AIRTITE (06/06)

Airtite was set up in 2000 as a low cost airline operating from a number of regional
airports in Europe. Using these less popular airports was a much cheaper alternative
to the major city airports and supported Airtites low cost service, modeled on
existing low cost competitors. These providers had effectively transformed air travel
in Europe and, in doing so, contributed to an unparallel expansion in airline travel by
both business and leisure passengers. Airtite used one type of aircraft, tightly
controlled staffing levels and costs, relied entirely on online bookings and achieved
high levels of capacity utilization and punctuality. Its route network had grown every
year and included new routes to some of the 15 countries that had joined the EU in
2004. Airtites founder and Chief Executive, John Sykes, was an aggressive
businessman ever willing to challenge governments and competitors wherever they
impeded his airline and looking to generate positive publicity whenever possible.
John is now looking to develop a strategy which will secure Airtites growth and
development over the next 10 years. He can see a number of environmental trends
emerging which could significantly affect the success or otherwise of any developed
strategy. Airtite has seen its fuel costs continuing to rise reflecting the uncertainty
over global fuel supplies. Fuel costs currently account for 25% of Airtites operating
costs. Conversely, the improving efficiency of aircraft engines and the next
generation of larger aircraft are increasing the operating efficiency of newer aircraft
and reducing harmful emissions. Concern with fuel also extends to pollution effects
on global warming and climate change. Co-ordinated global action on aircraft
emissions cannot be ruled out, either in the form of higher taxes on pollution or
limits on the growth in air travel. On the positive side European governments are
anxious to continue to support increased competition in air travel and to encourage
low cost operators competing against the over-staffed and loss-making national flag
carriers.
The signals for suture passengers demand are also confused. Much of the increased
demand for low cost air travel to date has come from increased leisure travel by
families and retired people. However the families are predicted to become smaller
and the population increasingly aged. In addition there are concerns over the ability
of countries to support the increasing number of one-parent families with limited
incomes and an ageing population dependant on state pensions. There is a distinct
possibility of the retirement age being increased and governments demanding a
higher level of personal contribution towards an individuals retirement pension.
Such a change will have a significant impact on an individuals disposable income
and with people working longer reduce the numbers able to enjoy leisure travel.
Finally, air travel will continue to reflect global economic activity and associated
economic booms and slumps together with global political instability in the shape of
wars, terrorism and natural disasters.

John is uncertain as to how to take account of these conflicting trends in the

development of Airtites 10-year strategy and has asked for your advice.
Required
a) Using models where appropriate, provide John with an environmental analysis
of the conditions affecting the low cost air travel industry.
(15
marks)
b) Explain how the process of developing scenarios might help John better
understand the macro-environmental factors influencing Airtites future
strategy.
(10
marks)
(Total=25
marks)