If you are looking for an in-depth analysis and report on budget airlines, focused on WizzAir then look no further. In this analysis you will find academic style research and business models that will help you to understand the strategic management of WizzAir. This analysis would definitely help you, if you are on a business or tourism management university level course. It would help you if you are looking for research and reference material to your work and essays.
This is a breakdown report of WizzAir's business model and strategy from 2017. You will find detailed information about the company's structure, my personal analysis of the market in which WizzAir operates and how WizzAir utilises their products and services. This report will also teach you about the low cost airline market competition in Europe. You will also find my personal recommendations based on this analysis, of where WizzAir could go with the current threats and opportunities.
Introduction to Wizz Air
WizzAir is a Hungarian airline focusing on the Central and Eastern European (CEE) market. The plan to start the airline was conceived in June 2003. Six people with airline expertise, experience and successful records teamed up with József Váradi (company’s CEO) and within three months WizzAir was a registered company ready to operate. (Wizz Air Hungarian Ltd, 2016)
The airline developed upon a recognised demand for low-cost carriers in CEE (Central Eastern Europe), which was driven by the accession of 10 new EU states on 1st May 2004, of which 8 were in the CEE (Wizz, 2016). The first flight took off from Katowice, Poland on the 19th May 2004 (Wizz, 2016). WizzAir has grown from 8 aircraft fleet in 2006 (Wizz, 2016) to 73 aircraft fleet by November 2016 (Wizz Air Holdings Plc., 2016). WizzAir placed an order for new aircrafts to increase the fleet up to 160 aircrafts by 2024 (Wizz, 2016).
Their biggest markets are in Poland and Romania as of 2016, which can be seen below:
Figure 1: WizzAir routes by country
(Wizz, 2016, p.5)
Current Market & Fleet Situation
WizzAir is a strong and major low cost airline in Europe with 73 aircrafts, 2600+ staff and over 12.5 million passengers (Figure 2). WizzAir is also the biggest low cost airline in CEE market, which is their main target market (Figure 3). The airline has a well-established presence in Europe, which is presented in figure 4.
Figure 2: Overall company size
(Wizz Air Holdings Plc., 2016a)
Figure 3: Leading airlines in CEE
(Wizz Air Holdings Plc., 2016a)
Figure 4: WizzAir’s presence
(Wizz, 2016, p.5)
To conduct the financial analysis this report will look at the past financial corporate indexes. The past financial analysis is one of the various methods to analyse the past performance of an organisation (Evans, 2015).
What we can observe from WizzAir's past is a financial growth, year on year. If we take a look at the financial figures found on WizzAir’s corporate site we will find a solid growth in the recent years (Wizz Air Holdings Plc, 2015; Wizz Air Holding Plc, 2016b).
However, to takes things further let's take a look at other corporate indexes, from external sources. Let's take a look at Amadeus (2016) and CAPA (2015) to analyse WizzAir's performance.
External Past Corporate Performance Indexes
“Ranked by operating profit margin for the 12M period to Mar-2015, Wizz Air is equal second with easyJet and behind only Ryanair in the list of Europe's most profitable airlines.” (CAPA, 2015)
Figures obtained from CAPA (2015), between two fiscal years show impressive results. Between FY 2014 and FY 2015 the airline’s net profit more than doubled, with 109% increase to EUR 183 million, and 67% increase in the underlying net profit. The operating margin increased by 3.6%, from 10.2% in 2014 to 13.9% (Figure 5) which show high level of competences in cost control and profitability.
Figure 5: WizzAir financial and operating highlights (FY2014-FY2015)
If we look further, the financial figures obtained from Amadeus (2016) show similar results. We can find it in the operating revenue between the same years (Figure 6). The analysis shows improvements all the way to 2015. The reports only show a small negative change in return on equity and capital employed (ROE) between 2015-2016. The negative figures for ROE mean that WizzAir was less efficient in this period.
Despite the negative changes in the profit margin, ROE and ROCE percentages, WizzAir still shows a very successful and solid business model.
This negative change in the mentioned figures could be a result of the ongoing expansion that WizzAir continued in 2016 (Wizz, 2016). WizzAir added many new routes and aircrafts. Perhaps WizzAir could have promoted new routes more heavily and with time those figures could improve.
Figure 6: Key financials
Weaknesses found in the financial analysis
While the figures show positive overview of each financial year, WizzAir’s actual earnings are highly dependent on the summer months (Airline Weekly, 2015; Murray & Coates, 2015). The airline usually makes a loss in the winter period (October-March), which is a major weakness of the company.
