SAE Group - 20110109e

UniversityofStrathclyde BusinessSchool
IMSInternationalCentre
StrategyAnalysisandEvaluation(SAE) AEGEANAIRLINESCASESTUDY

Group5 ChalkiadakiMarianna DantisPanos DiolisDimitris LiakopoulosAthanassios SpiliotopoulouAthanasia

(Wordcount:2.559) January,2011
AegeanAirlinesCaseStudy
TABLEOFCONTENTS
TableofContents................................................................................................................ii TableofFigures...................................................................................................................iii Abbreviations......................................................................................................................v i ScopeofTheDocument......................................................................................................v ExecutiveSummary............................................................................................................. i v 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Introduction ..............................................................................................................1 . AegeanStrategicpositionandMarketSegments.....................................................1 AegeanCompetitiveAdvantage................................................................................3 TheEnvironment.......................................................................................................3 Strategicoptions&Capabilities................................................................................5 EvaluationofVariousOptions...................................................................................7 TheBusinessIdea&Recommendations...................................................................9 Conclusions .............................................................................................................11 . References...............................................................................................................12 Annex:MarketAnalysisNotes................................................................................14 Annex:AnsoffsProduct/MarketMatrixAnalysisNotes......................................15 Annex:ExploringtheBusinessEnvironmentAnalysisNotes..................................17 Annex:PESTELAnalysisNotes#1............................................................................18 Annex:PESTELAnalysisNotes#2............................................................................20 Annex:5ForcesPortersAnalysisNotes.................................................................25 ANNEX:SWOTAnalysisNotes.................................................................................28
SAEGroup5Assignment(Univ.ofStrathclyde)
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TABLEOFFIGURES
FIGURE1:AEGEANSSTRATEGICPOSITIONINDOMESTICANDINTERNATIONALMARKET..........................................................................2 FIGURE2:CUSTOMERSATISFACTIONPARAMETERSFORAEGEANFULLSERVICEOFFERING........................................................................2 FIGURE3:AEGEAN(THRESHOLDANDCORE)RESOURCES&COMPETENCES.........................................................................................3 FIGURE4:EXPLORINGTHEBUSINESSENVIRONMENT(CLIMATECHANGEVS.SECURITYSCENARIOMATRIX)................................................4 FIGURE5:ANSOFFSMARKET/PRODUCTMATRIX.............................................................................................................................6 FIGURE6:TWOSANALYSIS.......................................................................................................................................................7 FIGURE7:SCENARIOEVALUATION. ..............................................................................................................................................9 . FIGURE8:THEBUSINESSIDEA&POSITIVEFEEDBACKLOOPS............................................................................................................10 FIGURE12:ANSOFFSPRODUCT/MARKETMATRIX.........................................................................................................................15 FIGURE13:EXPLORINGTHEBUSINESSENVIRONMENT...................................................................................................................17 FIGURE9:SWOTANALYSIS.....................................................................................................................................................28
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ABBREVIATIONS
AIA ASA IATA LCC AthensInternationalAirport AthensStockExchange InternationalAirTransportAssociation LowCostCarrier/Company
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SCOPEOFTHEDOCUMENT
ThescopeofthisdocumentistopresenttheassessmentofAegeanAirlinesstrategicpositionand definestrategicoptionsforthefollowingseven(7)years.Thestrategyproposedhasbeenbasedon extendedanalysisofavailabledata(financialstatements,companypresentations,existingreports onperformanceandcomparativeduediligence),ofthecontextualandtransactionalenvironment, ofmarketsegmentsofAegeancorecompetencesandrecoursesbutalsoweaknessesandthreats. Several tools have used to facilitate such analysis such as PESTEL and 5forces, SWOTTOWS, Ansoffs matrix etc. The analysis is aimed to provide all necessary supportive material for those thatwouldwishtogetdeeperintothedetailsofkeyfactorsthatdrivetheproposedbusinessidea. ThedocumentisaddresseddirectlytotheCEOofthecompanybutcouldbealsostudiedbythe board of directors or other top management executives. The Executive summary is a complete summaryoftheanalysispresentedandcouldbereadseparatelyofthemainreport.
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EXECUTIVESUMMARY
Aegeanfacesasteadilyincreasingcompetitioninbothdomesticandinternationalmarket. Despite the economical crisis and industry turbulence, Aegean was able to maintain its course in the previous years by stabilising earnings and becoming an industry leader in domestic market while strengthening its position in European market. Aegean strong liquidity and financial profile gives a clear competitive advantage as it ensures that businessopportunitiesmaybeexploiteddespitetheeconomiccrisis.Inaddition,thefleet renewalprogrammefacilitatestheexpansionofthenetworkandcreatesopportunitiesfor significant service quality upgrades and operational costs reduction. However, the competition by low cost carriers and the increase of fuel prices may minimise the operationalprofits. Thechallengesinthecurrentbusinessenvironmentaretwofold;a)maintainthecurrent market position and long term sustainability, and b) achieve operational efficiency and costreduction. Aegeanhastoexploitmajoropportunities;theincreasingflowoftouristpassengersin Greece, the termination of the Olympic Air flights in long haul destinations with large Greek communities and the geolocation of Greece relative to major touristic Mediterraneandestination. Aegeancouldadaptvariousstrategiccoursesofaction: significantlyreducetheoperationalcostsandbecomealowcostcarrierinorder toaddresseconomicrecessionandfiercecompetition, consume the available financial resources to expand in Europe and aggressively trytoseizethemarketsharefromcompetitorsfacingfinancialdifficulties, differentiatefromcompetitorsandwithoutsignificantinvestmentstofocusonthe touristmarketsegment
Aegeanissuggestedtofollowanintegratedapproachformaximizingdifferentiationby focusing on the tourism market segment and on targeted expansion to specific destinationswhereithasacompetitiveadvantage.Specifically,Aegeanshouldtransform to a corporate organisation by integrating tourism related activities of its major shareholders,suchashotelresorts,cruiserservices,carrentalservices,etc.Inthisway,
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Aegean will strengthen its negotiation position towards the major international travel operators and increase its market share in the air transportation and supplementary services. In addition, Aegean will target expansion to specific overseas destinations, whereGreekcommunitiesmayguaranteeacontinuousdemand. Theproposedstrategywillstrengthenthecurrentpositionofthecompanybycreatinga sustainableadvantageinthetourismmarketsegmentwhichisexpectedtoevolveinthe followingyearsinGreece.Asnocapitalintensiveinvestmentsarenecessary,thecurrent financialresourcesofthecompanymaybeusedtoovercomecurrenteconomicrecession. This is aligned with shareholders expectations as there is no requirement for major expenditures.Itisalsofavourableforworkforcepositions.Companyobjectiveshouldbe anincreaseofitsmarketsharebyapproximately3%annuallyinboththedomesticand internationalmarketinthenext5consecutiveyears.
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1 INTRODUCTION
AegeanAirlines(Aegean)isafullservicecarrierofferingpremiumqualitytoshortandmedium haulservices.Aegeanhasexpandeditsdomesticandinternationalnetwork[4]andbuiltastrong brandnameoverthelastfiveyears.Itcurrentlyoccupiesthelargestmarketshareinthedomestic andinternationalflightsfromAIA[9].AegeanhasrecentlybeenacceptedasfullmemberofStar Alliance [8] that proves the high company standards in customer service, security and technical infrastructure. Aegeanhasregistereda10%growthinpassagetrafficlastyear,experiencingasignificantincrease inthelastfiveconsecutiveyears.Inaddition,thecompanymanagedtoincreaseitsfleet,reduced itsaverageage,andachievedhomogeneityandoperationalefficiency. Thefinancialresultsin2009revealedadeclineintheoperationalprofitsforthefifthconsecutive year[4][10].Inaddition,thestockmarketpricehasdeclinedtothelowestlevelsincethelistingof thecompanyintheASA[2].
2 AEGEANSTRATEGICPOSITIONANDMARKETSEGMENTS
Aegean competes for the largest market share1 of air transportation in Greece. The company provides services to the top10 domestic and top5 international destinations from AIA that contribute to 54% and 75% of the total passengers traffic, respectively. Apart from local and westernEuropeandestinations,AegeanalsoprovidesservicetoCyprus,Israel,Serbia,Albaniaand Egypt2. AegeancurrentpositionintermsoftheservicesofferedanditscompetitorsinGreekandEuropean marketisdepictedinFigure1.
1 2
The vast majority of passengers, i.e. 89% of passengers in AIA, choose a full service carriers to travel [5]. Aegean does not provide services to USA, Canada and Australia, in which there is significant demand from tourist
passengers and Greek local communities. USA is the country with the highest demand for tourist passengers, a share of approximately 8%.
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Figure1:AegeansStrategicPositionindomesticandinternationalmarket.
ItshouldbenotedthataccordingtoAIA,themajorityofpassengers(68%)travelledforpersonal reasons, of which 67% for tourism purposes. This is a strong indication that air transportation demandisrelatedwiththedomestictourismindustry.Onthecontrary,thepercentageofbusiness passengersdeclinedovertheyearbuttheabsolutenumberofthemremainedconstant3.Finally, thecustomersatisfactionparametersforanaveragepassengersisprovidedinFigure2.
Figure2:CustomersatisfactionparametersforAegeanfullserviceoffering.
Thepercentageofbusinesstravelersreducedfrom37%to32%intheperiod20052009[6][7].However,thenumber ofpassengersremainedconstantto5.3m.
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3 AEGEANCOMPETITIVEADVANTAGE
Aegean has concentrated the necessary tangible resources and developed the necessary competencies to successfully compete in the domestic and European market Europe (Figure 3). Thestrongbrandname,thehomogeneityofairplanes,theoperationalefficiencyandthecustomer oriented culture are the key competitive advantages of the company. In addition, the supplementaryauxiliaryservicesprovidedbycorporatepartnersinthetouristindustryaswellas the company profile (corporate responsibility) further add to competitive advantages of the company in the leisure / travel market segments but also in business travelling. These unique resources and core competences could be further exploited so as to boost companys performance.Howeverattentionmustbepaidonthecostefficiency.
CapabilitiesforCompetitive Advantage
ThresholdCapabilities
Figure3:Aegean(ThresholdandCore)Resources&Competences.
4 THEENVIRONMENT
The market competition is steadily increasing in both domestic and international flights[24]. Furthermore, the sharp increase of cost of fuels is expected to continue in the following years followingtheincreasedglobaldemandoil.Moreover,technologicaltrendsforlargerandefficient
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aircraftsbecomeanadvantageforairlinersthatoperatesuperjets4.Furthermore,theadaptionof advancedtechnologies,suchasteleconference[20],negativelyaffectedtheairtraveldemand[21]. Finally,theincreasedsocialpressureforreductionofCO2emissionsisgoingtoincreasethecostof travelfares[3]. Thenumberofpassengersandfreightissteadilyincreasingoverthelastdecadeby1,5%annually [1].Especiallythebusinesstravellers,whichareapproximately30%ofthemarket,seemtocreate aninelasticneedforhighqualityandreliableairtransportation5.

