London-Lisbon Air Route Overview

Existing Services on the Route and Background to the Market

The distance between London and Lisbon is approximately 1560 km. The flight between the two destinations takes 2 hours 30 minutes. London is served by five main airports, which are Gatwick Airport, London City Airport, Heathrow Airport, Luton Airport, and London Stansted Airport (Suau-Sanchez, Voltes-Dorta & Rodríguez-Déniz, 2016). Lisbon, on the other hand, is served by one main airport, which is Portela Airport. The airlines plying this route are British Airways, TAP Portugal, EasyJet, Ryan Air, and Wizz air. The airports in London handle varying number of flights daily. For example, the London City Airport has two flights to Lisbon on weekdays and two during weekends. The airline responsible for these flights is TAP Air Portugal. Gatwick Airport handles 94 nonstop flights to Lisbon weekly, averaging 15 daily (Opodo). These flights are also carried out mainly by TAP Air Portugal airline (Suau-Sanchez, Voltes-Dorta & Rodríguez-Déniz, 2016). From Luton Airport, there are 29 direct flights between London and Lisbon per week averaging 4 per day. The airlines that frequent this route are EasyJet with 3 flights daily and Wizz Air with 1 flight daily. Heathrow Airport contributes 10 flights daily, while Stansted Airport contributes 21 flights weekly, averaging 3 daily (Expedia.co.uk.). The fare from London to Lisbon ranges from £94 to £130. The airline market with regard to the London-Lisbon is growing (Forsyth, Gillen, Muller & Niemeier, 2016). Over time, the number of flights between the two destinations has increased significantly. On average, there are 167 flights per day.

Choice of airport at London

London City Airport

London City Airport is the ideal airport for the new airline because of a number of reasons. One of them is reduced competition. LCY is one of least crowded airports in London. Most of the airlines are concentrated in Heathrow (Forsyth, Gillen, Muller & Niemeier, 2016). While it is low on the number of passengers, it is low on competition. It thereby provides an opportunity for the new airline to enter the market. Another reason why LCY is ideal is convenience. LCY is the most convenient airport in London in terms of accessibility. It is only six miles from city. As such, customers can easily access it. The fare to the airport is also low. On average, the fare to the airport from the city is £3 (Forsyth, Gillen, Muller & Niemeier, 2016). It is thereby among the most cost effective airports in the city. The low cost of accessing the airport acts as an incentive for travellers. With time, the traffic in the airport will grow. LCY thereby provides an opportunity not only for entry into the market but also growth. Lastly, LCY provides a gap in the market that can be exploited. Currently, there is an average of only 2 flights daily from the airport to Lisbon. With the growing number of passengers travelling from London to Lisbon, two flights will soon fail to meet the demand in the market (Neves, 2018). The new airline can exploit this gap in the market through London City Airport.

Estimated passenger numbers

The main airline operating from London City Airport is TAP Portugal. The airline has two flights on weekdays and one flight one each day during weekends. The airline uses Embraer 190. The seat capacity of Embraer 190 has a capacity of 100 passengers (Neves, 2018). Assuming that for each flight the plan carries full capacity, the number of passengers TAP Portugal carries in a week will be 1200. Currently, London City Airport serves 4.5 million passengers annually. LCY has a market share of 5 to 20 percent in the London-Lisbon route. The average market share for the airport is 12.5 percent. This means that out of the 4.5 million, the London-Lisbon route serves 562500 passengers. In a year, TAP Portugal serves 62,400 passengers (Morrell, 2016). There is annual deficit in capacity of 500,100. In a week, there is need for an additional capacity of 9617. This additional capacity can be filled by the new airline. The estimated number of passengers available for the new airline is 1374 daily.

Aircraft type

The aircraft type that would be ideal for the airline is the jet airliner. This is because this type of aircraft is ideal for commercial purposes. LCY is relatively small. As such, it can hold large planes. As such, the jet airliner that would be used is Airbus A220. Airbus A220 has a seating capacity of 116 (Neves, 2018). The aircraft’s wide cabin provides passengers with a lot of personal space, which allows for ease of movement. The cabin also allows for wide seats that bring comfort and allow passengers to relax, which is an important factor particularly during long flights (Morrell, 2016). Airbus A220 has built-in efficiency and comfortability. The plane has broad seats, large windows, and plenty of overhead storage space. These qualities make it to feel like a wide-body aircraft. The extensive use of aluminium in the fuselage reduces the weight of the plane and enhances resistance to corrosion makes it easy to maintain (Forsyth, Gillen, Muller & Niemeier, 2016). The reduced weight makes it efficient with respect to fuel consumption. Airbus A220 is ideal because of a number of reasons. One of them is efficiency. As pointed out, the low weight of the plane allows it to use less fuel (Suau-Sanchez, Voltes-Dorta & Rodríguez-Déniz, 2016). This is important because it will allow the airline to cut down on its cost of operation and thereby increase profitability. Another reason is the comfortability. The modern cabin that allows for wider seats implies that the comfortability of passengers will not be compromised even in cases of adjustment to increase capacity. Ensuring comfortability even with increased capacity will allow the airline to maintain the quality of its services while at the same time increase profitability (Neves, 2018). This will help it gain a competitive advantage in the market that will enable it to grow.

