->
2 Strategic Analysis
The following section will analyze the macroeconomic condition of the company. It will analyze a range of different aspects and forecast a suitable trend for the company.
2.1 Political Environment
The political environment which has the most major impact on the organization lies towards the Middle Eastern region. The political situation in the Middle East dictates the oil prices of the world. Owing to the OPEC countries, the supply and prices of oil are majorly governed in that region. Hence a slight change in the political atmosphere of the region causes the prices to either climb steeply or drop significantly. Both of them causing a major impact on the operations of Jet2 (Vespermann, 2011).
Similarly, the governmental policies posted in the EU and UK region also majorly affect Jet2 operations. Often the European Union have placed several climate change policies operating in the region (Vespermann, 2011). The policies dictate on how the airline operations should be effectively handled under the climate restrictions. Otherwise, the organizations will be penalized. This causes the airlines to make several adjustments, which can result in the costs being high.
Lastly, the overall political dynamic of the global aviation industry. The political environment of the airline industry is highly regulated and is constructed to favor the passengers over the operating airlines. The political agenda of the global aviation authorities is to uphold the safety and comfort of the passengers and to avoid any monopolistic entities in the global industry. The aviation industry has had its fair share of big airlines trying to create a monopoly, but to inhibit that the regulations over the last decade have become more extensive and stringent towards the airlines. Furthermore, the global airline industry is categorized by the deregulation of the supply side. Which implies that there would be intense competition in the market. And regulation on the demand side implies that the passengers and frequent flyers of the aviation industry are in a much strong position to press and demand more amenities and lower prices (Gossling, 2012). And due to the one-sided political environment, the airlines often have to decrease their prices to retain their market position.
The most recent political dynamic to majorly affect the Jet2 airlines is the Brexit. When Britain decided to leave the EU, it posed several political and economic consequences on the airline. The majority of the passengers for the Jet2 are from the EU and UK region. This division between the two could affect the passenger demand and the change in regulations posted by the airlines.
2.2 Economic Environment
There are several economic factors which have impacted Jet2 and the global airline industry as well. The first event to trigger off a set of economic setbacks was the aftermath of 911 attacks. Given the aspect had several political and external factors involved in it, it set shockwave through the global airline industry as well. The airline industry has never fully recovered from that event (Gossling, 2012). It affects the industry’s several security procedures, several kinds of costs relating to security and the regulations that are placed by the global aviation authorities.
Other major economic conditions include the never-ending fluctuations in the oil prices of the world. The Second Iraq war and the global financial crisis of 2008. All these incidences happened very closely on the timeline. This not only affected the airline business at its peak, but it also affected consumer demand and consumer behavior towards the airline as a whole. The airlines not only had to deal with the reduced amount of global economic slowdown but increasing operational costs as well. These economic conditions have made the organizations in the airline industry more prone to losses and bankruptcy. Several organizations to escape these conditions have resorted to lower their economies of scale, reduce the quality of travel, or even form synergies by merger with other airlines.
In light of more recent aspects, like the different acts of terrorism in the EU and the events of Brexit. On a macroeconomic level, this affects the GDP of EU and the UK; it offsets the value of the pound to the dollar and the euro. Both these aspects have the significant impact on low-cost airline companies like Jet2. Small fluctuations can increase their prices significantly and lower their demand tremendously. On a micro-economic level, the average consumer is moving away from the trend of purchasing air tickets, and resorting to cheaper means like a train or traveling by bus or car. This is creating a market where the demand for air travel will eventually decline.
2.3 Socio-Cultural Environment
As for the social-cultural environment of Jet2 and the global airline industry, the transition from the generations is the most influential aspect. The millennial generation is taking over from the Baby Boomer generation. For several decades the Baby Boomer generation has been a lucrative income source for the airline industry. Given the fact that a good majority of the Baby Boomer generation were frequent flyers for business, made sure that the airline industries could offer better quality services at higher prices (Henckles, 2015). However, since the transition shift, the demand from the Baby Boomer generation is slowly declining. The business-related travel is coming to a complete stop because of retirement. The oncoming generation has a very different demand pattern compared to the earlier generation. Being more involved and connected through technological means, the millennial generation is more demanding and is aware of the competition in the market.
Implying that they would prefer to fly cheap and quick compared to the older generations higher quality and higher prices of flying. This poses a good outlook for the budget airlines as they are more in demand. Furthermore, the aspect of leisure traveling is more common with the new generation. Which is another positive aspect for budget airlines like Jet2? As these are cheap and often carry passengers on medium ranged flights. This allows the people to quickly purchase tickets and not worry about travel plans because of the reduced expenditure (Maselen, 2017). And so in conclusion, the social, cultural trend is in favor the Jet2 airlines. It can predict a greater deal of demand for short and instantaneous travel from the oncoming generation.