NonSecureTransportationNo ClimaticChange Multipleterrorismincidents Lackoftrustinairtransportation Reductionindemand Tourism impact Investinnewsecuritysystems Increasedcostsofinsurance Operationaloverheads Inefficiency Lowerairportcapacity Delays Expansiondifficultiestomarkets HighlySecureTransportationunder ControlledClimateChange
Safe&reliableflights Convinience Lowcostsforairtransportation Longterminvestmentsingreen technologies Higherprofitmargin Marketdiversificationisnecessary forsuccess
NonSecureTransportation UncontrolledClimateChange
HighlySecureTrasnportation UncontrolledClimateChange Highcostofjetfuel&taxes Deduceddemandforair transportationduetosocial behaviour Preferothermeans Increaseofpercentageofbusiness travelers Needforfullservices Highinvestmentsingreen technologies
Generaleconomicrecession Sharpdecreaseindemand Highcostofjetfuels&taxes Highcompetition Pricewar Prevalenceoflowcostairliners Extremelossestoairtransportation Noinvestmentinindustry
Figure4:ExploringtheBusinessEnvironment(ClimateChangevs.Securityscenariomatrix).
Thefasttechnologicalimprovementsinsecuritysystemswillenhancecitizenssecurityfeelingand reducetimeandcostsfortravelling.Moreover,theairlinederegulationdrivenbyIATAwillhavea positiveinfluenceoninterEuropeantravelrates.However,securitycompliancewithinternational regulationsisbecomingmorecomplicatedandrequiressignificantadministrationresources.Inthe shortterm,thistrendcausesanincreasetotheairfarecost.Inthelongterm,thesechangeswill strengthentheconfidenceofEUcitizenstotheairtransportation.

