Organisational Strategy at Flybe Essay

IntroductionFor the purposes of this report I harbor chosen Flybe as my main focalize of discussion in the UK and European airline industry. Flybe is Europes largest regional airline with 162 routes, operating from a total of 53 breathing out points. In this report I will analyse why it has made sense for Flybe to build on their strengths of being a regional operator and how they exact managed to find a niche in the crowded airline marketplace. I will also discuss their system for future growth and how they engender chosen their battleground carefully. I will discuss in detail how Flybe is attempting to fulfil its mission statements of Low Cost, But non at any constitute and To put up you safe, efficient and friendly service(Flybe, 2008).Eye For Travel (2008) reports that Flybes financial reports for the year-ending 31 March 2008 show 46% increase in turnover to 535.9m. on that point was also a profit before tax of 53.4m. Flybes competitors such as EasyJet, Ryaniar and BMI Baby have non had such positive figures in these broken economical conditions. I have included in this report the capability depth psychology of Flybe, the stakeholders analysis and how Flybe can utilise its resources to gain competitive advantage. Relevant appendices and a bibliography are included at the end of the report.STRATEGIC CAPABILITY ANALYSIS FOR FLYBEEffectiveness of strategies used 2002-2008The period 2002-2008 was significant for Flybe. It coincided with a major shift in strategy in response to market conditions. Flybe adopted the LCC craft strategy in 2002 (D bingle, 2003). The authors aim is to identify the strategies victimization the Bowmans dodging Clock (1995). Evaluation of strategies will be done using the TOWS matrix (see Appendix 1 for Flybes strengths and weaknesses).Low Cost No Frills outlineThe adoption of the LCC business model by Flybe as a strategy can arguably be described as the stead surface. This strategy could not have been planned but was rather an emergent one fol outseting the downturn in boodleexacerbated by September the 11th event. A racing shelllike analysis of the Bowmans Strategy Clock reveals that Flybes initial strategy was that of low price. According to Done (2003), Flybes restructuring process was geared towards competing with the conventional no-frills airlines. Competition with Ryanair and Easyjet was in that respectfore inevitable, but was this strategy sustainable? How effective was this strategy?According to Grant (2005), to compete effectively with a low live strategy a company should be having economies of scale, experience curve and a lead on the market. Datamonitor (2007), notes that Flybe has had a lot of experience in the aviation business. It enjoyed economies of scale in its operations. It had a lot of experience in the airline industry. What it did not have was the large market parcel of land when it decided to adopt the LCC model of operation. Upon get along analysis one can safely argue that this was a major risk that Flybe took by entering into this short haul business. A TOWS matrix analysis of Flybe (Appendix 1) suggests that Flybe adopted an effective strategy because it had strengths like economies of scale, dedicated staff, capital and resources to explore the expanding low cost business. Flybe only needed to offer a competitive crossroad similar to its competitors. As a potential entrant into the business, there was no deterrence from the formal airlines to stop Flybe from entering the market. On that basis, Flybe can be tell to have used an effective strategy. It is also important to look at the strategies that sustained Flybe once it entered the market.Flybes Business StrategiesRapid refinementRestructuring of Flybe was associated with the rapid expansion programme. Flybe chairman, Jim French, announced the completion of its five year plan of rapid expansion programme (Annual report of 2007). in that respect was an increase in the number of air craft, network and profits for the corporation for the period 2002-2007. Rapid expansion was mainly achieved by the accomplishment of BA Connect, a subsidiary of British Airways. The acquisition made Flybe one of the largest European LCC (Done, 2007, Annual Report, 2007). This fittedwell with his strategy of competition with its established airlines. However, acquisitions carry their own risks such as human relations problems (that can plagiarize after the acquisition), not easy to dispose of unwanted parts of the company, problems of clash of national cultures particularly where target if foreign and amply risks if a wrong company is targeted (Lynch, 2003).Re-brandingFlybe has been reframed into a placeable product on the market. The Flybe brand has continued to grow with passenger volumes up from 4.7million to 7million in 2006 and 2007 venerateively (Done, 2007). The forecast for year 2008 was predicted to an annual turnover in surfeit of 500 million and passenger volumes of 10 million (Done, 2007).It is debatable that Flybes initial plan was to establish itself on the market as phase one of the programme. Against a background of heavy losses, Jim French took a risk that paid off by sustaining Flybe into existence considering the intensity of competition on the market against established brands like Ryanair and Easyjet. Sustaining Flybe on the market would have been the second phase. Flybe adopted a strictly no-frills strategy between 2002 and 2006. However, a shift in strategy has been noted from 2006 onwards. This strategy is that of differentiation.The Differentiation StrategyExamining Bowmans Strategic Clock (Appendix 2), Flybe has now shifted its strategy to differentiation without a price premium. Its major competitors have continued with the no-frills approach, while Flybe has commenced on product differentiation. Datamonitor (2007) noted that product differentiation for Flybe is in frequent flier programmes, on board deli, business give tongu e to travel and corporate users. As highlighted in the 2007 Annual Report Flybe became the first LCC to charge baggage handling. However, its competitors have copied this and are doing the identical. The advantages of differentiation as highlighted in seek and literature include