Product features and distribution strategy

The flight from London to Lisbon and vice versa will be a non-stop direct flight. Passengers will not be provided with drinks, snacks, or any other food. However, food and drinks are for sale (Chen and Hu, 2013). Passengers can thereby be provided. Baggage is limited. Any excess weight will be charged per pound. Seat assignments are based on first come first served. There will be no in-flight entertainment. The entire plane will be one class. The flight service is based on low cost carrier model (Lawton, 2017). The flight is offered at a cheap price that is easily affordable. The flight will be on time, with the longest time taken being 2 hours and 45 minutes. The distribution strategy that would be used is the exclusive distribution strategy. Exclusive distribution strategy is a form of selective distribution where a distributor, wholesaler, or retailer is used in a particular geographical area. When a company distributes its products through one major outlet in the market, then it is said the company is using the exclusive distribution strategy (David Mc A, 2013). The exclusivity in this case will involve distributing the flight services only to Lisbon. London Airline will focus its services only from London to Lisbon and vice versa. In addition, at the start, the airline will be focused only at the London City Airport.

Schedule

From London City Airport to Lisbon (Portela Airport)

From Portela Airport to London (LCY)

Estimated operating costs

Costs per block-hour of operations (average 116 seats)

Total flight operating cost

=1699×2.75

=£4672.25

Since there would be two return flights per day, the operating cost per day would be:

=4672.25×4

=£18,689

In a week, the cost would be:

=18,689×7

=130,823

Annually the operating cost would be

=130,823×52

=£6,802,796

Fare structure and projected revenue

The plane has one class only, the economy class. However, there are two types of fare: Flexible and non-flexible.

The fares were selected in relation to the market trends. For example, a non-flexible fare of £52 is in line with the price of majority of low-cost carriers. LA needs to be both profitable and competitive in the market. These fares create a balance between the two variables.

Projected revenue

Assuming that for each flight there will be full capacity.

The highest revenue possible per flight

=116×80

=£9280

The lowest revenue possible per flight

=116×52

=£6032

Potential profit

The profit per flight ranges from £1359.75 to £4,607.75

Projected annual revenue

The least revenue per flight

Least annual profit= 8,782,592-6,802,796

=£1,979,796

The airline will thereby be profitable even in the long-term

Available seat per kilometre (ASK)

The plane has 116 seats and all of them are available. The distance between London and Lisbon is 1560km.

Thereby;

ASK is 1560×116

ASK=180,960

Load factor

With the high demand for airline services at LCY, it is expected that that for each flight, the plane will be carrying a full capacity. The expected load factor is thereby 100%. However, it is not possible for constantly have 100%. There are flights where the load factor will be less than 100% (Abrantes, 2010). To ensure profitability, LA will target a load factor of 80% for each flight. A load factor of 80% will generate at least £4,825.60.

Unit cost

The unit cost in this case is the cost per available seat kilometre.

Operational cost= £4672.25

Available seat kilometres=180,960

Unit cost=4672.25/180960

=£0.026 per available seat kilometre

Critical appraisal of results

The results show that the venture has the potential of being profitable. A potential profit of between £1359.75 and £4,607.75 per flight is a good return for the airline (Shaw, 2016). The airline can significantly increase its profitability if it increases the number of flights. There is a huge market potential for London Airline. As pointed out earlier, the estimated number of passengers that are available for London Airline is 1374. With a capacity of 116 only, the airline needs to have at least 11 flights on a daily basis for it to meet the demand in the market. Should the airline manage to provide this number of flights, its potential profitability will be at least £14,957.75 daily. With only two flights per day at London City Airport, there is potential of increasing the number without congesting the airport (David Mc A, 2013). The potential for expansion for London Airline is with respect to not only the market but also airport capacity. For example, the current limit for passengers at the airport is 6.5 million and 110,000 flights annually. This implies that the airport can handle over 300 flights on a daily basis to different destinations. Currently, the number of flights at the London City Airport is 80,000 annually. This implies that on average, there are 222 flights daily (Chen and Hu, 2013). With the maximum capacity being 300 flights daily, there is a deficit of 78 flights. London Airline can thereby increase the number of flights to 11 daily without negatively affecting the airport’s operations. Several assumptions have be made in determining the results. One of them is with respect to the market share. The market share in this case has been assumed to be 12.5 percent. However, as indicated, the London-Lisbon route at the London City Airport enjoys a market share of between 5 and 20 percent (Lawton, 2017). This means that the market share for the route can be as low as 5 percent or as high as 20 percent. This depends on the number of passengers who are travelling between the two destinations. If the demand for the London-Lisbon route reduces so that the market share reduces to 5 percent, the number of passengers will reduce to 225,000. The weekly number of passengers will thereby be 4323. With TAP Portugal taking an average of 1200 passengers, there will only be 3123 passengers for London Airline (Alderighi, Cento and Piga, 2011). This translates to 446 passengers daily. In such circumstances, London Airline will only need 3 flights a day to meet the demand. However, there are cases where the market share might rise to 20 percent. In this case, the number of passengers using the London-Lisbon route will rise to 900,000. With TAP Portugal serving slightly over 62400 passengers annually, there will be a deficit of over 800,000 passengers that London Airline will be required to serve (David Mc A, 2013). This requires at least 19 flights daily under a 116 seating capacity. Another assumption that has been made in the results is with respect to competition. It has been assumed that the only airline offering competition for the London-Lisbon route is TAP Portugal. With TAP Portugal having only 2 flights, there is still a huge market that needs to be served (Chen and Hu, 2013). However, while the TAP Portugal is the only competitor at London City Airport with respect to London-Lisbon, other airlines may decide to start plying the route from London City Airport. This will increase the competitiveness and reduce the market share available for London Airline. Lastly, it has been assumed that Portela Airport in Lisbon can handle an increased number of flights. Each airport can hold only a particular maximum of flights. This implies that even though LCY has the capacity to hold more than 100,000 flights annually, this may not be the case with the Portela Airport (Lawton, 2017). As such, it may not be able to hold an additional number of flights. This might thereby limit London Airline’s ability to increase the number of flights to Lisbon.