Load Factor & Frequencies
Whilst WizzAir is the fastest growing airline in Europe (CAPA, 2017), it always struggled with the load factor in the mid 80% range (CAPA, 2017; ELFAA, 2015). This is actually much less than most of budget airlines in Europe. This could be a major weakness when economies of scale play a big part in ticket fares.
WizzAir also operates lower frequencies than the competitors (Anna Aero, 2008; Murray & Coates, 2015), which is an area where the airline has less competitive advantage. This is because the customers have less options with WizzAir, meaning they could be looking at competitors to better suit their schedules.
However on the bright side, in 2016 WizzAir managed to increase the load factor to 89.1% (CAPA, 2017). This increase in load factor brings WizzAir closer to the leading low cost airlines in Europe (Ryanair & EasyJet) that in 2015 crossed above 90% (Figure 7).
Figure 7: ELFAA
Financial Strengths: Unit Cost Controls
Other control measures indicating the performance of an airline are the cost controls (Li, Wang, & Cui, 2015). According to Murray & Coates (2015) WizzAir has the second lowest unit cost among European airlines. WizzAir managed to reduce most of their operating costs even further between 2015-2016 (Figure 8), which show great cost management competences.
Figure 8: Cost reduction between 2015-2016
(Wizz Air Holdings Plc., 2016a)
A business strategy can be defined as the long-term direction of the organisation (Johnson et al., 2014). The strategy can be a source of a competitive advantage (Robinson, Fallon, Cameron, & Crotts, 2016).
If put against the three Porter’s (1985) generic organisation strategies; focus, cost leadership and differentiation. We can find that WizzAir is clearly focused on cost leadership in a focused geographic area (Figure 9).
Figure 9: WizzAir’s strategy
(Wizz Air Hungary Ltd., n.d.)
The deliberate strategy of WizzAir is to make flying affordable for the citizens from CEE. WizzAir aims to achieve this through removing unnecessary costs and providing simple service model. WizzAir is committed to achieving the lowest cost base in the CEE.
The emergent strategy of WizzAir is to remain the biggest budget airline in CEE after becoming a leader in this geographic area (Murray & Coates, 2015). This can be seen in the strategic movements of the airline, such as the ongoing expansion (e.g. 19 new routes in December 2016).
There are various definitions of business missions in business. Trybe (2010), defines mission statement as a concise expression of what the organisation is trying to achieve and explains the purpose of the business. Jones and Hills (2009) defined four components of business mission; businesses’ reason for existence, a statement of desired future state, a statement of the key values and statement of major goals.
Based on those definitions and WizzAir analysis we can find some key points that narrow down the company's mission. When you look at WizzAir’s mission statement you will find what the company is about. WizzAir's mission is clear and to the point and explains the purpose and future of the organisation.
WizzAir's mission is about the creation of travel opportunities for the citizens from the CEE. This is done by offering safe, reliable and affordable ticketless air travel.
Objectives of a business are usually the generalities of the mission statement in a more specific form (Lynch, 2015). Objectives should set out how the mission is to be achieved (Grusenmeyer, 2009). Following this theory and the research on WizzAir, the following objectives were identified:
|1. Placing an order with Airbus for 110 new A321neo aircrafts (Flottau, 2015), to expand in the CEE network. |
2. Negotiate contracts with the suppliers to have the lowest possible cost, to make flights more affordable.
3. Improve punctuality to become more reliable (78.4% in 2016 – Figure 2).
4. Improve load factor to increase economies of scale to reduce costs
5. Contracting cost and time efficient secondary airports and single class configuration aircrafts (Wizz, 2016).
Organisational culture can be defined as symbolic rituals and values that contribute to a unique psychological environment (Alvesson, 2002). The organisational culture is shaped by how the organisation treats their employees, customers, the wider community and how they conduct their business. There are several ways to analyse the organisational culture, but one concept is now considered to be fundamentally important and this is the Corporate Social Responsibility concept that must be embedded in an organisation’s strategy and culture (Barker, Ingersoll & Teal, 2014).
Corporate Social Responsibilities
“Corporate social responsibility (CSR) is an approach to business that takes into account issues associated with society and the environment in addition to the more traditional business concerns of shareholders and profits. As a voluntary approach to business, CSR is strongly advocated by the UK government and EU. CSR offers the potential to contribute to sustainable development without greater regulation.”