creating value for the customer, gaining a market share and enticing customer loyalty to the offered product (Grant, 2005). Judging by Flybesresults in term of profitability and growth in passenger figures it appears as if differentiation strategy is working. On the other hand, it should be noted that Debonair came unstuck when it employed this strategy.Parnell (2006) has reiterated Porters strain that a company needs to have either a Low Cost Strategy or Differentiation Strategy combined with a focus strategy. If this does not happen then businesses risk their potential to maximise on performance. Flybe at present appears to be pursuing both strategies of Low Cost and Differentiation. another(prenomina l) authorities have argued for the co-joined approach suggesting the importance of customer perception in terms of price and value (Bowman and Faulkner, 1997).The author argues that Flybe might be leading ahead(predicate) of its competitors. When Michael Oleary, Chief Exe skidive Officer of Ryanair, was asked about what his next challenge was he suggested differentiation strategy (Done, 2007). Whilst Flybe has got competitive advantage at present in respect of differentiation, other competitors have already started thinking about it because it is easy to copy. Jim French can be said to have used an effective strategy again.As shown in Appendix 1(TOWS matrix for Flybe in 2008), Flybe has used its strengths of fleet efficiency and competitive routes to take advantage of the growing and expanding LCC market. It has also used product differentiation and customer loyalty to exploit a large share on the growing market. By purchasing environmentally friendly aircraft, Flybe has managed to counter threat of globular warming concerns. Product differentiation has been used to insulate Flybe from the competitive environment where Ryanair and Easyjet have a large stake.STAKEHOLDER ANALYSIS FOR FLYBEStakeholder pressuresStakeholder pressures played a significant constituent in terms of strategies that have been chosen by Flybe. The main stakeholders include shareholders, employees, customers, governments, suppliers, environmental pressure groups, unions, foreign governments, media, airports, local governments, directors, financial institutions and competitors. . The stakeholder pressure shall be examined using a power-interest matrix (Appendix 3).As power and interest moves towards high power and high interest segment, it is indicative of an increased level of stakeholder pressure. Appendix 3 represents threesome periods when Flybe decided to change its business model in 2002, a period of stability between 2002 and 2006 and finally when it started display interest in the acquisition of BA Connect in 2006. Meeting the expectations and demands of all stakeholders has been described as almost impossible within literature (George, 2003).Pre-2002 period Flybes management was under abundant pressure from its main economic stakeholders. The company had gone for nearly three years without making any profits and with limited growth (Done, 2003). Pressure was ascent mainly from its shareholders for results in terms of profits. Tudway and Pascal (2006) pointed out that a shareholders perspective regarding responsibilities of directors as that of increasing shareholder value. Appendix 3 shows that there was a lot of pressure from financial institutions, creditors and share holding employees in the high interest- high power segment. Media had also started showing interest in what was disaster at Flybe. Flybes competitors and suppliers were eager to find out what was happening in Flybe hence indicated in the low power- high interest segment.The resultant e ffect in terms of strategy was a change in management. Jim French was appointed the managing director and there was a change in the direction of the company. A positioning approach was adopted. Flybe announced its closing to establish itself as a LCC. The company was re-branded into Flybe. In that respect, stakeholder pressure was significant in influencing Flybes strategies.Between 2004 and 2006 there was a different kind of pressure as shown in appendix 3-1. There was a low interest from suppliers, media and the government with low power as well. There was high interest but with low power from competitors, unions, employees, pressure groups, creditors and financial institutions. Meanwhile Flybe had embarked on its strategy of rapid expansion. Heavy losses at BA Connect precipitated the move by Flybefor a possible acquisition in 2006. The ultimate strategy was therefore fulfilled but the power-interest matrix also started showing a different picture before the acquisition (appendi x 3-2).The government as a regulatory body had to come in with high interest and high power. Easyjets interest in BA Connect was blocked by the government paving the way for Flybe as the main competitor for the acquisition (Done, 2006). Media and environmental pressure groups also started getting involved towards the high interest and high power segment. Interests from secondary airports started to increase since they were going to profit from the acquisition. The resultant effect was the acquisition of BA Connect in 2007. Environmental pressure groups could be described as having played a significant role in Flybes decision to acquire smaller and environmentally friendly aircraft, the 78 seater Q400 turboprop aircraft. Flybe abandoned its initial interest in either Boeing or Airbus aircraft. Stakeholder pressure could be argued as having played a part, and still plays a significant part today.Stakeholder pressure is therefore a significant factor in firm strategies. However, not ev erybodys demands will be effected by management. Some decisions will be taken at the expense of others. A power-interest matrix is a useful official document in stakeholder pressure assessment.RECENT STRATEGIC CHANGES THAT FLYBE HAS TAKENFit or Stretch future strategiesFlybe achieved in its strategies of rapid expansion and re-branding the corporation within a short period of time. Change of business model, acquisition of BA Connect and differentiation strategies have all been aimed at gaining a substantial market share through positioning. The author argues that with