positions in the key aviation markets of Europe Robust capital structure and liquidity
Competitive and flexible business model
Lack of geographic diversification
Dispute between the founder and the board of asset adversely impacts the brand image
Growing international tourism
Network expansion to enhance coverage and drive growth
Increasing charges at regulated airports
Intense competition and price discounting
Strong positions in the key aviation markets of Europe asset enjoys strong position in the key aviation markets of Europe.
The company operates through pan-European network which connects more of the top 100 city to city market pairs than any other airline. It is the fourth largest short-haul carrier in Europe with a market share of 8%. Asset has the number one or two market share position in 25 major slot constrained airports such as London Catwalk, Paris Orally, Milan Maleness, Amsterdam and Geneva. It has strong position in the major and valuable European aviation markets comprising the I-J, Switzerland, France, Italy and Portugal.
In the I-J, asset is one of the largest carriers with a market share of round 31% in the total intra-European market. Moreover, asset is the third most searched for airline globally with close to 370 million visits to asset. Com over the last 12 months. Switzerland is one of the focus markets for asset. With 13% capacity growth, asset has consolidated its leadership position in both Geneva with around 40% market share and Basel with 50% market share. In France, the company is the second largest carrier with over 13% market share and bases 25 aircraft in France. Asset is the third largest carrier in Italy, with a market share of 12%. The company as 25 aircraft based in Italy with a leading market share in its main Milan Maleness base and a strong presence in Rome Page 4 Function, Venice, and Naples. Asset is the third largest carrier in Portugal with a market share of around 13% and is also the second carrier in Lisbon Portola airport. Asset’s strong position in the key aviation markets of Europe supports the company in delivering sustainable operational and financial performance.
Over the years, asset has consistently delivered strong financial performance and has one of the strongest and liquid balance sheets in the European aviation market. More importantly, the robustness of its balance sheet has helped the company in comfortably sailing through the current global macroeconomic fluctuations. The company’s PAYOFF revenue grew by 10. 5% over PAYOFF. Likewise, it’s operating profit registered growth of 50. 2% and the net profit of 56. 1% over the same period. The company also enjoys strong financial position.
In PAYOFF, the company reported non-current borrowings of IEEE million ($924. Million) which translates to a strong debt to equity ratio of 0. 71 . Asset also holds significant cash and liquid funds to taiga the impact of potential business disruption events with board approved policy stating a target level of liquidity of E million ($6. 24 million) per aircraft in the fleet. The total cash (excluding restricted cash) and money market deposits at PAYOFF were El,237 million ($1 ,931. 6 million). Also, the company has consistently generated improved returns and growth for its shareholders. It recorded 17. 4% of return on capital employed (ROCK) in PAYOFF against 1 1. 3% in PAYOFF, an increase of 6. Percentage points. Moreover, in the recent past, asset has effectively managed its surplus cash on its kooks as well as benefited in marketplace through robustness of its balance sheet. For instance, in PAYOFF, the company reduced its excess liquidity and capital by paying a special dividend of El 75 million ($273. 2 million). In addition, asset is currently in the process of closing sale and leasebacks for aircraft. The tender process, which was heavily oversubscribed, would allow asset to close deals at attractive lease rates. This demonstrates the benefit of the company’s strong balance sheet.
Thus, a strong balance sheet helps asset in gaining a competitive advantage wrought access to funding at a lower cost as well as by supporting its business in volatile economic environment. Competitive and flexible business model asset conducts its business through low cost and flexible business model which ultimately helps in generating strong cash flow and creating long-term shareholder value. The company’s competitive business structure is derived from its scale and cost advantage, high asset utilization, a young fleet with low-cost ownership, one of the leading online and digital offerings, and industry-leading load factors.
The from, allowing it to offer competitive and affordable fares. Its key competitors in these airports tend to be legacy carriers with older, less efficient aircraft, lower asset utilization, lower seat densities and load factors, and higher levels of fixed costs. This lower cost base enables asset to offer lower fares.
In addition, Asset’s asset utilization of 11 block hours per day for owned aircraft is amongst the highest in the industry. Asset has built up key positions in slot-constrained airports over a number of years which provide the company with a competitive and resilient network platform for its operations.
Also, the company’s ‘asset Lean’ initiative has helped the company identify areas for cost reduction, such as airports, ground handling, engineering and fuel. The key objective of asset Lean is to protect Asset’s structural cost advantage by ensuring below inflation non-fuel cost per seat increases. Thus, the competitive and flexible business model supports the company’s business performance and helps in reducing the uncertainties in the internal and external operating environments.
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As a pan-European low-cost airline carrier company, asset faces significant risk associated with the current political and economic uncertainty of the European region. The company primarily derives all of its revenue from its operation based in the European region. Moreover, air traffic control costs are approximately double in Europe than they are in the US. In spite of trimming down legacy costs through mergers, consolidation and restructuring, European carriers are still facing various challenges of regulation and government.
Hence, lack of geographic diversification could make asset susceptible to the changes in the operating environment of the European aviation market which in turn may negatively impact its overall business result as well as its competitiveness against peers which operates through relatively balanced geographic presence. Dispute between the founder and the board of asset could adversely impact the brand image In the recent past, asset founder Sir Steeliest Hajji-Nonunion has been involved in dispute with the board of asset with regard to the company’s strategy of focusing on revenue growth rather than profit margin improvement.
In 2012, the company announced its plans to buy 100 more new aircraft, to replace 2013, Sir Steeliest Hajji-Nonunion warned Asset’s board over further aircraft purchases by disposing of its 0. 4% of its holding in the company. Also, he has threatened to sell more of his shares in the airline if it places an order for more planes. Sir Steeliest Hajji-Nonunion has accused Asset’s board of enriching themselves without taking risks. In early 2014, he voted against the 2013 pay plans of the airline’s directors.
