The Analisys of Wizz Air [PDF]

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The analisys of Wizz Air

Internal assets The main components of cost-efficiency are the young fleet, right choice of cheap and effective airfields, salesmanship on the internet, effective organizational solutions. Main resources of the company: First of all in the aspect of earning capacity main resource is the system of reservation. 95% of all reservations are done on the internet and book of individual and travel agencies are separated to operate effictively.There are other non-ticket incomes too, mainly through partners (eg. accomodations, car rental). Important advantage is, that the company uses leased equipments, machines. Precision of planning of machine-supply has two aspects: finding the right investors and supplying of seperate fittings. The significance of choosing the right area for the bases is critical and huge beyond question. Network Development and Scheduling studies the opportunities of expansion, for example there is a standard analysis, which examines demographical features (eg. labour migration, ways of transportation). Significant factor is the business model in reference to travels of short- and long-term/staying abroad. Wizz air has bases, where the market of air transport is limited, or if there is a market, is too expensive and there is a demand for low-cost airlines. The future aim is expanding the having market and levy on it.

External environment (customers, competitors, suppliers, legal/technical/cultural issues...) In the life of Wizz Air’s operation the most significant layer of external environment are the customers. It is evident because they are the target audience of their operation and they create most of the profit. The needs and the demand of the customers determine the services and products of the company. As they try to keep their cost low they have to keep in mind the demand. Because if the needs don’t meet the requirement, than it would be unprofitable. The second most important layer is the competitors. The main competitors – aside from other transportation like bus, train, etc. – are the other low-cost airlines that have significant capacities. They are Ryanair, EasyJet, Norwegian, and other national airlines of Poland, Romania, Czech Republic. The competition between them is really sharp and there is a continuous price-competition. They have to be prepared for unforseen circumstances because the airline that reacts the most quickly can comes into a leader position. According to the Chief Executive Officer, József Váradi, the biggest competitor of Wizz Air is Ryanair. They have the same low costs – or even less – and react as quickly as possible. The difference between the two airlines is that Wizz Air keeps the focus on their

original business model and tries not to change it. Furthermore it is a dinamically developing company with low costs and fares. As we could see in the chart – OAG Capacity Statistics for January 2012 - these two airlines have the half capacity of the whole market. The third layer is the suppliers. They are the strategic partners of the company and they ensure the resources to have a successful business. As the Chief Commercial Officer told us, to have a prosperous business they need countless suppliers like plane-producers, aero engineproducers, repairmen, etc. In commercial areas they need the airports, the buildings, the routes, land-services for the customers – check in, cleaning, seats... –, partner companies for accomodations, banks, security, insurance; in marketing they have PR companies and in IT reservation system companies and flight control companies are needed. There are 5 or 6 main partners that are the main strategic partners for the long term run. With these companies – Indigo Partners, Lufthansa Technik, GECAS... – they make a win-win situation and that is why they draw a contradict about being in a reliable partnership. But in case of commodity products, Wizz Air competes the suppliers and in this situation they can reach favorable conditions like low prices. The market issue is stable because there are the same products and services for long run – air service, transportation, online reservation of tickets, travelling guidance, travel-organisation -; the strategic partners are permanent for a long run; in an average level the market changes slowly, but as the Malév went bankrupt they had to react quickly. It is a complex situation, because there are more than one or two segment of the environment that influences the operation. In the structure the increased specialization, rigid formalization (in communication) and hierarchy (there is the Chief Executive Officer, than there are other leaders and the other employee). The different functions need different skills. In Central-Eastern Europe there are mostly similar cultural nations. So the company does not have to take into consideration the huge differences. This make possible the centralisation. Of course there are some differences, but only in marketing because most of the people are price and destination oriented. There are legal issues too, that regulate the operation of the airlines. In Hungary we have the 1995. XCVII. Law in which the Hungarian air transport is regulated fully. These are like: official and transportation orders. The security, airports, air traffic control, environment protection and meteorology are under regulation.

Strategy Object-hierarchy: Purpose Objectives (3-5 years): Stock transfer Targets/Tasks (1-2 years)

Vision: to extend fleet to 172 by the piece till 2017 and consolidated market up to 2013 Objectives: Strategy:    

Corporate strategy Competitive strategy Functional strategy Business plan

Budget: Pricing: dumping prices Design logic: centralised Many services belong to other incomes (over the tickets): package fee, ancillary products (connected with travelling), other add ons (as transportation, insurance on board) and naturally the consumption and advertising on board. There are three periods to still develop even if there is a huge price competition: From the beginning: significant part of the strategy. Now: in Hungary this competition became sharper, so it is plotted an effective business model: being profitable – new markets – network-development. Long term: development but in a slower rate.