4
As the new Airbus 380 cannot land in AIA due to infrastructure limitations, any long haul services from Athens are more expensive compared to similar services from other European airports.
The economic relations of the EU with eastern European countries (e.g. Russia, Turkey, Croatia, Ukraine, Serbia, etc) will further increase the market size in terms of passenger volumes, number of destinations, etc.
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The climate change and security (or terrorism) threats are two factors that could significantly impactthebusinessenvironment,asshowninFigure4. Two major competitors6 have emerged in the in the domestic market [12][13]. For the internationalflights,Aegeanhastocompeteintensivelywithwellestablishedairlinersthatdecide toexploitthetouristpassengersinGreece.Onlyin2009,eleveningeneraltermssmallairliners wereintroducedtoAIA[6].AsAegeanhasacquiredprimetimeslotsinAIA,itisdifficultfornew entrants to compete. Also, the capital investment, the learning curve and the difficulty of liquefyingtheassetsarethreeofthemajorbarriersfornewentrants. Aegean cooperates with two global aircrafts manufactures without experiencing a significant pressure.Companysneedsareoftensatisfiedusingthirdpartysuppliersthatleaseorsellsecond handedairplanes.ThetechnicalbaseofAegeancansupportmultipletypesofairplanesand,thus, switchingcostsbetweenairlinemanufacturers,ifrequired,ismoderate. The relative (geo)location of Greece with the rest western European countries and the geomorphology of the country make extremely difficult for other transportation industries to compete the speed and convenience of air transportation. The use of Internet and advanced communicationtechnologiesreducetheneedforbusinesstransportationandpartiallyexplainthe zeroincreaseofbusinesspassengers. KeybuyersforAegeanareindividualtouristtravellersandthebusinesspassengersaswellasthe internationaltravelagentsandtouroperators.Thelatterhavecontributedby10%intheAegean revenueslastyear.Allthebuyersintheindustryarepricesensitivewhiletheswitchingcostsare negligibleforthem.
5 STRATEGICOPTIONS&CAPABILITIES
As shown in Figure5, Aegean could focus on current market and try to get larger market share, offer new services in the existing market (e.g. cargo services), expand to new markets (e.g. US, Africa, etc) or finally diversify by expanding in new markets offering at the same time new services(i.e.diversifiedtouristservices).
6
In the last five years, the Athens Airways [12] and Sky Express [13] emerged in the domestic market, each of them seizing a portion of the market share.
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Figure5:Ansoffsmarket/productmatrix.
AccordingtoTOWSanalysis(Figure6),aplausiblescenarioforAegeanistoexpandtonewmarkets inNorthAmericaorAfrica.Combinedinternationalanddomesticticketsmayalsobeconsidered toattractleisuretravellersduringthesummerperiod.However,expansionopportunitiescouldbe hindered by the decline of operational margin and increased competition from LCC, which may leadthecompanytoconsolidateactivitiesandfocusinthemostprofitabledestinations. PotentialcompetitionbyOlympicAirinthedomesticandEuropeanmarket,thefluctuationsinthe fuel prices and the currency risks may impact the operational margins of Aegean. Consequently, the company could focus on operational efficiency as a measure of reducing costs and financial liquidityproblems.Itremainschallenging,though,forAegeantosustainitsprofitabilityifeconomic recessioninGreeceandEuropecontinues.Suchdevelopmentcouldleadthecompanytobecomea LCCfocusingonthelocalmarket.
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Strengths
S1:SignificantMarketshare S2:StrongFinancialPerformance S3: StrongLiquidity S4: HighOperationalEfficiency SO
Weaknesses
W1:IncreasedDebt W2:DecliningOperatingMargin W3:ReducingCapacity WO Increase of Passengers alleviates Low OperatingProfitmargin(O2W2) Decrease debt by capturing market shareofOlympicAir(O3W1)
Opportunities
O1: NetworkExpansion O2: IncreaseinAirTravel Passengers(LeisureandBusiness) O3: PossibledownsizingofOlympic Air
ExpansioninUS,Africaand &Middle East(O1S3S4) Attractthemajorityofinternational leisuretravellerstoGreeceby combiningdomesticdestinationsto islands(O2O3S1) TS
Threats
T1: IncreasedCompetitiondueto LCC T2: ExpansionofOlympicAir T3:IncreaseofOilPrices&USD/ EUR T4:HighriskduetoExpansion
TW
High Operational Efficiency mitigates Reduce capacity and focus on most impact of competition of LCC and profitable destination to compete LCC increasingOilPrices(T1T3S4) (T1W3) Significant Market Share and Strong IncreaseOperatingMarginbybecoming Liquidity provide the credit ability to aLCCtofaceOlympicAirExpansion financehighriskexpansion(T4S1S3) (T1T2W2)
Figure6:TWOSAnalysis.
Company could also focus on leisure passengers by offering augmented tourist services to individual travellers or international travel agents in middle haul destinations in Europe and specific destinations overseas. Under this perspective, Aegean future strategy may be better alignedwiththecorporatestrategyofmajorshareholdersthathavedevelopedversatileactivities inthetouristindustry,e.g.luxuryhotelresorts[16],carrentalservices[17].
6 EVALUATIONOFVARIOUSOPTIONS
Alternativescenarioswereclusteredandtheirrationaleissummarisedherein: 1. BecomeLCCindomesticandEuropeanmarket Such choice is driven by the fact of declining operating margins and high competition by LCC7 but also of the current financial situation of Aegean, i.e. declining profits and increasing debt. Additionally recession created more pricesensitive customers while the businesstravellersrefrainfromdemandingpremiumservices.Aegeanalsohastherequired The competition of no-frills companies is not considered significant. For example,EasyJet does not fully cover the Greek market.
7
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resourcesandcompetences sincetherenewalandhomogeneity ofitsfleetsupportscost efficiency.ThereforeaturntoLCCcouldbeprovenbeneficialforAegean. 2. Launch a low cost secondary brand in Greece & Expand in European and overseas destinations In order to take advantage of the well established brand name and at the same time becomemorecosteffectiveandcompetitiveindomesticmarketwherethepressurefrom Olympic Air8 may become severe, Aegean could launch a subsidiary (secondary brand) to serve domestic destinations at low cost. This would be accepted by the price sensitive customersAegeancouldeasilyadaptitsoperationstoLCCfordomesticflightscompeting also substitutes (e.g. sea transportation) and at the same time continue its expansion program without damaging the high quality profile to other European and overseas destinations. 3. Remainafullservicecarrier&Expandselectively AegeancouldremainfullservicecarrierandexpandselectivelyinUS,CanadaandAustralia targeting to the specific market segment of Greek communities. Consequently, it would preservethewellestablishedpositionandincreaserevenuefromexpansion.Aegeancould adoptsuchstrategicplansincebothitsresourcesandoperationalstructurecouldsupport thisexpansion. 4. FocusontourismmarketsegmentProvideaugmentedservices Duetheforthcomingpricedeflation,Greecewillbecomeanattractivetouristicdestination. Greek airports have the potential to become hubs for tourist travellers in eastern Mediterranean. Aegean could take advantage of this opportunity to combine air services with other tourism products that are already provided by its shareholders (e.g. car rental services). It would then develop into a Group of companies offering integrated leisure services to Greek and European markets. This plan would be well accepted by its Shareholders being aligned with their expectations and business strategies. However the tourismindustryisseasonalandcouldaffectthefinancialperformanceofAegean. Severalissuescouldhindertheadaptionofsuchoptions,asshowninFigure79.
8
Olympic Air is still the main competitor in the domestic market and one of the major competitors in the international flights.
The table is a summary of the evaluation of the four strategic options based on the most critical issues indentified. The issues are assumed to be equally weighted and a scale of -3 to +3 has been considered (ie highly positive interaction is scored +3).
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LCCsecondarybrandfor domesticmarketand expansioninEuropean andoverseas destinations
BecomeLCCindomestic andEuropeanmarket
Remainfullservice: expandinUS,Canada& Australia
Options vs. Issues IncreasedDebt Declining Operating Margin Increased competitionbyLCC Totals
+2 +2
2 2
1 1
2 2
+2 2
+3 +1
Provideaugmented leisureservicesunder corporatestructure 1 +1 +1 +1
Figure7:Scenarioevaluation.
7 THEBUSINESSIDEA&RECOMMENDATIONS