Moreover, Sir Steeliest Hajji-Nonunion has been arguing against the company’s expansion plan since 2008 as it would negatively impact shareholder value in the future. Further, in 2010, Sir Steeliest Hajji-Nonunion quit the company’s board because of disagreements over strategy. Page 6 Hence, such recurrent disagreement between the founder and the board of asset, in future, could adversely impact the company’s brand image. The tourism sector plays a vital role in the growth of the airline industry.
The tourism industry, which is the world’s second-largest industry, has witnessed a strong recovery worldwide since its downfall due to recession in The recovery was primarily boosted by improved economic conditions worldwide. According to the World Tourism Organization (UNTO), international tourist arrivals to Europe, the most visited region in the world, increased more than 5% during 2013. The total arrivals reached 563 million, 29 million more than in 2012. By sub-region, Central and Eastern Europe destinations (+7%) experienced the best results, followed by Western and Northern Europe each (4%).
Destinations in Southern Mediterranean Europe (+6%) consolidated their performance of 2012 and returned in 2013 to their normal growth rates. Furthermore, UNTO forecasts international tourist arrivals to increase by 4% to 4. 5% in 2014, in line with its long term forecast for 2030: +3. 8% a year on average between 2010 and 2020. In addition, the overall demand for European point-to-point assure and business travel in the medium term is expected to grow. Thus, a growing tourism sector auger well for asset as it could result in increase in passenger volume which in turn may boost its overall business performance.
Network expansion to enhance coverage and drive growth asset focuses on the continuous expansion of its bases and addition of new routes to enhance its competitiveness and grow business. For instance, in March 2014, Belgrade and the islands of Monomer and Rhodes. Similarly, in August 2013, asset planned to introduce two new routes for Bristol Airport with flights to Reykjavik and Merrimack. Further in October 2013, asset added 10 new routes from its London Catwalk, Edinburgh, Glasgow, Newcastle and Belfast bases to destinations across the UK and Europe.
In November 2013, asset planned to introduce a new route to Catatonia, Sicily. In the same month, asset launched two new routes to Brussels and Strasbourg from London Catwalk. In December 2013, asset planned to connect Milan with the popular destination of Tell Aviva in Israel. Further in the same month, asset planned a third route between the I-J and Tell Aviva. Hence, continued focus on network expansion would help the company to cater to the new passenger-base in he region which in turn could drive its market presence as well as enhance its revenue and earnings potential in the long run.
Key agreements page 7 asset has entered into few agreements to expand its business in order to offer its customers wider travel options. For instance, in February 2014, asset renewed its distribution agreement with Traveler, a distribution services and e-commerce provider for the global travel industry. Earlier, in January 2014, asset holidays became a major pan-European tour operator through a new partnership with the online travel agency Hotplate. Further, in the same month, asset signed a deal in Europe to extend the airline’s offerings among corporate travelers through BCC Travels global network.
In November 2013, Bristol Airport and asset had entered into a new five year agreement that confirmed the continued growth of asset at the South West’s leading airport. Furthermore, in October 2013, asset and Saber Travel Network, a global technology company, Joined together to enhance the experience of travel bookers using the Saber travel marketplace. These key agreements will help the company in expansion of its business along with better offerings to its customers, thus resulting in increased revenues. Sheet faces a significant threat from the continual increase in taxes on aviation across Europe. The current regulatory environment continues to have a significant impact on asset and over the last year monopoly infrastructure providers have pushed building strong positions at primary airports where there is inherent demand and thus higher yields are available. Consequently, around 70% of Asset’s airport costs come from regulated airports and there have been above inflationary cost increases in the period, especially in Italy and Spain.
There is cost pressure from regulated airports across Europe from a combination of rower passenger volumes, restricted access to finance and upcoming regulatory reviews particularly at Catwalk, Geneva and Standee. Asset faces significant risks in its domestic market. According to The World Economic Forum, the UK has one of the highest aviation taxes and charges in the world. Furthermore, the I-J government levies an Air Passenger Duty (PAD) of EYE ($20. 3) per passenger. In Germany, the government introduced an air passenger tax of E ($1 1 . ) in January 2011 which was subsequently reduced to E. 5 ($9. 6) in January 2012.
In Austria, the government also introduced an ecological air travel levy f E ($1 1. 1) in January 2011. For PAYOFF, the company expects that the cost increases will be predominantly driven by increases in charges at regulated airports. Asset expects cost per seat (excluding fuel and currency movements) to increase by around 2% for the full year and by around 2% for the first half assuming normal levels of disruption and constant load factors.
Thus, the regulatory price increases at the company’s primary airports could increase its cost base and negatively impact its efforts to streamline its costs. The airline industry is highly competitive. The principal competitive factors in the airline industry include fares, customer service, routes served, flight schedules, types of aircraft, safety record and reputation, code-sharing relationships, capacity, in-flight entertainment systems and frequent flyer programs.
Airline profits are sensitive to even slight changes in average fare levels and passenger demand. Asset’s main competitors include Air France, British Airways, Urinary, Lufthansa, and Altair, among others. The price competition between airlines occurs through price discounting, fare matching, increased capacity, targeted sale promotions and request flyer travel initiatives. A relatively small change in pricing or in passenger traffic could have a disproportionate effect on an airline’s operating and financial results.
Therefore, intense competition may result in price discounting and may thus pressurize the operating margins of asset.