This analysis has been made to show the various key points that define Aer Lingus as an organisation, which results in choosing the most adapted strategy when they are in a difficult phase.
The airline industry is currently facing the consequences of the global economic crisis, i.e. higher price of fuel, growth in the air market and high instability in international currencies.
Concerning low-costs carriers, the situation is even harder, as these companies must try and maintain the lowest prices possible, regardless of the economic, political or social environment.
Aer Lingus' board has recently adopted NCB Research Analysis proposal that will enable the company to save €74m per year by outsourcing one quarter of the workforce by permitting cutbacks in running costs; which will be relevant to underline the uncertainty of the board and in making the decision. It is vital to understand that Aer Lingus falls under the agency theory and thus everyone's desires and objectives may not be compatible with the company's best interest.
In this difficult period, it appears Aer Lingus is motivated by financial achievements and we must keep in mind that financial plans are meant to help momentarily, while marketing and organisational strategies are the ones that bring durable changes and hopefully profits.
[...] Regarding fuel costs, we can underline the relatively good timing of the purchase of both 2008 and 2009 US dollar trading requirements, at 1.50 on average, as the exchange rate is now at Human Resources Management Aer Lingus applies a co-remuneration policy to motivate employees to better performance, the senior managers get appropriate incentives and employees are rewarded proportionally to the role they play in the success of the company. It also has a long-term incentive plan, which aims to give employees shares of participation, through share ownership schemes. [...]
[...] Strategy Formulation TOWS Matrix Strengths Weaknesses With Ryanair, Aer Faces a deterioration traffic from Ireland very sensitive to Short-haul : Aer Lingus changes in unit costs has managed to keep and revenues ahead of Ryanair Unlike Ryanair, all Valuable Heathrow slots in Ireland: very strong dependency with the country's trends Weakness of the dollar and economic pressures have led to a decrease in Irish demand for US flights Conflicting stakeholders Opportunities Aer Lingus could find a No merger, but a cut of merger partner Aer Lingus' cost base EU decisions on Confirm the outsourcing possible further proposal liberalisation Acquisition programme The outsourcing of faltering European proposal should cut airlines (risky) costs EU extension : new flight possibilities Threats Economic uncertainty Merger with Ryanair Repositioning as an (Irish recession exclusively low-cost continuation, carrier fluctuating fuel Merger with Air prices) France-KLM Alliances of other Repositioning as an airlines through exclusively standard mergers carrier Proximity to Europe's lowest carrier, Ryanair Possible deterioration of union relations Recommended strategies The most important strategy to adopt right away is to confirm the financial plan's modality of 1,500 staff cuts in Ireland and outsourcing; even though unions may have opposed to it, it is an immediate measure to be apply , as Aer Lingus has to prevent any more financial loss; not applying this point right away could lead to worse consequences, as Aer Lingus would merely not have the available cash to pay further salaries and it would be unconceivable to take this cash from the results of the 2006 IPO, as it is currently one of the only elements that prevent Aer Lingus from bankruptcy. [...]
[...] Finance The shareholders base list as follows: - Ryanair : of shares - The Irish Minister for Finance : of shares - Employee Share Ownership Trust : of shares - Others : of shares Aer Lingus has a strong capital structure but has to face the problem of fuel costs; prices have been hit due to the economic crisis, it is not an element to underestimate in the company's results, as fuel costs now represents 35% of Aer Lingus' costs. [...]
[...] Promotion Aer Lingus promotes its products through Irish television ads, newspapers and magazines in the airports, but is primary medium is mostly on the Internet, via its website or through its advertising banners. Although Aer Lingus has a good brand recognition and tries to apply low fares on medium to high-quality services but the comparison between the low prices and the high-quality services doesn't enable the company to save enough cost, moreover the customers' view is basically dual regarding this market: an airline company is either a quality company or a low-cost company and Aer Lingus has to chose between these two options. [...]
[...] It couldsimply cut its cost base, that is basically to use cash resources for restructuration, bring the unit costs down like Easyjet or Ryanair, and dismiss a great number of employees in order to immediately reduce staff expenses from taking the company down; or Aer Lingus could carry out an acquisition programme of faltering European airlines, in order to gain more airport slots and widen its fleet and therefore passenger capacity, which would be a good strategy given the massive net cash balances of the company. [...]
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