(University of Exeter, n.d. p.3)
The Wizz Way
WizzAir has a CSR code of conduct in place, called “The Wizz Way” which sets out how the business is run (Wizz, 2016). The code of conduct has three pillars to achieve sustainability of future operations:
- Value their employees
- Satisfy the needs of the passengers and communities where they operate
- Manage the environmental impact
To achieve the goals set out in this code of conduct, the airline implement several initiatives to show that they are ethical, such as:
- WizzAir sponsored major running events e.g. the Skopje Marathon, the Kosice Runway Run, and the Budapest Half-Marathon. The company aims to encourage healthy lifestyles and to encourage the communities and colleagues to participate (Wizz, 2016).
- Regularly organise company events to encourage team building activities, such as annual ski event and Christmas party hosted in Budapest.
- Carry out employee satisfaction survey annually.
- Support and promote local volunteer projects in base cities.
- Encourage personal development of their employees through talent assessment days and leadership development programmes.
- Implementing fuel-saving initiatives to reduce the carbon footprint e.g. 0.5% reduction between 2015-2016 (Wizz, 2016).
- WizzAir’s fleet is one of the youngest and most fuel-efficient in Europe e.g. A321ceo - the most efficient single aisle aircraft in operation (Wizz, 2016)
The CSR represents WizzAir’s values. Values found in WizzAir's CSR show that WizzAir is looking for a friendly and supportive public image. The Wizz Way gives a message out to the world that things are done in an ethical way at WizzAir. These actions should encourage an ethical behaviour from the customers and employees (Alvesson, 2002).
If there is anything that an airline could do to protect the environment, it is definitely being implemented by WizzAir (Wheatcroft, 1991). As found already in the analysis, WizzAir invests money in new fuel efficient technologies.
Trying to minimise the negative effects of CO2 emissions, noise pollution and waste elimination through finding effective innovations are the only things the airlines can do to help the environment (Wheatcroft, 1991).
To analyse the strategy of an organisation, it is important to do an analysis of the external dynamics. The travel businesses must understand what factors could impact their operations, and understand how their position allows them to react to the changing environmental forces (Robinson et al, 2016). The external environment can be analysed from two points of view; the micro and macro environment. The macro-environment is the broad view on factors that the organisation has little control over. Whereas the micro-environment is focused more specific to the industry e.g. competitors and markets.
Several models can be used to carry the macro-environment analysis, but the most common is the PEST analysis (Robinson et al, 2016). PEST analysis can be used to understand factors which can impact the organisation.
PEST analysis is a good tool to analyse the Macro environment as it is focused on a range of external factors that influence the industry where the organisation operates (Johnson, 2013). It is important to understand the political, economic, socio-cultural, and technological changes and how these can affect the strategy of WizzAir.
|Political||WizzAir is highly exposed to political events and regulations in the CEE, EU and elsewhere. WizzAir’s business extends beyond the borders of the EU with countries like Russia, Ukraine, Turkey and with regions in North Africa, Middle East and the Caucasus (Wizz, 2016). Many of those countries have experienced political instability caused by changes in governments, tension and conflicts. A good example that affected WizzAir is the unrest in Ukraine, which led to decision to stop operations and close WizzAir Ukraine Airline LCC in 2015 (Wizz, 2016).The liberalised European environment allows for free movement of people throughout the EU, and WizzAir’s success is highly dependent on this regulation (Wizz, 2016). Any changes in this regulation or changes to the liberalised market can affect WizzAir. A potential expansion can create opportunities, however potential barriers can cause threats to the demand on travel.“As of January 1, 2012 the scope of the EU Emissions Trading Scheme 2008/101/EC (EU ETS) covers airlines.” (Wizz, 2016, p.85). This means that the airline is limited to emission allowances from the EU. This can impact their potential growth opportunities.|
|Economic||WizzAir is an international business and it transacts in 19 currencies (Wizz, 2016). This means that any events which influence the exchange rates will affect the costs, margins and profits made by WizzAir.WizzAir is also quite dependent on the GDP forecasts in the CEE, because the company’s decision to grow is based on this forecast (Wizz, 2016). Changes in the GDP can impact the demand on travel and impact the return on investment, which can have a big impact on the financial sheets.|
|Socio-cultural||Due to the nature of an international business, issues can occur with the ability to suit different markets. WizzAir need to address the different cultural aspects of the many different countries in the EU, but also address the different religious values on routes to the Middle East, where the religious values differ hugely to European. WizzAir must consider the demographic facts and trends to deploy the new aircrafts, because sufficient supply of human resources with the right skills is required to run their international operations.|
|Technological||As a result of the low-cost business model, WizzAir is highly dependent on their IT systems. In 2016, 97% of bookings were made through their website and mobile apps (Wizz, 2016), which shows that any cyber threat can impact the whole strategy.Advancements in aircraft fuel efficiency is an ongoing opportunity to lower the costs, to remain competitive in the LCC industry.|
Summary of PEST analysis:
We can find that there is a lot of potential threats to WizzAir's business strategy. Some of the external factors are the only reason why WizzAir is in business. A lot of these factors are political due to certain political benefits of EU membership.