its accelerated rate of growth Flybe now requires to consolidate its position on the market by focussing on its internal resources. running(a) on its core competencies, Flybe can still realise growth. The author therefore suggests that Flybes future strategies should be stretch establish. Indeed, in the battle of the low cost carriers, Flybe have decided that an ambitious strategy is the best way that they can prospe r. The acquisition ofBA Connect accelerates this strategy. Flybes rapid growth will enable them to spread their costs over a far greater range of activity and routes than ever before. This should enable them to continue to be able to offer low cost fares (Bizled, 2008).Evidence in literature and research asserts that the suppuration of competitive advantage could be through looking at a firms resources and capabilities (Foss and Kaudsen, 2003 Barney, 2001). Appendix 4 is a value chain system for Flybe. A close examination of the value chain has led the author to conclude that Flybe has long resources at its disposal and capabilities that it can develop into core competencies. As such, its future strategy should be based on the inside-out approach.Looking at the inward activities, Flybe made the right decision in terms of aircraft acquisition. Flybes 78 seat Bombardier Q400 Turboprop and the Embraer 195 (which will be fully operational in 2009) have been heralded as an environmenta lly friendly fleet, its capacity suits the market. Flybes competitors have gone for bigger aircraft instead, despite the threat of public protests and impending legislation (Done, 2007). Flybe could maybe have a competitive advantage from its assets. Effective operations supported by its links with Exeter University in terms of learning and exploitation could improve and cut down on costs. For the period 2007-2008 financial year about 10-15m has been set aside for marketing the Flybe product.In 2007 Flybe had cash reserves in excess of 136.2m compared to the same period the previous year (Annual Report, 2007). This is strength and Flybe should focus on building route growth, developing its brand and increasing its fleet efficiency. Claiming a core-competency in Flybe business should concentrate on improving passenger load factor, reputation index and operational efficiency (Pegels and Yang, 2000). This is achievable considering Flybes resources. More importantly, Flybe is currentl y taking an transcendent change of nearly 6.5m by writing down the asset value of its BAE 146 aircraft (Bized, 2008). This is an essential part of their strategy to operate more(prenominal) efficiently, and in a more environmentally friendly fashion. Flybes new fleet will be one of the youngest in the world (Bized, 2008).The acquisition of BA Connect saw Flybes staff increase to over 3000 in a relatively short period (Done, 2007). This author argues that with such a vital resource the process of consolidation should focus on building a vision and culture that promotes the corporate brand of Flybe (Hatch and Schult, 2003). Nonetheless, post-merger integration will be critical to the success of Flybe. Learning and development for increased productivity and enhanced corporate image should focus on employees. Flybe has recently unveiled details about its project to build a 160-bedroom hotel at Exeter International Airport (This is Exeter, 2008). The hotel would be operated by a third party, with Flybe guaranteeing to fill 80 rooms a night with all its employees and those from other industry sectors attending training courses. This would be part of resource management.In January 2008, Flybe also announced a landmark franchise Agreement signed with Loganair (The Scottish regional airline). This is Flybes innovative philosophy and strategy of continuing to build a market-leading position as Europes largest regional airline following the acquisition of BA Connect in 2006. The flights commenced operations in October 2008 (Reuters, 2008).Flybe should now focus on organic growth. Research evidence has associated organic growth with stretch strategies (Leavy, 2003). However, a two-pronged approach has been suggested as a potentially effective strategy. The need to concentrate on resources while positioning a firm is considered as a dynamic and spirited approach in the unpredictable market of today (Leavy, 2003). Flybe would be no exception to adopt such a strategy fo r the future. Flybes response to development on the market will determine the strategy to focus on. Jim French has not ruled out taking a predatory stance to opportunities that arise on the market. The author recommends a strategy based on stretch while keeping an eye on the industry structure.Other Future Strategy OptionsFlybe could consider the possibilities of mergers, alliances and sustained acquisitions of other businesses. Acquisition is where strategies are developed by taking over ownership of another organisation (Johnson, et al2006). Flybe recently penned a three year exclusive contract with car rental firm Avis that will see both companies explore the possibility of integrating car utilise with flight bookings (Skyscanner, 2008). However, Flybe would also have to consider the pros and cons of mergers and acquisitions. Another strategy option that Flybe could possibly consider would be stock market floatation, when the current market conditions and the economic situation become favourable.ConclusionAs seen above, external factors either create threats or opportunities for firms in the industry. Industry structure analysis is vital to identify mention drivers in the industry. Flybe has successfully chosen its strategies to date. It remains to be seen if future strategies will be as effective but the author has suggested a stretch based strategy while keeping an eye on the market.ReferencesBarney, J.B. (2001) Is the resource based view a useful perspective for Strategic management research? Yes. honorary society of Management Review 21, 41-56Bized (2008) http//www.bized.co.uk/current/leisureDone, K. (2003) Companies UK Flybe negotiates to join the big league online Financial times. London Available from http//ft.com/ftArticle?queryText=flybe&page=&y=6&drillDown=%2Bgaco. 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