Competitive advantage

London Airline has a competitive advantage in the market due to a number of reasons. One of them is the high level of comfortability. The high level of comfortability that is characteristic of the Airbus A220-100 aircraft that would be used will provide London Airline with a competitive advantage over its main competitor (Shaw, 2016). Another factor which provides London Airline with a competitive advantage is pricing. With the lowest price of £46, London Airline will be charging almost half the price charged by its closest competitor TAP Portugal. The low price will attract consumers to use the services of London Airline. It may also encourage more customers to take flights to Lisbon because they affordable.

Marketing plan

Marketing is essential to the success of the London Airline. Availing information to consumers that the airline is offering something different is crucial. The airline will institute a marketing team that will be responsible for informing consumers about its existence and the services it offers (Perreault, Cannon and McCarthy, 2011). The public relations team will collaborate with the marketing team so that the best strategies and tactics can be implemented. Marketing will be based on 4P’s. These are product, price, place, and promotion.

Product

The product is the flight service being offered. The flight is being offered at a cheap price. London Airline will provide direct flight from London City Airport in London to Portela Airport in Lisbon (Resnick, Cheng, Simpson and Lourenço, 2016). Customer service will be excellent.

Price

In order to be competitive, London Airline will always have its price below £50. This will ensure that its flights from London and vice versa are affordable as possible even as it tries to be profitable (Lee and Kotler, 2011).

Place

London Airline will be operating from London City Airport. As such, customers can access the airline’s services from the airport (Khan, 2014). With respect to tickets, customers can get tickets through the airline’s website, airport ticket counters, and travel agents.

Promotion

Promotion is important because it will enable the airline to reach to potential customers. Promotion will be carried out through a number of platforms. One of them is social media. Social media marketing is essential because it will allow the airline to reach out to many people. In addition, it will enable the airline to attract young consumers since they are the main users of social media (Perreault, Cannon and McCarthy, 2011). London Airline will also use search engine optimization. Search engine optimization will ensure that the airline’s website is the top of the list during searches. Search engine optimization will not only increase the visibility of the airline’s website but also increase the reputation of the airline.

References

Abrantes, J. (2010). Low-Cost Carriers and Full-Service Carriers: Evidences (or not?) of Competition in Lisbon and Oporto Cities. TOURISMS PECTRUM, 20.

Alderighi, M., Cento, A. and Piga, C.A., (2011). A case study of pricing strategies in European airline markets: The London–Amsterdam route. Journal of Air Transport Management, 17(6), pp.369-373.

Chen, P.T. and Hu, H.H.S., (2013). The mediating role of relational benefit between service quality and customer loyalty in airline industry. Total Quality Management & Business Excellence, 24(9-10), pp.1084-1095.

David Mc A, B., (2013). Service quality and customer satisfaction in the airline industry: A comparison between legacy airlines and low-cost airlines. American Journal of Tourism Research, 2(1), pp.67-77.

Forsyth, P., Gillen, D., Muller, J., & Niemeier, H. M. (Eds.). (2016). Airport Competition: The European Experience. Routledge.

Lawton, T.C., (2017). Cleared for take-off: structure and strategy in the low fare airline business. Routledge.

Morrell, P. (2016). Airport competition and network access: A European perspective. In Airport Competition (pp. 31-46). Routledge.

Neves, G. S. C. M. D. (2018). TAP Air Portugal: cleared for takeoff: a case study on the Turnaround Process over the 2016/2017 period (Doctoral dissertation).

Resnick, S.M., Cheng, R., Simpson, M. and Lourenço, F., (2016). Marketing in SMEs: a “4Ps” self-branding model. International Journal of Entrepreneurial Behavior & Research, 22(1), pp.155-174.

Suau-Sanchez, P., Voltes-Dorta, A., & Rodríguez-Déniz, H. (2016). The role of London airports in providing connectivity for the UK: regional dependence on foreign hubs. Journal of Transport Geography, 50, 94-104.