MM5012 - Business Strategy and Enterprise Modelling

Case Study

FLYBABOO : HOW
HIGH CAN FLY?
Lecturer : Dr. Atik Aprianingsih,ST,MM,DBA.

SYNDICATE 1
Tommy Kurniawan D (29119404)
Wildan Grenadi Priatna (29119413)
Multhadi Qisman (29119492)
Cindy Claudia Tamarin (29119510)
Content

Company Porter’ Five Internal Analysis

Background Forces

Value Chain & Competitive

Strategic Perceived Value Advantages
Innovation
Problem?
1. Please provide Five Forces Analysis of the European airlines industry?
2. What are the key elements of the FlyBaboo value systems (FlyBaboo Value
Chain)?
3. What are the key elements of FlyBaboo strategic innovation?
4. Which customer segments is FlyBaboo serving ? What percieved value are
FlyBaboo aiming for?
5. How could the upstart airline build sustainable competitive advantage and
what strategy should it pursue to ensure long-term growth and profitability?
About Company
● Flybaboo is an airline company start-up founded by
Julian Cook. Flybaboo began its debut by serving
regional flight and aimed to take advantage of the
growth potential of low-volume routes with high
yield. It’s business was initially framed in highly
opportunistic terms, Cook as its CEO having
emphasized speed and opportunity rather than
strategic planning.

● In the four months since the inaugural flight from

Geneva to Lugano, Flybaboo had generated
revenues of over SFr 1.4 million $. Moreover the
airline was already serving the Geneva-Venice
route and could look forward to breaking even in the
foreseeable future through healthy sales growth.
Business Problem
● On August 23, 2003, FOCA released new regulations that banned landings at Agno with
aircraft that did not have certification for descents at more than six degrees. This new
regulation eliminate the two Flybaboo competitor because both Hello and Darwin Airlines
used a plane that did not meet the criteria. By contrast, Flybaboo had chosen to fly a
Dash 8-300, an aircraft certified for steep descents with an approach path of more than 6
degrees. Flybaboo requires an Air Operator Certificate (AOC) to start operating. To obtain
AOC in a short period of time, Flybaboo use “wet lease” from Lufthansa partner Cirrus
Airlines.
● However, Cook had to make critical decision to shore up its position in the turbulent
Swiss regional airline industry
● How Internal & External Factors influence growth & Business Decision FLYBABOO.
History of Company
Founded Newline Airways Ltd., Founded Baboo S.A Swiss was halting operation
In October, Cook bounced
Julian Cook Founded a UK-based back and co-founded Baboo After reduction in its network,
start-up airline that aim at the swiss international airlines was
transatlantic business market
SA. His attention back to halting operation in October 26
airline industries

2001 2003 2003

2000 2002 2003

Crisis Granted the route First Flight
concession
In September 11, Crisis on Begin operations on October 27,
airline industry and services and On November 2, Fly baboo
FlyBaboo gained support from
made its virgin flight from
government and granted the
Cointin to Agno.
route from DETEC on September
19.
Company Strategy and Business Models
Start-Up Strategy
● The company was operating with the
Cirrus Airlines wet lease
● The operation would serve as a market
and management test for the young
Flybaboo team
Marketing sales and Distribution
strategy
Marketing sales and Distribution Strategy
● Flybaboo offering low fares to be a limited
number of passengers who booked early
● Flybaboo target both business and leisure
customers
● Tickets are distributed through company
website and call center
Communication Strategy
● Pointing PR Agency
● Using billboard and Local newspaper
Operating strategy
● Flybaboo business model relied on point-to-
point, short-haul flights
● Flybaboo keep operating cost to a minimum
by starting with one aircraft and not
providing catering on board
Pricing startegy
● Low-cost airlines strategy ,selling seats-on
first-come first serve basis
Growth Strategy
● Short-Term
Offering daily flight to increase frequency on
The Geneva-Venice route
● Medium-Term
Adding interesting short haul destinations,
such as Marseilles, Valencia, Berlin, etc.
● Long-Term
Expanding to medium-haul destinations
using second aircraft type & open a new
operating base
 External Analysis : FIVE forces Analysis of Company
Threats of New Entrants
Newcomers airlines might
interested in serving the low-
volume route
High Capital Investment
Flight Regulations
High entry barrier - There is little
chance for newcomers to start
with several planes in the current
difficult environment.
Bargaining Power of Buyer
Internet for Information
Customer Price are sensitive
Customer are knowledgeable
Other airlines might serve with other
more interesting Pricing strategies,
making the buyers power stronger.
No switching cost to competitor &
substitute
Threats of Substitutes
Alternative modes of
transportation such as road
and rail (although The
substitutes does not provide
better performance Ground
travel required 4 hours by
cars and 5 to 6 hours by train
(Geneva-Lugano)
Teleconference
Bargaining Power of Intensity of rivalry among competitors
Suppliers
Limited For other routes, numbers of players
Number of aircraft were looking to expand their operation
manufactured in Switzerland, including network
carries and LCC such as easyJet, that
known for its reliability and high quality
service. There also Helvetic Airways,
offering more attractive pricing model.
High costs of switching Only two one direct competitor for its
routes (Hello & Darwin are two potential
direct competitors on Geneva-Lugano
route)
Price of fuel is
dependent to global oil
price
Lufthansa provided the
necessary AOC and
was responsible for all
Flybaboo operations.
Since it is difficult to
obtaining Air Operator
Certificate (AOC) for
young airline
 Overall Industry Rankings
Forces Percentage (%) Favorable Moderate Unfavorable