In the recent climate we could debate that the political issues will become more important to the European travel and tourism industry. This is due to major changes that resulted from two recent issues in the EU; Brexit and the refugee crisis. These issues can impact the free movement of people regulation (European Union, 2016), which is a threat to the demand for travel in the EU.
However on the bright side, the new more efficient aircrafts ordered by WizzAir (Wizz, 2016), will allow for further cost reductio. This will create opportunity to have the lowest unit cost base in Europe. Additionally, more ecological and economical aircrafts can help in using the EU emission allowances more efficiently.
WizzAir needs to understand the factors that influence the competition within the LCC industry and within the CEE market. This will help WizzAir to react upon changes in the environment (Robinson et al, 2016). Tools that allow to find the right competition and factors influencing their strategy include; the strategic group analysis and the Porter’s five forces.
Strategic Group Analysis
A strategic group is a group of companies in a specific industry following the same or similar strategy (Porter, 1980). Therefore if the strategic group of WizzAir is identified, the right competition can be identified.
To identify the strategic group of WizzAir, the strategic group characteristics adapted from Thomas and Venkatraman (1988) will be considered. This will allow to focus on the similarities between similar companies.
WizzAir is focused on connecting CEE destinations with Western Europe (Figure 10), which means that airlines operating in this market will create competition to WizzAir.
Figure 10: Leading airlines between CEE and Western Europe
(Murray & Coates, 2015)
Despite the direct competition from many airlines in this geographic area, there are airlines that focus on different types of customers. Turkish airlines, Lufthansa and Aeroflot are big legacy airlines that focus more on the quality than the price, so they would be appealing to different markets.
On the cost leadership strategy (Porter, 1985), the realistic competitors to WizzAir from figure 10 would be Ryanair, EasyJet, SunExpress and Pegasus, because they focus on a low-cost model just like WizzAir.
Narrowing it further, the only three ultra-low cost carriers in Europe are:
- Pegasus Airlines
(Murray & Coates, 2015)
Furthermore, Pegasus airlines focus on entirely different market (Murray & Coates, 2015) and do not even have half of the seat capacity between CEE and Western Europe as WizzAir and Ryanair.
Based on this information, the proposed model was developed:
Figure 11: Strategic group map
Realistically, Ryanair is the key competitor in this strategic group. This is because Ryanair have comparable number of seats between CEE and Western Europe, as well as they have the same ultra-low cost strategy as WizzAir.
Porter’s Five Forces of WizzAir
Porter’s (1979) five forces is another important tool, which can be used to assess the power of the market and the external environment. This analysis can be useful to understand the potential factors that will influence the operations of an organisation, and shape the strategy. The Porter’s five force are:
- Competitive rivalry
- Power of suppliers
- Power of customers
- Threat of New Entrants
- Threat of substitutes
Michael Porter’s explanation and guidance on developing the five forces (Harvard Business Review, 2008), allowed to create a diagram for the CEE low-cost carriers in Figure 12.
Figure 12 – Five forces of the LCC in the CEE market
There are several factors which affected this analysis, and the level of power of each of the five forces. Some of the factors influencing the diagram include the following facts:
- There are over 30 low cost airlines in Europe (Chanda, 2017; ELFAA, 2015).
- In 2016 fuel accounted for 34% of WizzAir’s expenses (Wizz, 2016).
- WizzAir is dependent on terminal space, time slots and aircraft parking to operate the flights and the charges for those services are key components of the airline’s costs (Wizz, 2016; Harvard Business Review, 2008).
- The customers have high power in a price driven strategy, because the price is the reason why they choose the organisation (Potomac, 2005).
- The great financial capabilities of WizzAir, it’s leading position in CEE and high competition will put new entrants off from entering this market.
- WizzAir has a very low unit cost, which means that substitutes will not be as attractive for international travel.
Summary of the Micro-Environment
The rivalry the CEE market is high and it is a big threat to WizzAir. A challenging competition is seen from Ryanair, due to the size of Ryanair’s financial capabilities and due to its lower unit cost than WizzAir.