Aegeanissuggestedtoexploittwobusinesspotentials;(a)theexpectedtouristflowincrease10in Greece combined with the complementary services of companies owned by its major shareholders, and (b) the company brand awareness in a niche market segment of Greek communitiesinUSA,CanadaandAustralia. Aegean, in cooperation with affiliated companies offering tourism related services, may provide attractiveaugmentedproductstoindividualtouristsandinternationaltouristoperators,consisting thevastmajorityofinternationalpassengerstoGreece.Thekeyadvantageofthisproposalisthat competitors cannot easily or effectively imitate such offerings since Aegean with affiliate companies could achieve higher customer value by offering a diverse portfolio of services in competitiveprice,e.g.duetoeconomiesofscope,betteralignmentofcompaniesobjectivesand strategies, etc. This could add to the Aegean reputation as a premium provider. A corporate organization comprising of the respective companies could better facilitate the application of suchplanbyaligningavailableresourcesand,thus,achievingcostefficiencyandhighperformance.
10
Tourism flow in Greece is expected to increase due to deflation and anticipated investments in tourism industry. P a g e |9
AegeanshouldalsotargettothedemandoftheGreekcommunitiesinUSA,CanadaandAustralia. This market segment is currently exploited by foreign competitors after Olympic Airlines privatization.HoweverAegeancouldbenefitfromitsGreekoriginandreputationasahighquality andsafeairline.Competitivepricesthoughareaprerequisiteforsuchmarketexpansion.
HomogeneousFleet TrainedStaff OperationalEfficiency
(Reduced costs, higher load, reliability, convenience etc)
CompeteintheMarket
(LLC, no-frills, full service)
Invest
InternationalExpansion
(Expand to USA/Canada, etc)
OfferPriceDiscounts IncreaseRevenues
(Improve liquidity, profits, etc)
TouristMarket
(Increase market share)
TourOperators &TravelAgents
AugmentedServices
(air transport, resorts, car rentals, cruiser services, etc)
GroupTouristServices
(Luxurious hotels resorts, cruiser services, etc)
BrandReputation
(Perceived customer value)
CustomerSatisfaction
Figure8:Thebusinessidea&positivefeedbackloops.
BothproposalsdonotrequiresignificantcapitalinvestmentsinceAegeancouldtakeadvantageof the star alliance partnership and code sharing. More intensive supportive functions, such as marketingorinternaladministration,wouldalsoberequired. The evolving recession and possible collapse of Greek economy could risk the success of such businessidea.HowevertheexposureofAegeanwouldbelimitedsincenointensiveinvestmentis required.Aegeanshouldalsoinvestinrestructuringandchangemanagementsinceitwouldneed to develop a new corporate culture without disturbing existing balance in operations. New tools andprocessesshouldbealsointroducedforperformancemeasurementsuchasbalancescorecard whilepersonnelremunerationshouldbedirectlyrelatedtothecompanyperformance.Finallythe new strategic plan should be clearly communicated to all company personnel via clearly defined objectives,missionandvisionstatementsbutalsothroughworkshopsandopendiscussions.
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8 CONCLUSIONS
Followingtheanalysissofarandthesuggestedbusinessplanforthefollowingyears,itisevident that in order for Aegean to sustain its competitive advantages and survive under the highly competitiveandmanytimesadverse(i.e.economicrecession,9/11etc)conditions,itshouldfirst remain cost effective by optimising processes and keeping operating cost low, secondly exploit availableresourcestoexpandtowardstargeteddestinationsbutalsointegrateproductstopresent new offerings. Finally develop towards a corporate organization with uniform culture and objectives. That way Aegean would sustain its competitive advantage, protect its shelf from competition, survive the economic recession and be established as a highly value perceived companybyitscustomers.
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9 REFERENCES
(HarvardStyleofReferencingNotationisusedbutreferencesareidentifiedbynumberswithinthetext) [1] EuropeanCommission,2010,EUenergyandtransportinfigures,2010,Statisticalpocketbook2010. [2] OneSourceInformationSystems,2010,OneStopReportAegeanAirlines,InfoGroup. [3] Emissions Trading System (EU ETS), Available at http://ec.europa.eu/clima/policies/ets/index_en.htm [Accessedon5thofJanuary2011]. [4] Aegean Airlines, 2009, Annual Report 2009, Available at http://en.aegeanair.com/ShareDetails.aspx [Accessedon5thofJanuary2011]. [5] Aegean Airlines, 2008, Aegean Annual Report 2008, Available in th http://en.aegeanair.com/ShareDetails.aspx[Accessedon5 ofJanuary2011]. [6] AthensInternationalAirport,AerostatHandbook2009. [7] AthensInternationalAirport,AerostatHandbook2005. [8] StarAllianceReference,Availableathttp://www.staralliance.com/[Accessedon5thofJanuary2011]. [9] AthensInternationalAirport,Availableathttp://www.aia.gr/[Accessedon5thofJanuary2011]. [10] AegeanYear20109monthfinancialresults,Availableathttp://en.aegeanair.com/ShareDetails.aspx [Accessedon5thofJanuary2011]. [11] Aerlines Magazine, 2007, Business Strategyand Competition for the Future in the AirlineIndustry, http://www.aerlines.nl/index.php/magazine/olderissues/issues2029/issue28/ [Accessed on 5th of January2011]. [12] AthensAirways,Availablehttp://www.athensairways.com/[Accessedon5thofJanuary2011]. [13] SkyExpress,Availableathttp://www.skyexpress.gr/[Accessedon5thofJanuary2011]. [14] AirFrance,Availableathttp://www.airfrance.com/[Accessedon5thofJanuary2011]. [15] KLM,Availableathttp://www.klm.com/[Accessedon5thofJanuary2011]. [16] Swiss,Availableathttp://www.swiss.com/[Accessedon5thofJanuary2011]. [17] GloabalData,2010,AegeanAirlinesS.A.,FinancialandStrategicAnalysis,Ref.CodeGDTTL23303FS, Availableathttp://www.globalcompanyintelligence.com/[Accessedon5thofJanuary2011]. [18] CostaNavarinoLuxuryHotelResorts,Availableathttp://www.costanavarino.com/[Accessedon5th ofJanuary2011]. [19] HertzAutoHellas,Availableathttps://www.hertz.gr/,[Accessedon5thofJanuary2011]. [20] Cisco Systems, Telepresence Collaboration Systems, Available at http://www.cisco.com/en/US/netsol/ns669/networking_solutions_solution_segment_home.html [Accessedon5thofJanuary2011] [21] CrimsonConsultingGroup,2009,StudyShowsCiscoTelePresenceDeliversRapidROIandUnique Business Benefits, Available at
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http://www.cisco.com/en/US/prod/collateral/ps7060/ps8329/ps8330/ps9599/TelePresence_Research_ Brief_Final_03_20_09.pdf/[Accessedon5thofJanuary2011]. [22] LufthansaAirlines,2009,AnnualReport2009,Availableathttp://www.lufthansa.com/[Accessedon th 5 ofJanuary2011]. [23] SingaporeAirlines,AnnualReport2009,Availableathttp://www.singaporeair.com/[Accessedon5th ofJanuary2011]. [24] EuromonitorInternational,2009,TransportationGreeceCountrySectorBriefing.
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10 ANNEX:MARKETANALYSISNOTES
Aegean is a full service public air Transport Company providing services to domestic and internationaldestinations.Aegeancarried3.8mpassagesin2009in26domesticdestinations[4], occupying almost 48% of the market share. In addition, Aegean carried 2.6m passages in 24 International destinations, mainly in Western Europe [4]. Scheduled flights contribute by 84% to thetotalrevenueswhilecharterflights(addressingtheneedsoflargetraveloperators)contribute onlyby10%.Inaddition,a6%ofthetotalservicesderivefromsupplementaryactivities. BasedinAIAstatistics,89%oftheinternationalpassengerschooseconventionalcarrierstotravel, as Aegean. Consequently, Aegean targets the largest market segment (rather specific niche markets). Aegean provides services to the most significant international and domestic destinations. For example,Aegeanflightstothetop5internationaldestinationsfromAIAcontributingto54%ofthe total market. In addition, it services charters to the top3 international destinations from AIA contributing75%ofthetotalmarket.Aegeanservicesthetop10domesticdestinationsfromAIA contributingto82%ofthetotalmarket. BasedinAIAstatistics,the68%ofthepassengerstravelforpersonalreasons.67%ofthemtravel fortourismandanother25%formeetingrelatives.AegeandoesnotprovideservicestoUSAwhich isthetopcountryfortheincomingtourismwithashareofapproximately8%oftouristpassengers. In the last five years, the business passengers are gradually reducing reaching today 32% of the totalpassengers[6][7]. BasedinAIAstatistics,themajority(53%)ofinternationalpassengershavetheGreeknationality, ofwhich85%liveinGreece.Aegeanprovidesservicestothevastmajorityofthem(asitdoesnot provideservicetoUSandAustralia). BasedinAIAstatistics,approximately53%oftheGreekresidentsbooktheirticketsinthelast10 daysbeforetravelling.Onthecontrary,themajorityofforeignresidentsbooktheirticketsmore that20daysinadvance. BasedinAIAstatistics,73%ofpassengershavehighereducation.30%and22%ofthepassengers haveagebetween2534yearsand3544years,respectively.