Threats of New 15 ✔
Entrants

Bargaining 30 ✔
Power of Buyer

Threats of 20 ✔
Substitutes

Bargaining 25 ✔
Power of
Suppliers

Intensity of 10 ✔
rivalry among
competitors
Porter’s Five Forces for European Airlines Industry

According to porter’s five

forces analysis, threats to
FlyBaboo are classified as
moderate in the aviation
industry
INTERNAL ANALYSIS
RESOURCES
TANGIBLE DESCRIPTION INTANGIBLE DESCRIPTION

Financial Have many investor to invest

Cook (CEO) has a much
Human asset experience in airline
Physical Airplane Dash 8-300
industry

System for Booking electronic

Organizational Resources tickets exclusively via the flybaboo Reputation Low Cost Carrier
website and call center
 Internal Analysis (Capability)

● Offering low fares.It could produce the possibility for Flybaboo to enhance demand for 70,000 passenger by the second year of
operations as the only airline offering Geneva-Lugano route and Low fares as well.
● Easy to reach and cost effective distribution channel : By distributing electronic tickets exclusively via the Flybaboo website or call center
.Flybaboo got 85% reservations in three months operations .However this strategy closely followed the Ryanair/easy-jet model.
● Minimum Operating cost : It‘s valuable because with low operating cost we can offer the company‘s pricing strategy.
 FLYBABOO VALUE CHAIN
Primary Activities Description

● Point-to-point, short haul flights

Operations ● Single type of aircraft
● No catering on board

Marketing & Sales ● First come, first serve

● Low price for early booking
● Target tourist and business travelers

Services ● Exclusively sell tickets via website or call centre

Support Activities Description

Finance ● Have many support from reputable investor

 COMPARING STRATEGIC OF FLYBABOO
Basic airline FlyBaboo

Value Customer ● Everyone ● Business and leisure

● Full Service travelers
● Worldwide Network ● Point-to-point
● High Price ● Low fares
● First come first serve

Value Chain

Operations Multiple planes for short and Point-to-point

long destination Short haul destination
Worldwide Network

Marketing Segmented customers Treat all customers the same

Varied meal services First come first serve pricing
Frequent flyer program Public relation and advertising

Services Travel agent, Bundling, direct Company website and call

sales center
 Strategic Innovation
Brand Awareness
Certification Increase public awareness
Getting AOC as soon of Flybaboo
as possible

Operations
Collaboration Reduce operating
Build cooperation with cost in order to
Other airlines lower load factor to
break even

Expansion Pricing
Add new destinations & More Create more
services and expand To medium -
haul destination using a second
competitive price in
aircraft type LCCs segments
 STRATEGY
Short-Term Strategies
Flybaboo need to increase its brand awareness to
compete with future direct competitor (Hello and
Darwin Airlines). Both direct competitor are
supported by powerful politician and local business,
so Flybaboo also need considering to cooperate
with outside the airline industry.
Medium Long-Term Strategy
To be able to stay ahead in present and future
competition in European airline industry, Flybaboo
can coexisted with network carrier as in regulated
market, to increase its brand awareness through
marketing and to expansion through network
agreement.
How could the upstart airline build sustainable competitive advantage and
what strategy should it pursue to ensure long-term growth and profitability?

For start up airline, they can start the business with looking an favorable route and
focus with target segment. Based on this case, LCCs is the most feasible segment for start-
up airline that want to plays in EU skies, and they should learn about EU open-skies accords,
thus they can have advantage in providing services for their operation strategy like what kind
of aircraft they want to use, and also marketing strategy, that weigh on pricing and target
segment.

For long term strategy, to support a healthy growth and good profitability, start-up airline
can adopt Helvetic pricing strategy that used a standard price policy, because it’s more
attractive from a marketing viewpoint and provided complete transparency to customers. Also,
they can use ‘wet lease’ strategy with some well-known airlines, either it’s inside or outside of
their country, so they can focusing on building environment and traffic for their airline, also
they can adopt cost reduction strategy like FlyBaboo did (look exhibit 6) so they can reduce
their cost up-till 59%. While on the other hand, they can seeks for another route for their
growth, so start-up airlines will not stuck on the old routes.
 FLYBABOO PERCEIVED VALUE

● Customer segment that FlyBaboo serving :

○ Business passengers
Especially for Geneva-Lugano routes (about 70%-80% are business
passengers)
○ Leisure passengers
Especially for Venice routes

● Based on that, FlyBaboo wants to hedge market volatility, so, in the long
run, they can have a brand that inextricably identified with quality and
service.
SUSTAINABLE COMPETITIVE
ADVANTAGES
Establish brand in Low Cost Extend flight route to
Carrier and Maintain the profit destination
Quality

01 02

03 04
Maintain financial Build brand equity
stability with reduce with customer
cost loyalty
THANK YOU.
Any Question?

AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
CREDITS: This presentation template was created by Slidesgo,
AAAAAAAAAAAAAAAAAAAAAAAAAA
including icons by Flaticon, and infographics & images by Freepik