2.4 Technological Environment
The technological environment is another aspect which poses a positive outlook for the aviation industry globally. The airline industry has utilized technology extensively on several aspects of its operations. However recently, it has the opportunity to use the technology at several more levels. The advances in technology have enabled airline industry to allow consumers to generate boarding passes and tickets using the internet and other technological means. For the airline industry, this gives a huge room to reduce their operational costs. Mobile technology for handling tickets and other information is enabling the organizations to reduce their paper and printing costs (Henckles, 2015). Furthermore, mobile ticketing falls under the self-service category, implying the organization has to employ less number of employees to assist the consumers in purchasing tickets and handling their relevant documents. Further, social media has to be leveraged by the airlines to ensure that the border social and technological changes do not pass by the airline industry. So in conclusion, the development of technology has benefited the airline industry and will continue to do so. Hence the industry should adapt to the latest development in technology that is made available, as it will result in further reduction in handling operational costs (Tuttle, 2014).
2.5 Environmental Environment
The ecological and environmental factor has a huge influence in the airline industry. According to recent studies, the airline industry alone has contributed to almost 4% of the overall environment and climate change. With the expansion of social media and technology, the general public is now more aware of the changing climate situation, which is affecting consumer behavior (Henckles, 2015). Every single flight leaves a carbon footprint. And in present times owing to the increased social consciousness, the passengers are counting their carbon footprint. This is a sign on how in the very near future the consumer demand is about to shift and will demand more information relevant to environmental friendly flying from the airlines.
Several airlines in the industry have already adjusted to the method of “Green Flying.” Which corresponds to being responsive and flying causing the least amount of damage to the environment. The second major aspect on which the regulatory authorities and the customers have turned a critical eye is the CSR. The Corporate Social Responsibility of the organization. The impact of CSR is growing them in the business world. However, airlines are also being expected to allocate their resources towards the betterment of their social environment. Several airlines by their CSR have started their welfare foundations for the community, while others are investing in their communities to encourage and spur growth (Henckles, 2015).
In conclusion, shortly the airlines would have to consider the ecological factor seriously; it will be demanded by the authorities as well as the consumer base. The changes that will be required by the organization would cost them more resources. As they would have to alter their current operations to a more sustainable and eco-friendly manner that is acceptable to the regulating authorities (Gulliver, 2015).
2.6 Legal Environment
The Legal environment for the airline industry has been very active in the recent years. There have been several cases which have sprung up against the airlines. The airline industry has been consistently targeted by both the consumers and their worker force. This has caused the regulatory authorities to become stricter with the airlines. Which implies that the local regulatory authorities are monitoring the strategies, operations, and the overall business of the airlines. And if any airline fails even slightly to operate outside the regulations, they are being penalized heavily. The increased frequency of lawsuits concerning the airline especially in the United States and EU have caused the system to be intolerant towards delays and safety issues. The intense legal environment is causing a greater sense of fear among the airlines as each action is being monitored and scrutinized (Doughan, 2002).
The legal environment has not only intensified because of the lawsuits and violations. But because of several other events as well. Events like the 911 attack, which caused the legal system to take immense and extensive action regarding security. Furthermore, in the track of recent events like terrorist acts in Europe and all over the world has caused the legal factor to inflate with more regulations. The legal factor is causing the airline industry a huge expense, as the airlines are in charge of ensuring several safety procedures for the passengers (Doughan, 2002). Furthermore, with new regulations and laws like increased compensation for customers, compensation for overbooked customers and other similar aspects, the airline industry has seen a spike in the costs. So in conclusion, the legal environment for the industry is expected to maintain the same dynamic. There would not be any relaxations on the airline industry soon. And in light of any more lawsuits or bad incidents concerning the industry, the legal factor will only get more saturated and control.
2.7 Competition
Competition in the airline industry in recent years have grown exponentially. Given the airline industry in the UK and the EU, several low budget airlines have entered the market. The few prominent names which pose intense competition to Jet2 are Ryan Air, Southwest Airlines, EasyJet, Air Asia Group and Lufthansa. The market as mentioned earlier is not regulated form the supply side, meaning the entry of new organizations is very easy and quick. Hence, the European market is getting highly saturated (Arif, 2013).
Furthermore, the competition is coming on several other levels as well. Big airlines like Etihad, British Airways, Emirates, American Airlines, Jetstar are all offering more competitive pricing to gain a bigger market share. Airlines like Emirates, even though it flew mainly international is increasing the number of destinations in Europe. This gave the consumers seeking international travel more opportunities for a better and higher quality travel compared to Jet2. As Jet2 mainly operates medium to short distance travels it is facing a great deal of competition from the budget airlines and the big names in the industry (Arif, 2013).
The macroeconomic trend for the competition in the industry will keep on increasing. As mentioned earlier, the social and cultural aspect of the industry is encouraging quick and instantaneous travel. And in correlation with that, every organization is offering more competitive pricing to gain a bigger market share.
<!-Continued……