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11 ANNEX:ANSOFFSPRODUCT/MARKETMATRIXANALYSISNOTES
11.1 CONSOLIDATEDFIGURE
Figure9:Ansoffsproduct/marketmatrix.
11.2 BRIEFANALYSIS
Aegeanisafullservicecarrierofferingpremiumqualitytoshortandmediumhaulservices. Asthecompanyhasthelargestshareinthedomesticmarket,significantgrowthmaybeachieved by expanding the network to more international destinations in USA, Canada and Australia, especiallyinregionsthatmanyGreekimmigrantslive.Inaddition,Aegeanmaypursuitexpansion toAfricaandMiddleEastbytakingadvantageofthegeographicalpositionofAthenscomparedto therestEuropeancities. Aegean may try to exploit economies of scope to provide air cargo services and maintenance, repairandtechnicalsupportservicestootherairlinerslandinginAIA.Thisopportunityrequiresthe company to strengthen its current competences in order to address the challenges of very competitivemarkets.CateringandITservicesfocusedon airlinersneeds mayalso beconsidered butthecompanyhasnoexperiencetoday,i.e.highandriskinvestmentwillbenecessarytoenter thesemarkets. Aegean may risk expanding its business into new markets and new products. The company may focus to leisure passengers and offer augmented tourist services to individual travellers or
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international travel agents in middle haul destinations in Europe and specific destinations overseas.Underthisperspective,Aegeanfuturestrategyhastobetteralignedwiththecorporate strategyofmajorstakeholdersthathavedevelopedversatileactivitiesinthetouristindustry,e.g. luxuryhotelresorts[18],carrentalservicesError!Referencesourcenotfound..
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12 ANNEX:EXPLORINGTHEBUSINESSENVIRONMENTANALYSISNOTES
Figure10:ExploringtheBusinessEnvironment.
12.2 BRIEFANALYSIS
TherearemultipleuncertainfactorsinthecontextualenvironmentthatmayinfluencetheAegean operation in the near future. At one hand, it is uncertainty when the Governments across the world will decide to control of the environmental pollution and try to significantly reduce the climate change. On the other hand, the political instability in many regions of the planet has causedterroristincidentsthatimpactthecitizenstrusttoairtransportationservices. The four possible scenarios that derive from the environmental analysis suggest that Aegean should be cautious in its market expectations and consider measures that minimise the CO2 emissionsoftheairplanesandstrengthenthesecurityduringtheflights.
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13 ANNEX:PESTELANALYSISNOTES#1
POLITICAL
TheexpansionoftheEuropeanUniontoeasternEuropeancountries(e.g.Turkey,Croatia, Serbia, Ukraine, etc) will further increase the market size in terms of passenger volumes, numberofdestinations,etc.Inaddition,morenonEuropeancountriesarebecomingmore fullyintegratedtoEUlegislation,e.g.Russia. OpenSkiesPolicy
Notconsideredastrend Governmentalfundingforflightstosmallislands PoliticalinstabilityinGreeceandstrikesofrelevantunions EUantimonopolistic/competitionlegislation
ECONOMICAL
Increasingcompetitionbetweenairliners Pressureforconcentrationofactivities(verticalintegration)asameantoreducecostsand strengthenthemarketposition Increaseoffuelcosts
Notconsideredastrend Globaleconomicrecession,i.e.lesstouristsinGreece.Itwontlastforever! Greeceeconomicrecession,i.e.lesstravellers.Itwontlastforever! Growingunemploymentinmosteconomies.Itwontlastforever! Decliningconsumerspendingduetoeconomicrecession.Itwontlastforever! Increasingsocialinsecurityduetoeconomicrecession.Itwontlastforever! ThepossibilityofthebankruptcyofgeneralgovernmentinGreece. ItsseemsthatthereisnoincreaseofGreekinvestmentsinBalkanpeninsula.
SOCIAL
Increaseoftransportationofpassengersandfreightviaair[1]. Lessbusinesstravellers
TECHNOLOGY
Trendsforlarger(andthusmoreeconomic)aircrafts,e.g.Airbus380andSuperJets P a g e |18
Increasing usage of advanced communication technologies, such as teleconference/telepresence,mayreducethenumberofbusinesstravellers. Further improvements in security systems (e.g. ultra sound passengers control) improves citizenssecurityfeelingandreducetime/costfortravelling.
Notconsideredastrend InabilityofAthensInternationalAirporttoallowlandingoflargeairplanes
ENVIRONMENTAL
IncreasingpressuretoreduceCO2emissionsinairtransportations. o In2020,emissionsisplannedtobe21%lowerthanin2005[2].Airlineswilljointhe schemein2012.
Notconsideredastrend Environmentaldisasters Noisepollutionissuesincities
LEGAL
Driven by International Air Transport Association (IATA), the airline further deregulation process has certainly had a positive influence on interEuropean travel rates. Flying has become much easier, faster and convenient. This trend is expected to continue in the followingyearsinregionsoutsideEurope. The harmonisation of existing business processes and working practices in airports and airlinersisgoingtoincreaseinordertomoreeffectivelyaddressterrorismthreats(e.g.911 attack) and global health care concerns (e.g. bird flue epidemics, etc). Compliance with international regulations is becoming increasingly more complicated and requires significant admin efforts. In the short term, this trend causes an increase to the air fare cost.Inthelongterm,thesechangeswillstrengthentheconfidenceofEUcitizenstotheair transportation.
Notconsideredastrend Pressuretoincludeinsurancecostsforterrorismeventtoairfares. ThenumberofSchengencountries.Notasignificantincrease!
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14 ANNEX:PESTELANALYSISNOTES#2
POLITICALFACTORS
Geopoliticalstability(e.g.war,terror,disease) Unstable political global situation (expressed, for example, in the forms of 9/11 and other terrorist events)andnewglobalhealthconcerns(e.g.epidemicssuchasSarsorBirdFluTheWorldHealth Organisation (WHO) has already forecast a global epidemic within the next years) give rise to new increasedregulationsimposedbytheEUandIATAthatwillcausechangestoexistingbusinessprocesses andworkingpracticesinordertoachievecompliance. MoreSpecifictoGreece: Highdangerofpoliticalinstabilityandsocialunrestasaresultofthelatesteconomiccrisis. Internationalliberalizationofairtravel(e.g.theEUUSAopenskyagreement) Stiff competition and price wars between airlines. Cheaper ticket prices are imposing the need of maximumcapacityinordertomakeaprofit.Renewedinterestinairlineindustryconsolidation Harmonizationofairtrafficcontrols(SingleEuropeanSky) SaferandmoreefficientutilisationofairspaceandairtrafficmanagementwithinandbeyondtheEU. GovernmentalcompetitionpolicyBarrenrows IthasbeenestimatedthatwithinthenexttwoyearsleadinguptothenewtendertheEUregulationwill provide more stringent criteria for the classification of services within this particular public service obligation,aswellasafairercompetitionscheme. RegulatoryconstraintsgovernedbyInternationalAirTransportAssociation(IATA),aswellattheEU Ingeneralairlineindustryregulationsaregettingincreasinglymorecomplicatedandrequireextensive admin efforts to maintain the compliance with those regulations. All these factors add up as an additionalcosthavingahugeeconomicalimpactontheairline. FurtherEUexpansion The recent and potential continuing expansion of the European Union eastwards will offer a growing market in terms of passenger volumes, destinations, and suppliers, particularly as the new markets becomemorefullyintegrated,includingmembershipoftheEurozone. Politicalsupportforairportexpansion Airports and airlines receive special subsidies from Governments which directly fuel unsustainable airportexpansionandgrowthinairtraffic. Allocationofairportslotsandfees With the increase of air traffic, there is a continuously growing demand for capacity at congested airports. Under the new EU framework it is hoped that slots will be distributed in an equitable, non discriminatory and transparent way ensuring the fullest and most efficient use of existing capacity at congestedEUairportswhilemaximizingconsumers'benefitsandpromotingthecompetition.
P a g e |20
ECONOMICALFACTORS
