1. MSc International Business
International Strategic Management Assignment 1
(BM6928)
Lecturer: Shay Lynch
5 April 2011
Word Count - c. 750
Strategy Analysis & Formulation
Kerry –Ann Chemaly – 1590364
Isa Schaller – 1395803
Olga Slastnikova – 1563707
Ricardo Gundin – 1560823
Doug Orme-Lynch – 1568333

2. STRIVING FOR SYNERGY
Flagship Irish airline
Undergoing major
restructuring
New CEO, Christoph
Mueller
In need of strategic
direction change
High rivalry with
competitor Ryanair
Proven track record
in strategy review &
the airline industry
Solid understanding
Of the Irish market
Assist in achieving
profitable growth
Customer focus and
engagement

3. Overview
Managing
Change
INTERNAL ENVIRONMENT
Resource Audit:
Classification & Micro/Macro Deployment
Strategic Capabilities:
Cost Efficiency
Adding Value Internally & Externally
Creating & Keeping a Competitive Advantage
Innovation
Knowledge Management
Performance Management
TOWS (SW)
STAKEHOLDER
Analysis
CULTURE
Analysis
EXTERNAL ENVIRONMENT
Environmental Forces – Key drivers
Scenario Planning
Analysis of Industry Competitiveness
Convergence
Analysis of Industry Structure
Industry Life Cycle Analysis
Analysis of Industry Customers
TOWS(0T)
STAGE 2
Strategic
Choices
Resourcing
Processes
Practice
STAGE 3
Strategy in
Action
Organising
Generating
Strategic
Options
Evaluating
7 Strategic
Options Choose a
Strategy
STAGE 1
Strategic
Position
CLIENT UNDERTAKE THEMSELVESSource: Adapted from Johnson, Whittington & Scholes (2008)

4. STRATEGIC POSITIONING
Macro External Analysis
Key drivers for Change Scenarios
KEY FACTORS DRIVING THE AIRLINE INDUSTRY ENVIRONMENT
DEREGULATION & LIBERALISATION
INSTABLE & RISING OIL PRICE
TECHNOLOGICAL ADVANCEMENT
ENVIRONMENTALLY-RESPONSIBLE AVIATION
INCREASING TRAVEL DEMAND
1 - TRAVEL DEMAND AND LEVEL OF COMPETITION
2 - OIL PRICES AND ENVIRONMENT REGULATION
3 - TRAVEL DEMAND AND ECONOMIC GROWTH

5. Micro External Analysis
Analysis of Industry Competitiveness
5HIGHLY COMPETITIVE INDUSTRY & REACHING MATURITY IN INDUSTRY LIFE CYCLE
Threat of Entry - MEDIUM
* The Airline Industry is expensive and requires
high investment. The cost of borrowing,
restricted access to loans and slot availability
decreases the threat of new entries.
* Deregulation has lowered entry barriers with
the entry of fifteen new airlines.
Threat of Substitutes –High
*Rail Travel well developed in
European cities.
*High Quality continental roads
*Substitutes are not always cheapest
*Technological development has
impacted travel demands
Bargaining Power of Suppliers-
MED/HIGH
*Standardized services, easy for
customer to switch provider.
*Consumers price sensitive, scan
providers prices
*Customers now deal directly with
airlines.
Competitive Rivalry- HIGH
*Fierce competition
*Decisions based on price
*Fixed costs impact decision
*Competitive rivalry is high
Government Regulations & Other
Stakeholders –MED/HIGH
*National/ EU regulations for airlines
*Regulations impact competences
*Governments control airports, impacts
airlines significantly
Bargaining Power of Suppliers-High
*Boeing and Airbus are the only suppliers of
commercial airliners.
*Therefore the bargaining power of suppliers is
high
*The supply of fuel is a major issue for airlines;
there is a risk of price fluctuations due to
international political and economic events. Source: Adapted from Porter (1993)

6. Strategic Group Analysis
6
INDUSTRY CONVERGENCE HAS MADE COMPETITIVE GROUPINGS TIGHTER
QUALITY
PRICE
LOW
FRILLS
HIGH
NO FRILLS
ROUTES
SERVICES
Aer Lingus
BMI
BABY
EasyJet
Ryanair
LOW
HIGH
LOW HIGH
Source: Adapted from Johnson, Whittington & Scholes (2008)