Possible reduction in the cost of jet fuel can provide opportunities to WizzAir, but potential increases can threat the company’s strategy. Further growth is dependent on terminal space, time slots and aircraft parking to operate the flights. This means that the suppliers dictate what the airline can or cannot do.
Customer loyalty may become a threat. Low fares is the main reason for choosing WizzAir (Potomac, 2005). This in an increased fare scenario is a threat to this business model (Forgas, Moliner, Sánchez, & Palau, 2011).
WizzAir’s great partnership with Airbus (Airbus, 2015) allow for opportunities for discounts on new aircrafts. Particularly now after WizzAir’s biggest order in the history of Airbus (Airbus, 2015) it is unlikely that other companies will want to enter this market.
The threat of substitutes appears to be low since the flights offered by WizzAir are cheap, but also much faster compared to rail, buses or cars. Quite often it is more economical to fly with WizzAir than use other substitutes for international travel.
Assessing the strategic capabilities, would show a competitive advantage of WizzAir over other LCC. Commonly used framework to assess the strategic capabilities is the VRIN framework (Barney, 1991). There are four criteria within VRIN framework to assess the internal strategy:
This framework will identify what WizzAir does better than others, which contribute to the competitive advantage.
Value – The capabilities valued by customers in comparison to their biggest competitor Ryanair could include more luggage allowance for a very similar price (Figure 13 & 14), as well as friendly staff and comfortable seats (Czudar, Ruwinska, & Ruck, 2007).
However, there is a lot of negative user generated content (TripAdvisor, 2017), which impact on the reputation of the airline (Evans, 2015). Although the reputation is comparable with other low cost carriers like Ryanair and EasyJet.
Figure 13: WizzAir luggage
Figure 14: Ryanair luggage:
Rarity – A very rare service which WizzAir possess in comparison to other LCC are various paid loyalty schemes. For example, £29.99 per year for frequent flyers which gives a discounted price on every flight and the luggage, for the customer and one companion for 12 months (Wizz Air, n.d. A).
Inimitability – WizzAir’s performance is incredible in selling ancillary products and services, compared to all airlines in the world. With 34.9% in 2013 and 33.7% in 2014 of their total revenue, WizzAir was Europe’s number one airline in selling ancillary products and the second best in the world (Figure 15). This represents great staff training and staff motivation competences.
Figure 15: Ancillary revenue
Non-substitutability - WizzAir has the second lowest unit cost in Europe (Flottau, 2015; Murray & Coates, 2015), which means that WizzAir can lower their fares significantly below the industry average and create a very competitive product to any substitute. Additionally, air travel is the fastest mode of transport at this time which gives a competitive advantage over the substitutes.
Product Portfolio Analysis
There are several business models, which help to analyse the current product portfolio of an organisation. One of the commonly used tools include the growth-share matrix also known as BCG-matrix (Seeger, 1984). This tool helps the managers to analyse the product portfolio and to allocate appropriate resources to different products (Henderson, 1970).
To be successful, the organisation should have a product portfolio of products with different market shares and different growth rates (Henderson, 1970). The BCG-Matrix allows to identify four categories of products:
- Cash cows (High market share in a slow-growing industry, usually generating a lot of cash and are cheap to maintain)
- Dogs (Low-market share in a slow-growing industry, not generating profits just “break-even”)
- Question Marks or Problem Children (Low-market share in fast-growing market, with potential to become cash cows, stars or dogs depending on the management of those products)
- Stars (High-market share in a high-growth industry driving dominant selling proposition, customer loyalty and novelty)
These are presented in figure 16.
Figure 16: BCG-Matrix
To do the BCG-Matrix analysis, the report will analyse the fleet allocation changes between 2015-2016, the number of routes by country and the market share in each operating country (Figure 1,17 & 18).
Figure 17: Market Share
(Wizz, 2016, p.11)
Figure 18: Fleet allocation
(Wizz, 2016, p.11)
- Czech Republic
The cash cows were chosen on the basis that those countries have the most routes, aircrafts and a high market-share. The stars Bulgaria, Lithuania and Macedonia are growing markets, which can be seen through increasing number of aircrafts deployed and WizzAir has a very high market share in these countries. Ukraine seems to be a dog because the fleet deployment was reduced in Ukraine and WizzAir decided to close WizzAir Ukraine Airline LCC in 2015 (Wizz, 2016), indicating financial issues with this market. Slovakia also looks like a dog with a very low share-market compared to Ryanair and only a little increase in this region. Czech Republic is a question mark, because the inbound tourism in Czech Republic is raising (OECD, 2016) but WizzAir has low market share in this country.