European/Globaleconomicrecession Duetotheglobalrecessiontheairlineindustryisunabletoperformwell.Therecessionin2009,wasa major factor contributing to the downturn in demand for air travel, which is distinguished by high incomeelasticity.(Economicdeclinein2009,6%inEurope,3%globallyforairindustry.Thesectorended in2009withthelargestdroprecordedsincetheSecondWorldWar.Intermsofdemand,"2009willbe recordedinhistorybooksas theworstyeareverseentheairlineindustry,"accordingtoIATADirector GiovanniBiziniani.)Thisresultedinadynamictrendpassengerstoflywithlowcostairlinesinsteadof moreexpensive. TighterfiscalpoliciesinmostEuropeaneconomiesHighertaxes,lessgovernmentspending Decliningconsumerspending. Growingunemploymentinmosteconomies. Pricesofoil/fuelandCO2certificates Sincethepoliticalsituationinmostmajoroilproducingcountrieswillstayunstablefortheforeseeable future, the oil prize will remain a main problem for airlines. The fuel cost difficulty is exacerbated by unpredictable currency exchange rate fluctuations because aircraft fuel prices are denominated in US dollar.(AccordingtoUKNationalStatistics'CPI,thecostofpassengerairtransportintheUKenlargedby 34.3%in2008duetohighoilprices(peakoil$147abarrel).Thepriceofoilwas,too,themainfactor affecting the mode of the Aegean in the same year.) (To manage this risk, the company applies fuel surchargeonticketpricesandabroad,aswellasitusescommodityswapsashedgestocoverthatrisk.) The impact of deteriorating economic climate in the financial results can not be quantified and will dependon:a)thedegreeofdeclineindemandinEurope,b)theprogressofthenewroutes,andc)the competitiveenvironmentfornetwork Theoverallyieldwillcontinuetodeclineacrosstheairlineindustry,andhenceeffortstofurtherreduce unitcostmayberequired. Capitalmarketrisks(e.g.exchangerates,interestrates,liquidity) EMUindanger. Foreigncurrencyexchangerisks. Lesscreditavailabletobusinessforinvestmentscoupledbyhigherinterestrates. Expansionoflowcostcarriers(e.g.intermsofdistances,destinations,services) Businessflyersfacenofrillsfuture.TherecessionsignificantlyreducedtheamountofUKbusinesstravel but also changed its nature, said Harry Bush, the CAAs group director of economic regulation. It accentuated the trend away from shorthaul business class to economy and nofrills. Businesses economisedacrosstheboard.Thereseemstobeageneralacceptancethatdemandforbusinessclass onshorthaultripswillneverrecover,saystheCAAreport.(FT,28/12/2010)
P a g e |21
ShiftofeconomicpowertowardsAsia Asia,asitiswidelyarguedbypoliticiansandacademicsalike,willbethegrowthengineforthenexttwo to three decades at least, and spendingpower has shifted away from the richest countries towards a growingmiddleincomebloc. Newcompetitorsfromemergingcountries
SOCIALFACTORS
Corporatetravelbudgets Declineofbusinesstravelersasaresultoforganizationscostreductionpolicies(Businessflyersfaceno frillsfuture.TherecessionsignificantlyreducedtheamountofUKbusinesstravelbutalsochangedits nature, said Harry Bush, the CAAs group director of economic regulation. It accentuated the trend awayfromshorthaulbusinessclasstoeconomyandnofrills.Businesseseconomisedacrosstheboard. Thereseemstobeageneralacceptancethatdemandforbusinessclassonshorthaultripswillnever recover,saystheCAAreport.(FT,28/12/2010)) IncreasedmobilityofallEUcitizens.MoretravelingtrendswithinEuropeIncreaseofleisure travelers Overthelastthirtyyears,therehasbeenaboominmobilityinEurope.Formillionsofcitizenstravelhas becomeareality,indeedaright. Migration Increaseofmigrationduetoeconomicalreasons MoreSpecifictoGreece: In addition to the millions living and working abroad an additional factor that promotes aviation in GreeceisthewaveofimmigrantsenteringGreeceinrecentyears.In2007,indeed,wasinfifthplacein the global ranking of countries taking immigrants, following the U.S., Sweden, France and England. Simultaneously,itistheEuropeancountrywiththelargestnumberofimmigrantsper1,000inhabitants. New roots such as Istanbul, Cairo, Bucharest, Sofia, Belgrade and Tirana give an opportunity to the companytostrengthenitsreputationandincreaserevenue. Countryspopulationgeographydemographics MoreSpecifictoGreece: Given the size of Greece (11 million approx.) it could be argued that the room for higher domestic growthislimitedanditsprospectsandgrowthcancomefromfurtherEUrootsexpansion. Especially for the Greek economy, the sector is of great importance, since the vast majority of tourist trips (about 75%) is air. Moreover, Greece has no land borders with other countries of the EU, and becauseofitsgeographicalpositionisanaturalgatewaytothesoutheasterntipoftheCommunityand inEuropegenerally. Service/comfort/priceexpectationsofpotentialcustomers
P a g e |22
Trendtousemoreclimatefriendlytransportationmeans,suchaselectrictrains
TECHNOLOGICALFACTORS
Improvementsinoperationalefficiency(e.g.speed,safety) Internalandexternalconstraintsandtheirimplicationsonairlineoperationalandfinancialperformance, safety, and the environment. Continuously changing technology requires continuous upgrade, training anddevelopmentoftheexistingprocesses. Broadbandcommunicationtechnologiestelepresence Advancesinvideoconferencingand othercommunications technologywill mostlikely cut demandfor businesstravel. Technologicaladvancesinrail/shiptravel(highspeed,climatefriendlytransportationmeans) NewtechnologyairplaneslowerfuelconsumptionDevelopmentofsyntheticjetfuelreplacements
For the past several decades, commercial airlines have dramatically improved fuel and GHG efficiency by investing billions in fuelsaving aircraft and engines, innovative technologies like wingletsandcuttingedgerouteoptimizationsoftware.Forexample,between1978and2007, theU.S.airlineindustryimproveditsfuelefficiencyby110percent,resultingin2.5billionmetric tonsofGHGsavingsroughlyequivalenttotakingmorethan18.7millioncarsofftheroadin each of those years. (Source: U.S. DOT Form 41; automobile equivalent calculations from www.epa.gov/cleanenergy/energyresources/calculator.html.) The research, development, production and deployment of advanced, fuel efficient airframes, engines and other fuel efficientequipmentwillplayanevenmoredecisiveroleintheaviationindustryintheyearsto come.
Ecommerce The biggest technological impact on the airline industry is the rapidly expanding application of e commerce. This may be a huge advantage for airlines, because according to Computer Weekly, the Internet became the most dominant technology for booking travel. Expensive costs of maintaining internetsitesarebalancedbyhugesavingsinothercostreductions,andimprovementsinservice. InabilityofAthensInternationalAirporttoallowlandingoflargeairplanes(e.g.Airbus380) Newsecuritychecktechnologies(ultrasound)
ENVIRONMENTALFACTORS
GlobalwarmingCarbonDioxideEmission Aviationcurrentlyaccountsfor3%ofglobalcarbondioxideemissionsandairtransporthasanimpacton globalclimate,by2012,emissionsfromallflightstoandfromEUairportswillmostlikelybeincludedin the Emissions Trading Scheme European Union (EU ETS). This innovative move is the result of lengthy anddifficultnegotiations,confirmstheintentionofEuropetoreducetheimpactofaviationonclimate andeconomicalway.Theinclusionofaviationinemissionstradingschememeansthatweputlimitson
P a g e |23
howmuchcarbondioxidemaybeemittedbyeachairline.Companiesthatexceedtheirlimitswillhaveto payfortheexcess,whilethosethatmanagetoemitlesscarbonthantheirsharecouldselltherestto othercompanies. Environmentalconsciousnessofcitizens/consumersandtheadoptionofCorporateSocial Responsibilitypracticesintheairlineindustry Sensitive social issues such as: Emission reduction programs, employee wellbeing and engagement, diversityandsocialequity,communitywellbeingandeconomicprosperity,cannolongerbeoverlooked bynocompany.Peoplesconcernsandtheneedforecologicallysustainabledevelopmentcannolonger beignoredandcommunitiesacrossEuropejoineffortstoensuretheindustryandGovernmentsstart actingresponsibly,withpeopleshealthandtheirenvironmentattheheartofalldecisionmaking. Noiselevelcontrols EUregulationsdirectiveonnoiserequirementsplacingobligationontheinstallationofhushkitsonall aircrafts Increasingamountofenvironmentalregulations
Alltheaboveareissuesthatmustbeconsideredverycarefullyastheycanresultinveryhighcostsforthe airline.
LEGALFACTORS
InclusionoftheaviationindustryintheEUEmissionTradingSystem Inamovewhichhaspredictablyangeredtheairlineindustry,theEUoverwhelminglypassedlegislation which will includeairlinesinthe EUEmissions TradingSchemefrom2012.Underthe rule,airlines will havetocutCO2emissionby3%inthefirstyear,andby5%from2013.Allairlinesflyinginandoutofthe EUwillhavetomeetthereductionnumbers.Withorwithoutanyprovenbenefitsfortheenvironment,it meansevenmorefinancialpressureonairlines. Changesincollectivebargaininglaw AsignificantlegalfactoraffectingAirlines,andAegeaninparticular,isthepoweroftradeUnions. (AccordingtotheIndependent(2010)itwasestimatedthattherecentstrikescostBAbetween40mto 45mandsubjecteditspublicimage.Legalregulationsoncustomerrightswillhavetremendousfinancial impact on airlines due to recent closure of European airspace. The regulations setting up airlines' responsibilitiesintheeventofflightsbeingdelayedorcancelledcostBAbetween15mand20mperday.) Changingsafetyregulations Themostimportantindicatoroftheoverallsafetyofanairlineishowitisregulatedbyitsnation'scivil aviation authority. Airlines operating large capacity passenger aircraft in the major industrialized countrieshavetofollowthestrictestsafetyregulations.