7. Market Segmentation
7
INDUSTRY CONVERGENCE HAS MADE COMPETITIVE GROUPINGS TIGHTER

8. Opportunities & Threats
8
Opportunities
• Expansion of the EU opens access to
new markets
• Increasing demand to fly through
Dublin to America
• Dublin Airport to become a
European hub
• Increase in consumer purchase
power
• Enter into new strategic partnerships
• Enter into a global airline alliance
• Possibility to increase market share
in Ireland
• Expand to new routes
Threats
• Increase in low fare competition
• Increase low-cost carriers
• Volatile oil markets and fuel costs
• Carbon emission taxes and pressure
from environmental activist groups
• Weather conditions
• Increased power of unions and strike
action
• High bargaining power of Airbus
• Alternative transport methods across
the EU
MAXIMISE THE OPPORTUNITIES & MINIMISE THE THREATS

9. INTERNAL STRATEGIC CAPABILITY
9
1 – Resource Audit and deployment
2 – Capabilities analysis

10. RESOURCES
Resource Audit
ACTIVE HUMAN RESOURCES MANAGE AND DRIVE THE TANGIBLE & INTANGIBLE ASSETS
• Fleet of 41 Aircraft
• Financial Resources - equity of €1,026,040
• Headquarters in Dublin and overseas
subsidiaries
• Online booking system
• T2 Dublin Airport
Tangible
Resources
• European customer base of 8.802million
• Reputable brand image
• Codeshare partnerships with United, KLM
and British Airways
• Franchise agreement with Aer Arann and
JetBlue Airways
Intangible
Resources
• The knowledge, skills, abilities and talents of
employees c.3844
• Head office/support staff = 600
• Cabin Crew = 1200
• Pilots = 450
• New CEO, Cristoph Mueller
• 20 Board members
Human
Resources

11. RESOURCES
Resource Deployment
ACTIVE HUMAN RESOURCES MANAGE AND DRIVE THE TANGIBLE & INTANGIBLE ASSETS
• Macro Level - Organisational Structure
• Micro Level - Business Processes
• How many steps?
• How long does it take?
• How much does it cost?
Strive to become better, cheaper and faster

12. CAPABILITIES
Cost Efficiency
• Recent turbulent past in regards to managing costs
• Cost reduction a necessity for financial success
• Introduction of “Greenfield” program in 2009
– €97million
– Reduce inefficiencies , increase competitiveness
• Staff costs the major cost differentiator for the airline industry
• Long haul and over-served short haul capacity cut
12
€74million Staff Cost Cut
•-20% workforce
•-40% management positions
•Pay freeze until 2012/2013
•Reductions in pay
€23m of other savings
• - €3m in advertising
• - €10m in airport charges
• - €2m in maintenance
• - €3m in distribution
• - €4m in other non-staff
”GREENFIELD” PROGRAM TO DRIVE COST EFFICIENCY & INCREASE COMPETITIVENESS

13. CAPABILITIES
Adding Value Internally
Source: Adapted from Johnson, Scholes and Whittington (2008)
SUPOPRTACTIVITIES
FIRM INFRASTRUCTURE - The structure is relative hierarchical; however the organization is de-layering its
organizational structure. They also abolish the grade of cabin manager.
HUMAN RESOURCE MANAGEMENT - There is an apprenticeship programme for engineers. Besides, the
company has a training programme as a pre selection for the cabin crew.
TECHNOLOGY DEVELOPMENT - E-commerce is available in the company, flight scheduling system in its
webpage, roster system.
PROCUREMENT - There is a good relationship with the aircraft supplier, Airbus. Moreover, Aer lingus has
codeshare agreements with other airlines like KLM, British Airways and United among others.
PRIMARY ACTIVITIES
INBOUND LOGISTICS
Adoption of a
disciplined approach to
yield management.
The company have
airport agreements with
the main European
airports. In addition, it is
the main company at
the new terminal 2
Dublin airport.
OPERATIONS
Check-in services
online 24 hours before
the departure.
Secure online booking.
It is also possible to
add different services.
There is an increase
on baggage security.
OUTBOUND
LOGISTICS
Offers an
important amount
of connections in
long haul flight to
US.
Rental car and
hotel reservation
are available.
MARKETING &
SALES
Internet sales
and low-cost
promotions.
POST SALE SERVICE
Communication
about other
services, products
and additional
information is sent
to its clients.
Aer Lingus frequent
flyer programme.
M
A
R
G
I
N