The Value Chain
Porter’s (1985) value chain is a framework which enables to identify the internal activities of the travel business that add value and create competitive advantage (Robinson et al, 2016). The categories within this framework help to identify the activities which create the service and product offered by the organisation (Evans, 2015).
Figure 19: The Value Chain
The operations of a travel business are made up of primary and support activities, which help in increasing the value of their products. Adding value to the product translate to higher margins. The framework adopted from Poon (1993) of how value can be added to the tourism sector will be considered in constructing this analysis.
The primary activities - Since WizzAir adopted a cost leadership strategy to gain competitive advantage, the analysis will focus on how the airline manages to keep their costs low and how they create high margins.
The airline manages to maintain the second lowest unit cost in Europe using suppliers who supply the airline with cheaper rates. The airline mainly uses airports in the Eastern Europe as their home bases where the aircrafts stay overnight (Wizz, 2016), which translate to cheaper airport rates. Additionally, most of the airports used by WizzAir are secondary airports which also translate to cheaper rates. The airline uses a young fleet of aircrafts (ELFAA, 2015), which means that their aircrafts are modern and fuel efficient, allowing to save money.
“The Group enters into agreements with maintenance service providers that guarantee the maintenance of major components at a rate defined in the contract” (Wizz, 2016, p.87). This means that the airline has fixed rates with service providers to avoid having unexpected maintenance expenses. This helps the airline to manage their costs in a smart way.
WizzAir also has supplier credit agreements which allow for cost reduction. For example, the airline gets certain concessions from the aircraft manufacturer based on the commitment by WizzAir to purchase a number of new aircrafts with components installed by the manufacturer. “In such case, in substance, the right to the concessions is earned by the Group through the delivery of the respective aircraft. In certain cases the concessions might be delivered by the component manufacturer later than the date when the respective aircraft is taken by the Group. If so, then the right earned for the concession is recognised at the date of the aircraft delivery as part of trade and other receivables, with a corresponding credit to deferred income” (Wizz, 2016, p.88). Following this means that the organisation can reduce aircraft leasing costs, by taking the ordered aircrafts when the demand is sufficient for the company.
WizzAir has a short-term hedging policy for fuel and USD/EUR exchange rate to reduce short-term volatility in earnings. “Therefore Wizz Air hedges a minimum of 50 per cent. of the projected US Dollar and jet fuel requirements for the next twelve months” (Wizz, 2016, p.13). This helps WizzAir managing their fuel and currency exchange expenses in the short-term.
WizzAir has managed to reduce the costs of making reservations, through the optimised use of internet (Poon, 1993; Wizz, 2016). The automated system of making reservation means that the company do not require to spend money on running additional offices and employing additional staff (Calder, 2003). For the bookings made over the phone, WizzAir uses premium phone numbers which cost £1.1/min to cover the costs of operating the call centres.
WizzAir employs staff that live an hour away from their bases, which means that the organisation employs people who live in the Central-Eastern Europe (Wizz Air, n.d. B), where the average wages are lower (Delteil, Pailhé, & Redor, 2004). So, the airline can pay their staff less without impacting staff’s motivation, as the salary is attractive from the Eastern-European perspective (Borooah, 2009). The airline has highly motivated staff, at a lower cost.
Other ways of keeping low cost base is through breaking down the services to smaller components to avoid additional expenses (Calder, 2003). For example, the basic flight service does not include any meals, luggage and airport check-in. If a customer wants to have these privileges, then there is an additional fee. The airline sells additional services to maximise their margins, e.g. ancillary products (additional services in figure 20).
Figure 20: WizzAir services
(Wizz Air, n.d. C)
This business model gives the customer the availability of product development to suit their needs (Poon, 1993), which adds value for the customer and maximise the margins for the airline.
The airline predominantly uses single class configuration, to maximise the seat capacity in one family type aircraft which reduces the costs of servicing (Hochschule, Lück, & Zealand, 2013).
WizzAir is also focusing on short turnaround times (TAT) which ensures that planes are in the air at most of the time to reduce the costs of using the airport facilities (Grob and Schroeder, 2007). This saves money for the company, but also adds value to the customer as it is time efficient (Poon, 1993).
Marketing and Sales
WizzAir effectively uses it’s own premises as advertising slots for other companies. For example, there are spaces for adverts in the Wizz-Magazine (Figure 21) that is on every flight, as well as the back of each seat can be used by organisations to promote using WizzAir. This allow to raise profits, through high margin advertising facilities.