P a g e |24
15 ANNEX:5FORCESPORTERSANALYSISNOTES
15.1 THREATOFNEWENTRANTS
PositivetoAegean A high capital investment is necessary. There are substantial costs to access credits (e.g. longtermloans),especiallyduetotheeconomicrecession Learningcurveadvantagesseemstobelesssignificantasaccesstoexperiencedpersonnel ispossible. Exit barriers are high (e.g. liquefying the assets is problematic) and investors are more conscious Aegean has acquired prime time slots in AIA, which will be difficult for a new entrant to acquire(Panossaidthattimeslotsmaytradedintheopenmarket).
NegativetoAegean RegulationofthemarketprotectsthenewentrantsintheGreekmarket.Themergewith OlympicAirwillnotbegranted! Internet (forward vertical integration) and travel agency services guarantee easy distributionchannelstoendcustomers
FACTS Manynewentrantsintheindustrywereacquired(ormerged)inthelastdecade Thesizeofdomesticmarketdoesnotjustifymorethantwocompetitors.
15.2 POWEROFSUPPLIERS
PositivetoAegean Noneidentified
NegativetoAegean TheairlinesupplybusinessismainlydominatedbyBoeingandAirbus.Forthisreason,there isalotofcompetitionamongsuppliers. Switchingcoststoohighforanyairlinetoswitchtoanotherplaneprovidersincecostishigh andthereispossibilityforservicedisruption. Jetfuelprices.Thereisnomeanstonegotiateprices(asthesearesetbyworlddemand) Lackofcontroltocateringsubsidiaries Lackofextensiveairporttechnicalfacilities P a g e |25
Entertainment
FACTS Othercompetitorshavecateringsubsidiaries,technicalfacilities,
15.3 AVAILABILITYOFSUBSTITUTES
Substitute products to the airline industry are considered vehicular, rail and boat transportationservices,
PositivetoAegean DuetothegeolocationofGreece,vehicular,railandboattransportationservicesarenot consideredasclosesubstitutes o Speedoftransportationoffersperformanceadvantagethatcustomersvalue
NegativetoAegean For domestic transportation, vehicular, rail and boat transportation services are close substitutes o Boatsforislands(transportvehicles,reducedprices) o Trains(reducedpricestoAthensThessaloniki,feartotravelwithairplanes) o Busservices(forpricesensitivecustomers) Newcommunicationtechnologiesreducetheneedforbusinesstransportation o LargeusageofInternet o Smallportionofvideoconference
15.4 THEPOWEROFBUYERS
Duetoeconomicrecession,buyersarebecomingmorepricesensitive(andthustheprofit marginsarereduced) Travelagencieshavesignificantpower,astheycontributeby10%inthecompanyrevenues [4].
NegativetoAegean Lowswitchingcosts
15.5 COMPETITIVERIVALRY
PositivetoAegean Aegean strong identity brand, built up over the last decade, protects the company for potentialnewentrantsinthelocalmarket. P a g e |26
Newfleetofplanes LargestmarketshareinGreece MemberofStarAlliance(largestintheworld)
NegativetoAegean SmallsizecomparedinEurope Exit barriers are high (e.g. liquefying the assets is problematic) and thus competition is strong Ahighcapitalinvestmentisnecessaryandthuscompetitionisstrong Lowdifferentiation(especialfordomesticflights)
FACTS Theinternationaltransportationisfragmented
P a g e |27
16 ANNEX:SWOTANALYSISNOTES
Figure11:SWOTAnalysis
16.2 BRIEFANALYSIS
Aegean is considered a strong player in Greek market and has a significant market share of the flights towards Europe. Aegean is well positioned in the airlines industry and its cash reserves offered a valuable asset during the recent economic recession. However its increasing debt and highrisksduetovolatileoilpricesandmarketcompetition(pricewar)couldthreatenitsgrowth. Available opportunities could help Aegean redefine its strategic path towards future challenges. TheSWOTanalysispresentedbelow: Strengths 1. SignificantMarketshare:Aegeanhasasignificantmarketshareof~30%ofpassengerscarried in Athens International Airport among 65 carriers and it holds a significant position in both domesticandinternationalpassengertrafficattheairportsofThessalonikiandHeraklion 2. StrongFinancialPerformance:Aegeanscompoundedannualgrowthrate(CAGR)forrevenue was21.2%during20042008.ThiswasabovetheS&P500companiesaverageof11.1%.This
P a g e |28
could be attributed to international expansion to many of the top European Destinations followingafocusedstrategicplanandenablesthecompanytogrowinitsbusiness. 3. Strong Liquidity: Aegean is financially sound with strong liquidity and cash reserves. Also its currentratiowas2.25attheendof2009whichisabovetheS&P500 4. High Operational Efficiency: Aegean has increased its operational efficiency due to the renewed fleet that offers high cost efficiency and higher capacity while it achieves high load factorsandaveragepassengersperflight Weaknesses 1. IncreasedDebtduetoLCCs:Aegeanhasasignificantamountofdebts(bothshort&longterm) overequityresultingtohighgearingthatcouldimposetheriskofreducedcredibilityandability toraisefundsforexpansion 2. DecliningOperatingMargin:inrecentyear2009Aegeanhasexperiencedareducedoperating profit margin comparing to last years, that could indicate less management focus on profitability 3. Reducing Capacity: Aegean has postponed the ordering of 3 Air busses A320 for the 2014, reducingthecapacityandthereforeoneofitscompetitiveadvantages Opportunities 1. NetworkExpansion:Theplannednetworkexpansion(especiallyininternationaldestinations) wouldenhanceitsbrandawarenessaswellascontributetotheestablishmentofitsnameasa qualitycarrierofferingawiderangeofchoicesindomesticandinternationalmarket. 2. IncreaseinAirTravelPassengers:AnincreaseinAirlinepassengersinexpectedespeciallyfrom andtowardsemergingmarkets 3. Possible downsizing of Olympic Air: Aegean could benefit from the possible downsize of OlympicAir Threats 1. IncreasedCompetition:ExpansionofLowCostCarriersandNoFrillsduetodemandoflower pricesandeconomicrecession 2. Expansion of Olympic Air: Successful restructuring of Olympic Air may lead to stronger than expectedcompetition 3. IncreaseofOilPrices&USD/EUR:VolatileoilpricesandEURtoUSDexchangeratewouldhave adverse impact on Aegean cost efficiency (The Company incurs a substantial portion of its expenses, such as aviation fuel, aircraft lease expenses, distribution costs, spare parts,
P a g e |29
maintenanceexpensesandaviationinsurancepremiumsinU.S.dollars,whereasitgenerates mostofitsrevenuesinEuros) 4. High risk due to Expansion: International expansion program involves high risks due to decreasedairtraveldemandandcapitalintensiveinvestment
P a g e |30

