Business strategy of low-cost airline

Case summary

Allegiant airline, a leading US company has implemented several tactics in order to be a low cost airline. It provides low fees for checking baggages, boarding and seat assignment which enable Allegiant Air to compete with other low-cost airlines. Even if Allegiant would provided services in Europe, it would be a dominant low cost airline and would easily overtake Ryan air in terms of lower prices. Regarding a comparison with other low-cost airlines, recent statistics show that Allegiant Air in-flight fees rose to 22.7% extra income from ancillary and on board purchases, which takes advantage over Ryan air with 19.23% income from ancillary. Such extra charges during the in-flight service may be an inconvenience for the passengers, but they help keep the company aloft during the economic crisis.

Allegiant Air is a low cost airline which occupies 80 aircraft’s. The company’s strategy also intends to achieve another 300 routes which include flights to Mexico and the Caribbean. Although the airline leases small air planes in order to save cost and to generate more profits, Allegiant avoids the main airports due to the fact that it is more economically beneficial and since they are not in competition with the big companies. Mr Gallagher, the chief exclusive describes how his company already partners with other business and provides packages, 30% of which are sold to customers.

Article: Ian Wylie. (2009) “Tactics of low-cost airline”

Financial Times: Published: October 18 2009 http://www.ft.com/cms/s/0/c031e712-baa1-11de-9dd7-00144feab49a.html

Case commentary

This article describes Allegiant Air tactics low fair service and explains how the company adjust to keep competitive with other low-cost airlines and ahead of. One of its goals is to sell flights from other airlines on Allegiant’s site in order to increase customer awareness and keep their dominance as a low fare service. Regarding to Mr Gallagher speech “Shortly, we should be identifiable to 100m people throughout the US”. “At that point, we can leverage the brand name and arrange all your travel”(Wylie, 2009).

Gallagher is the CEO (managing director) of Allegiant Air and understands that because of the recession some changes were necessary. Which required analysis of their macro-environment. For example they have used PEST analysis tool in order to scan the general and the competitive environment. To improve these general environment factors required constant and structured scanning and monitoring. (Understanding Strategic Management, Henry 2008).

Using an analytical tool such as porters five forces, one is able to not only look into their external environment, but they are allowed the chance to exploit the powers of the Porter’s five forces by enabling them to basically understand what is needed to be changed in order to gain strategic advantages.

The business method which companies such as Allegiant Air would have most probably used is Porter’s five forces. This is because they have to fully analyse their market segment of being a low cost airline and they also have set specific targets in order to gain competitive advantage over its rivals (Understanding Strategic Management, Henry 2008:69). For example if a new airline would have tried to enter into the market service, it would have been very difficult to survive unless the new airline had the ability to compete with the existing grater airlines such as Allegiant. Therefore, if a new airline tries to provide and offer their services, it will face the threat of entry and whether if enters to the market it will depend of the barriers to entry and the reaction of the existing competitors. It would be very difficult to survive because Alliance has an organized business plan and offers low prices tickets for its specific routes, as resulting, this will act the new airline to deter its services from entering the market because it will be difficult to survive and compete.

In terms of generic competitive strategy, Allegiant business strategy ensures a fit between its strategy and the (CSFs) Critical Success Factors of the industry and also strives for competitive advantage over its rivals. (Pathfinder 2006 :119)

Allegiant Air has identified the fact that in order to sustain their competitive advantage, it now offers another 300 routes and intends to fly to Mexico and the Caribbean. Their business strategy is to advertise their services on others companies

and selling flights from other airlines on the allegiant site. Also, allegiant has signed up to a pays short term contract basis and use airport employers on monthly leases. In case any specific service failing, due to short-term contract which Allegiant posses they have the ability to end it before making great losses. This will allows Allegiant to gain competitive advantage over its rivals since they can cut most of their costs in a short amount of time.

Because of the competitive pricing scheme used by Allegiant, they have made it a difficult task for new and upcoming businesses to enter their market. However the case study which I have chose to assess its purely based on the US market. Therefore the outcomes of the strategies and analytical models which they chose to achieve their targets would most probably differ if they were to evaluate or asses other markets such as the EU, Asia.

It could be considered a good example because what can be derived from the above article in the organization can handle and keep low costs for its flights by gaining a competitive advantage against its rivals. Also, the short term contacts that are signed by the Airline contribute to business strategy and allow the company to immediately stop its services in case profits begin to decrease.

It is evident that this airline is capable of providing low cost tickets and also the airline’s business strategy is effective enough to remain dominant and provides its services at low cost in order to survive and compete with rival companies.

Weblink

http://www.ft.com/cms/s/0/c031e712-baa1-11de-9dd7-00144feab49a.html

[Access 21/10/2009]

References

* Author: Anthony (2008) “Henry Understanding Strategic Management”

* Author: Robert M. Grant (2008) “Contemporary Strategy Analysis”6th edition.

* Article: Author: By Ian Wylie (October 18 2009) “Tactics of low-cost airline” Financial Times: http://www.ft.com/cms/s/0/c031e712-baa1-11de-9dd7-00144feab49a.html

Key Words

Take advantage, short term contracts, competitive advantage, business strategy, well define business plans, keep aloft in downturn, profitable business model, eventual goal – “sell flights from other airlines on the Allegiant site”.