Re-Evaluation of the Core Business Activities and Strategy

Executive Summary

The purpose of the following report is the re-evaluation of the core business activities of Air Berlin. In the last part new strategic recommendations for the company will be explained.

The model of strategy evolved by Prof. Dr. Welker (Manuscript Handout 2012I p.3) is used for the analysis. Air Berlin‟s present position is shown with the help of the PESTEL+C, the industry life-cycle model, Porter‟s five forces model, the SWOT analysis and a portfolio matrix. Afterwards, objectives will be defined, shown with the help of illustrations like Bowman‟s strategic clock, the Ansoff matrix, the Boston Consulting Group portfolio matrix and an implementation time /costs chart. At the end, an advice for AB and the control of these strategies will be given.

During the research and writing the 16 strategic principles first mentioned by Hans H. Hinterhuber (2004II p.3ff) were considered. Our strategies, have for example, a defined and achievable target; we used the offensive push suggesting the investment in an alternative mode of transportation, which is at the same time a surprise, but still has a consistent alignment, we continue to build on co-operations and stay flexible, we remain simple and we used the strategic defense while spending money in the branding.

The different analyses lead to the conclusion, that AB focuses on to many different customer groups and that they serve in the gap between the differentiation and low price strategy (they run a hybrid like strategy). It is not possible to address the mass market as well as the premium customers. The inner German flights are the most unprofitable ones for AB. The solution would be to cancel all short distance flights and negotiate a co-operation with one local airline, who works profitably on these routes (to ensure feeder flights). To enter a new market AB should offer a bus service for short and medium distances as an additional feeder. The bus line should be established for premium clients, who prefer a high standard, but would also attract non flight passengers due to the current changes in the German bus market regulations. Accordingly, the bus route could work as a combination (e.g. first bus then plane) or for itself.

1. Introduction

Air Berlin plc & Co. Luftverkehrs KG is Germany‟s second largest airline after Deutsche Lufthansa AG and the third biggest European low cost carrier behind Ryanair Holdings plc and easyjet plc in passengers carried. Air Berlin stated (2012a p.1) that they carried a total of 35.3 million passengers in 2011.

Customers are shoppers, leisure as well as business travelers.

AB has one of the youngest fleet (medial 5,2 years) with 158 aircrafts. Air Berlin (2012a p.1) declared they generated 4,227.30 million Euros revenue in 2011.

The goal of this project is to remain profitable and keep on catering to the three different traveler groups.

2. Firm's present position

AB‟s current situation will be presented with the help of the following PESTEL+C analysis based on the Model of Strategy, Manuscript Prof. Dr. Welker (2012I p.3). It shows the key external factors.

2. 1. PESTEL+C

2. 1. 1. Political

Political factors come into play when AB wants to expand their routes to reach more destinations. Airlines have to pay taxes for landing, fuel taxation etc. and they need to get aviation liberation from the country‟s regulatory department and obtain an agreement before they can land or even expand the routes to new destinations. High emission taxes have to be paid and safety arrangements have to be taken. AB quoted (2012a p.1) that they use 3,5 liters fuel per 100 kilometers, their focus is on safety, efficiency and environment-friendliness, which are good requirements.

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2. 1. 2. Environment

There is a rising demand for environmental protection. The CO2 emission must be reduced to a minimum, because more people are aware of emissions and choose different modes of transportation to protect the environment. The bad climate leads to more natural disasters, e.g. volcanic eruptions which affect the air traffic.

2. 1. 3. Social

Due to the happenings of 9/11 the airline must provide a feeling of safety. A plus for AB is that there were no significant incidents or accidents with an AB plane as quoted at Wikipedia (2012 p.1). Another social appearance is the growing population where more people have money to spend on flying. However, there is a huge price transparency due to the internet. AB needs to focus on the business travelers, who are less price sensitive but open new methods of communication, like, video conferencing. Video-conferencing could be a threat as less physical communication is faster than flying to a business meeting, probably causing the loss of a whole day.

2. 1. 4. Technological

As for the technological aspect of the analysis the internet could represent a threat. AB must use new developments like ID card identification and update their website to offer a quick and easy self check-in service.

2. 1. 5. Economic

As for the economic factors, one of the most relevant indicators is represented by the increase of pro capita income, which afford increasing possibilities for the industry. The globalization trend can bring benefits to AB development and revenues.

2. 1. 6. Legal

The legal aspect has had and could still have a negative effect on the industry. Night flying restrictions and other laws and bylaws in the different countries could threaten AB revenue results. With the new inner German bus line agreement new competitors could enter the market and steal potential customers.

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2. 1. 7. Competition

Competitors for AB are all different modes of transportation as well as Lufthansa who announced to attack the low cost segment and the current LCC like Ryanair and easyjet. AB furthermore has to keep an eye on potential entrants.

The industry life cycle model cited from Johnson et al (2005 p.86) and adjusted for all modes of transportation should furthermore emphasize the current shakeout of AB‟s product (the airplane) and the growth potential within other markets.

2. 2. Transportation life cycle

Illustration 5: Transportation life cycle model

Johnson et al (2005 p.86); Adjusted by Katharina Sost

AB

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