14. CAPABILITIES
Adding Value Externally
Supplier
• Aircraft Supplier
• Fuel
• Airport Operators
• Caters and Baggage
Handling
• Aircraft Maintence
Aer Lingus Intermediaries
• Aer Lingus
• Travel Agents
• International
Alliances
• Web Providers
Customers
• Business
Travellers
• Leisure
EACH PLAYER IN THE SUPPLY CHAIN ADDS VALUE IN THE NETWORK

15. CAPABILITIES
Creating & Keeping a CA
15
RESOURCES COMPETENCIES
THRESHOLDCAPABILITIES
Threshold Resources Threshold Competencies
Tangible
• 41 Aircraft flying 86
destinations in 25 countries
Intangible
• Codeshare partnerships
• Franchise agreements
• Human Resources
• Head office/support staff
• Cabin Crew
• New CEO, Cristoph Mueller
• Online booking / website
• Point-to-Point routing
• On time take-off and landing
• Low cost operations
CAPABILITIES
FORCA
CCCOMPETTITIVE
ADVANTAGE
Unique Resources Core Competencies
Tangible
• Sole access to Dublin’s
Terminal 2
Intangible
• Reputable brand image
• Low Price
• US immigration and customs
pre-clearance in new
Terminal 2

16. CAPABILITIES
Innovate & Learn
16
INNOVATION
* IBM deal for check in kiosks
* Investments in adding new
routes.
* Substantial investments in IT to
improve passenger management
and crew rosters.
KNOWLEDGE
MANAGEMENT
* Sophisticated human resource
development
* Training and education aligned
with technology changes.
* Customer knowledge “booking
readers” and feedback
* Learning experiences
* Databases, information systems
and technology equipment
BEING A CREATIVE AND LEARNING ORGANISATION

17. CAPABILITIES
Performance Management – Benchmarking
17
Aer Lingus € Easy Jet £ Ryanair €
Financial Ratios 2010
Share price earnings ratio Share price P/E 7.7 Share price P/E 1.202 Share price P/E 16.2
Return on Equity 6.1% 8.6% 10.7%
Basic EPS €cent 9.3€cent 28.4 £pence 20.68 €cent
Airline Specific Ratios
Revenue/passenger seat €130 £53.07 €45
Passenger Numbers 9.346m 48.8m 66.5m
Fleet at period end 45 196 232
Average number of employees 3,516 7,359 7,032
Passenger per average number of employees 2,658 6,631 9,457
Load factor 76.1% 87.0% 82%
Revenue per ASK 6.66 cent 4.74pence 6.8cent
Ancillary revenue per RPK (food drink) 8.4 cent 1 penny 1 cent
COMPARE PERFORMANCE WITH YOURSELF, COMPETITORS & OTHER INDUSTRY LEADERS

18. Strengths & Weaknesses
18
USE STRENGTHS TO OFFSET WEAKNESSES
STRENGTHS
* Exclusive franchise deal with Aer
Arann
* Access & routes to primary airports
* Sole access to Dublin Airports
terminal2
* Young, modern and uniform fleet
of aircraft from airbus
* US immigration and customs pre-
clearance in new Terminal 2
* Friendly client facing staff
* New visionary CEO
WEAKNESSES
* Inefficient organisational
structure (bureaucracy and long
process of decision making)
* Negative press: HR issues and
flight cancellations
* Inefficient and old fashioned
stigmatism
* No diversity in the board (only
one woman)

19. Stakeholder Analysis
19
LEVEL OF INTEREST
POWER
LOW HIGH
LOW
HIGH
KEEP SATISFIED
Trade Associations
Regulators
KEEP INFORMED
Activist Groups
KEY PLAYERS
Government
Customers
Suppliers
Financial Institutions
Creditors
Employees
Managers
Unions
Competitors
MINIMAL EFFORT
Adapted from Johnson, Scholes and Wittington (2008)

20. Cultural Analysis
20
PARADIGM
Movement towards
a flatter, modern
and new
organization.
SYMBOLS
The national airline
POWER
STRUCTURES
Role Culture –
bureaucracy.
ORGANIZATIONA
L STRUCTURE
Hierarchical
CONTROL
SYSTEMS
Its traditional
approach slows
down the
resolution of
diverse issues.
RITUALS AND
ROUTINES
Difficulties on
adapting new
policies and
cultural changes
STORIES
Accusations of
gender
discrimination.