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UniversityofStrathclyde BusinessSchool

Group5 ChalkiadakiMarianna DantisPanos DiolisDimitris LiakopoulosAthanassios SpiliotopoulouAthanasia

Safe&reliableflights Convinience Lowcostsforairtransportation Longterminvestmentsingreen technologies Higherprofitmargin Marketdiversificationisnecessary forsuccess

Generaleconomicrecession Sharpdecreaseindemand Highcostofjetfuels&taxes Highcompetition Pricewar Prevalenceoflowcostairliners Extremelossestoairtransportation Noinvestmentinindustry

ExpansioninUS,Africaand &Middle East(O1S3S4) Attractthemajorityofinternational leisuretravellerstoGreeceby combiningdomesticdestinationsto islands(O2O3S1) TS

LCCsecondarybrandfor domesticmarketand expansioninEuropean andoverseas destinations

Remainfullservice: expandinUS,Canada& Australia

Provideaugmented leisureservicesunder corporatestructure 1 +1 +1 +1

Notconsideredastrend Governmentalfundingforflightstosmallislands PoliticalinstabilityinGreeceandstrikesofrelevantunions EUantimonopolistic/competitionlegislation

Notconsideredastrend Environmentaldisasters Noisepollutionissuesincities

Notconsideredastrend Pressuretoincludeinsurancecostsforterrorismeventtoairfares. ThenumberofSchengencountries.Notasignificantincrease!

FACTS Manynewentrantsintheindustrywereacquired(ormerged)inthelastdecade Thesizeofdomesticmarketdoesnotjustifymorethantwocompetitors.

PositivetoAegean DuetothegeolocationofGreece,vehicular,railandboattransportationservicesarenot consideredasclosesubstitutes o Speedoftransportationoffersperformanceadvantagethatcustomersvalue

Newfleetofplanes LargestmarketshareinGreece MemberofStarAlliance(largestintheworld)

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