Figure 21: Wizz-Magazine
WizzAir promotes using various of different methods. Some of the methods that are very cost effective include their promotional material on social media (Facebook, Twitter, YouTube and LinkedIn), used for PR to add value by connecting with the public (Poon, 1993). WizzAir also promotes using more effective traditional media, such as television and billboards (McGoldrick, 2013).
Their marketing campaign is focused on creating an image that WizzAir opens up the world of opportunities (LubieLatac.pl, 2015). The airline uses the brand’s bright pink and white colours across all their platforms (Website, TV, social media), which create brand identity (Poon, 1993).
WizzAir is easily found on popular search engines like google, as well as some comparison sites like Skyscanner, which helps in making sales. The airline focuses on selling electronic tickets, which reduce the costs of printing and hiring additional staff. The electronic tickets are also good for customers because they are less likely to lose them and they do not need to find printing facilities when they are on holiday, as they can use their mobile devices to present their boarding passes.
Service provided by WizzAir:
- Internet and telephone sales
- Customer satisfaction met through fast, hassle-free and friendly service
- Use of easily remembered bright pink and white colours so it is easily found on the airport (Czudar et al, 2007).
- Single class tailor-made services
- Call centres and online-forms available to submit feedback or a complaint
WizzAir manages to keep high margins through staff motivation, which translate to great ancillary products sales and friendly approach which is valued by their customers (Czudar et al, 2007). Other ways of keeping the costs down to have higher margins is through using new technologies like the A321neo & ceo planes that reduce the fuel consumption, as well as the use of the internet to make reservations and providing self-service process to the customers.
SWOT is a simple tool which helps to analyse the internal and external environment of an organisation and summarise the previous analyses (Evans, 2015). SWOT is used to understand the internal strengths and weaknesses and find external opportunities and threats that could impact the strategy of an organisation.
More luggage allowance than Ryanair and loyalty discount membershipVery low unit cost (Flottau, 2015; Murray & Coates, 2015)Low fares drive the demand and increase the market share at an average growth of 22% passengers annually in the past decade (CAPA, 2017).Leading market share in its chosen marketThe highest level of ancillary revenue in Europe (Murray & Coates, 2015; IdeaWorksCompany, 2015).Strong financial situation (CAPA, 2015).
WizzAir’s earnings are highly dependent on the summer months (Airline Weekly, 2015; Murray & Coates, 2015). There is a lot of negative user generated content, combined with “okay” opinions (TripAdvisor, 2017).Weak brand loyalty as the primary reason why customers choose WizzAir is the price (Potomac, 2005). Lower load factor than competitors (CAPA, 2017; ELFAA, 2015)Operates lower frequencies than the competitors (Anna Aero, 2008; Murray & Coates, 2015)
Further aggressive competition from Ryanair. Ryanair is the second leading airline in the number of seats between CEE and Western Europe (Murray & Coates, 2015) and Ryanair has lower unit cost than WizzAir, which allows for lower fares on the same routes. Ryanair’s seat numbers in CEE market increased by 22% between 2014/2015 (CAPA, 2015b), which shows Ryanair’s interest in this market. Additionally, Ryanair usually comes out on top in countries where they compete with WizzAir (CAPA, 2015b).Yield reduction due to more challenging load factor. The A321neo order is likely to have a negative impact WizzAir’s load factor as there is more seats to fill in (Airbus, n.d.). This can lower the return on investment for the airline and make it less attractive to investors, which could impact further growth of WizzAir.Despite no negative changes in demand on UK – CEE routes, WizzAir estimated that the revenue will decrease because of the change in pound sterling value, as a lot of their flights are purchased in GBP (RTE, 2016).
Stable growth in GDP of the CEE countries and positive forecasts (DFCM Analysis Unit, 2015; Bouzanis, 2017) indicate growing demand for travel. This give opportunity for further expansion in the CEE marketFurther cost reduction from A321 (neo & ceo) orders. The new A321neo has 239 seats compared to 180 in the existing A320, with more fuel-efficient engines. The greater capacity and lower fuel burn should lower the operating costs per seat (CAPA, 2017; Murray & Coates, 2015)According to Airbus (n.d.), the new A321neo is suited to transatlantic routes for trips up to 4,000 nm, which enables WizzAir to tap into new long-haul low cost market.The post-effects of Brexit, such as weaker pound sterling is likely to encourage more inbound tourism into the UK (Chipchase, 2016).