21. STRATEGIC CHOICES
Generating Strategic Options
21
USING INTERNAL CAPABILITIES TO TAKE ADVANTAGE OF GAPS IN THE MARKET PLACE
[1
TOWS
INTERNAL FACTORS
Strengths –S Weaknesses - W
EXTERNALFACTORS
Opportunities – O S/O Strategies
* Focus on additional /ancillary
services
* Join an Alliance (i.e. Asian
alliances)
* Take advantage of Dublin
airport as a ”hub”
O/W Strategies
* Improve HRM policy and people
process
* Improve IT/Technology
infrastructure
* Focus on markets that the fleet is
able to reach
Threats – T T/S Strategies
* Join a global alliance
* Use its brand image to
T/W Strategies
* Improve environmental policies

22. STRATEGIC CHOICES
1 - Generating Strategic Options
2 – Analysing Strategic Options
22
[1

23. STRATEGIC CHOICES
Generating Strategic Options
23
USING INTERNAL CAPABILITIES TO TAKE ADVANTAGE OF GAPS IN THE MARKET PLACE
[1
TOWS
INTERNAL FACTORS
Strengths –S Weaknesses - W
EXTERNALFACTORS
Opportunities – O S/O Strategies
* Focus on additional /ancillary
services
* Join an Alliance (i.e. Asian
alliances)
* Take advantage of Dublin
airport as a ”hub”
O/W Strategies
* Improve HRM policy and people
process
* Improve IT/Technology
infrastructure
* Focus on markets that the fleet is
able to reach
Threats – T T/S Strategies
* Join a global alliance
* Use its brand image to
T/W Strategies
* Improve environmental policies

24. Analysing Strategic Options
24
Strategic Options Suitability Acceptability Feasibility
1. Backward Integration Reducing additional cost
to suppliers .
Not represent high levels of risks. Opportunity to negotiate tougher
contracts.
2. Market Penetration Publicity & promotion to
reinforce its image
Satisfy all stakeholders. Promotion is affordable.
3. Product Development “Air Bridge” satisfies
consumer demands
Despite some reservations about
its viability, the stakeholders
appreciate the return.
T2 provides the infrastructure.
Close relationship Dublin -London
4. Retrenchment It is necessary after
reporting losses in
2008 and 2009
Stakeholders realise it is necessary This strategy is not easy to
develop; however the
company knows the process
5. Strategic Partnership Aer Lingus needs external
support
This alliance will be considered
highly beneficial.
Existing strategy to a new
partner; easy to implement
6. HRM strategy Failure in HR policies Stakeholders know that this is
needed.
More focused group of
stakeholders make it possible.
7. IT infrastructure The Group’s current
system is overly complex,
lacks integration
The stakeholders would welcome
an investment in I.T,
Ireland has very well developed
I.T industry

25. Conclusions
• Changed from being a traditional flagship to LCC after deregulation
• Deregulation and direct competition with Ryanair has had a negative impact
on their operating performance and image
• Greenfield project ‘issues’
• National Irish carrier with a recognised brand name & new visionary CEO
Christoph Mueller
• Seven strategic options identified after the external and internal analysis to
improve strategic position and gain competitive advantage
• HR and IT infrastructure have been identified as areas where there is vast
room for improvement.
• Recommend a focus on consolidating its current market position before
external growth strategies are pursued
WE LOOK FORWARD TO WORKING WITH YOU IN THE FUTURE

26. Thank you for your time
Questions & Answers

27. References
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(accessed April 4, 2011).
• Milmo, D. “Why consolidation is airlines' only viable route.” Guardian.co. 3 May 2010.
http://www.guardian.co.uk/business/2010/may/03/airline-industry-mergers-acquisitions (accessed April 4, 2011).
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