This tool will be based on the previously created SWOT analysis. It will allow the report to identify the strategic options for WizzAir and it will help to understand the strategic choices that the airline could take in case of external changes (Evans, 2015). TOWS help to understand how the internal strengths can be used to take advantage of opportunities and how they can be used to overcome the threats. TOWS will also show how WizzAir can use the opportunities to reduce their weaknesses and potentially show the worst-case scenario in which WizzAir would have to adapt a new strategy and culture.
|External Opportunities||External Threats|
|Internal Strengths||S4 & Op1 – WizzAir’s leading market position in CEE create high brand recognition, which can put the airline in a favourable position to continue expanding in this geographic area, where the economy is forecasted to grow.S2, S3, S5 & Op2 – Already effective low-cost and low-fare model can be enhanced with the new more efficient aircrafts, potentially allowing WizzAir to have the lowest unit cost in Europe and getting ahead of Ryanair.||S1 & T1 – On routes where WizzAir directly compete against Ryanair, WizzAir could apply differentiation strategy by promoting more luggage allowance than Ryanair, and further discounts for consumers with the loyalty membership. S5 & T1 – Despite the fact that Ryanair has lower unit cost, WizzAir could potentially lower their fares below Ryanair’s fares on the basis of strong ancillary revenue performance by their staff.S2, S3, S5 & T2 – Due to the great cost competences, WizzAir is able to lower the fares to stimulate the demand growth. This can potentially improve the load factor and yield in the new bigger aircrafts.|
|Internal Weaknesses||W4, Op1 & Op2 – The further cost reduction and growing GDP in CEE can drive the demand for travel, which could improve the load factor for WizzAir and increase their profit.W5, Op3 & Op4 – The raising demand to the inbound tourism in the UK can encourage WizzAir to increase frequency with the new arriving aircrafts and possibly go into new low-cost transatlantic market. British Airways reported a third more US customers looking for flights to UK (Chipchase, 2016), this can be an opportunity for WizzAir.W1 & Op3 – Potential expansion into long-haul flights might reduce the problem with seasonality, as the airline will be able to reach different climates in the winter season to destinations with different season patterns or destinations not dependent on seasonality.||W4, W5, T1 & T2 – Lower load factor and lower frequencies than competitors can mean that the yield management will be less attractive to investors and shareholders. This could mean that investors would rather invest in the competition, which would significantly impact WizzAir’s financial capabilities. These factors could influence WizzAir’s fares, which would have an awful effect in a price sensitive market. In this case the company would have to adapt a different organisational culture and try to add value to their products. WizzAir could move from pure low cost model to hybrid carrier with dominating low cost elements model (Hochschule, Lück, & Zealand, 2013) like Jet2 and Blue Air creating low cost but high perceived value.|
Evaluation and Recommendations
To evaluate the strategic options found in TOWS analysis, the report will use the SFA framework (Evans, 2015). SFA stands for:
Additionally, an Ansoff-Matrix (Ansoff, 1965) will be used to decide upon the possible strategy. The Ansoff matrix allow to think about the risks of growth, which translate to understanding what the organisation can do.
Figure 22: Ansoff-Matrix
Reviewing the recent events and company’s decision to expand, by placing an order for 110 new aircrafts, shows that the two most suitable strategies appear to be the market penetration and market development.
WizzAir’s position in the CEE market is an important competitive advantage, meaning that efforts to remain a leader in this geographic area should be made. Taking advantage of the brand recognition (Poon, 1993; Evans, 2015) would be suitable and acceptable. Market penetration is also the least risky option to go for (Ansoff, 1965). This strategy is feasible as WizzAir is capable of operating in the CEE and they have new aircrafts coming in. WizzAir should increase the frequencies with the new aircrafts, so the customers do not use other substitutes in the CEE.
However, to take the full advantage of the new aircrafts, WizzAir should tap into new long-haul low cost market. The further cost-reduction that the airline will gain from having new aircrafts, can put WizzAir in front of Ryanair which means that WizzAir could start competing with Ryanair in the Western-European market. Not only through opening routes penetrated by Ryanair, but also on transatlantic routes between Western-Europe and the USA. This means that WizzAir should do market development to respond to the raising competition.
WizzAir could gain competitive advantage over Ryanair , by having lower fares, more luggage allowance and the loyalty scheme which offers further discounts (Poon, 1993).
Moving into long-haul market could solve issues with the earning’s seasonality, as the company would have attractive routes to destinations that are not seasonal. WizzAir has the financial capabilities to absorb the risk of tapping into new market, which is feasible. This growth is acceptable taking into consideration the successful records of the airline, and the benefits of this growth. Finally, the move is suitable as the airline already have existing partnerships with suppliers in Western-Europe.
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