Short term goals: - efficiency of the size - to keep being profitable - appear on stock exchange - to take aim at the market all over the European Union - going on planning expansion

Structure: Organizational structure: formal, microeconomic system (subsystems according to principles) and the organisation chart is flat. Structural flavors: Specialization: quality division   

Authority sharing Co-ordination Configuration

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Organizational model Organization design process Corporate form Process design Job and task design

Wizz Air usually makes the employees an autonomous setting, but it depends on the job and also the behave of the employer. Except is Director of Internal Audit, which is totally independent. On this dinamic market the company needs great cooperation with just a few people, so naturally final decisions are centralised. Many conflicts occur because of the coordination all the same. For example there are continuous claims from different departments about expansion of labour-capacity but there is always a pressure from the upper departments too. If the company does not have too many workers, it can create the opportunity to make lower costs (low number of workers vs. low cost), wich is also a manner in dispute. The flying crew is fixed (2 pilots and 4 flight attendants on each plane), but the office crew is absolutely minimal (appropriately 150 people just in Budapest). Wizz Air needs compromise plenty of parts, e.g. maximum utilization against appropriate operation. Further questions: - expansion of markets and products vs. financial performance - financial performance vs. commercial goals - commercial goals vs. operating unit

Division of labor Wizz Air is characterised by high level specialization at various levels. To achieve this, a high quality of labour division is realized. Specializing in different areas improves productivity, results in more efficient work activity. As skilled people work at every specialized area – the company had been founded by six people, all of them with experience in airlines or other industries, directed by József Váradi, CEO – there is greater efficiency too. Relaxed work atmosphere and the specialists’ team-work are also outstanding, as well as the fact that they can keep their nationality in different countries, while being European. At the highest level primary labour division is applied as the activities arising from the basic activity take place here: Legal, Internal Audit, Human Resources and Chief Financial Officer. In the sub-systems a secondary labour division is used, as it is divided further: Chief Commercial Officer, IT, and Chief Operations Officer. This way Wizz Air is a multidimensional organization.

Authority Wizz Air is characterised by centralized decision-making. It is the fastest way for the company to react to the market actions. It could be seen at Malév’s bankruptcy, when Wizz Air could broaden its capacity in no time, and they got flights to operate. A great advantage comes from the centralization, but at a big company like this, it is not manageable by giving all the decisions to one people. When the company started, it was characterised by full

centralization, but while the company grew, the avarage level of decision-making went down. But there were no hitches because they could find well-qualified, experienced, talented leaders to the company who could be trusted in decision-making. The extremely important, for example strategic decisions are still in the hand of the general manager. The centralization can also be seen in the sense that although there are 15 basis in different countries, they have no legal decision-making power, they just do their tasks as an operational unit that was given to them from Switzerland or Budapest.

Co-ordination: At WizzAir they use all the three co-ordination group of assets. The structural co-ordination shows itself in, - among others - that the leaders hold meetings from time to time, where they discuss the occburrent problems. Job descriptions, the required strict rules, the protocolls about flying, keeping the time schedules, and of course the low operation cost which is attached with the budget, those are all counts as technocratic assets. The elements of the person-oriented co-ordinated assets can be the organized parties for the employees, for example a christmas party. On the other hand, co-ordination can lead to conflicts between the company’s sections. One problem between the trading units and the operation section can be for example the inconsistency in maximalizing the flights, and keeping the time schedule. It is obvious that the senior management have to find the optimal balance in favour of the efficiency that had been succesful so far. Vertical co-ordination can be seen for example between the Chief Commercial Officer and their employees, or rather, there is horizontal relationship between the Faculty of Law and the leaders of the Human resources.

Mission, vision In 2003 the experienced specialists had a primary task: to clarify the mission and vision of the company. Mission When the company was founded, the aim was to become the largest discount airline of Central and Eastern Europe. Wizz Air has achieved this. It is a value-centered airline, with primary target of a „Wizz Air experience” provided by applying state-of-the-art technologies. The company aims to increase the number of passengers by high service quality and favourable prices. At the beginning they wanted to achieve size efficiency. With the present fleet, they can cover the markets. So in case there is a crisis on a market, they can balance it by participation in other areas. The company is not vulnerable, that is why it is able to operate in the present critical period, when many airlines have disappeared from the market.

Values: quick reaction to changes of the market, cheapness, cost and time efficiency, free choice of seat, food and drinks sold, travelling without printed tickets, new, modern airplanes, high standard of maintenance, professional crew. Role in society: as the company is growing, workplaces are created, both directly and indirectly. The best example for this is Debrecen, where 100 jobs have been created already, although the first plane is to take off on the 18th of June. It boosts tourism as well, this way taking part in economic growth. Vision During the interviews we found the following items appearing in the vision of Wizz Air: -

profitability

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continued expansion, network improvement

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doing well in European markets

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entering the stock exchange

As for profitability and continued expansion it is important to keep balance, this is considered to be the most important value of the company. The income consists of two elements: ticket prices and non-ticket prices. As the ticket prices are fairly low already, this side can be increased by broadening other income and services connected to travelling and by selling advertising space. As for network improvement, the long-term goal is to expand outside Central and Eastern Europe and become a dominant airline in Western Europe. Another possible direction is the East. The Russian and Turkish markets are significant, the company would like to obtain market position there too. Wizz Air presented a request for Kiev and Moscow – no decision has been made till the day of the interview.

Management style We had an interview with József Váradi, the Chief Executive Officer of Wizz Air. In the following we are going to study his style and role. Style According to him, the structure of the company is hierarchical and he has to be a determined leader because of the many rules of this branch. Accuracy and quick work are obligatory to their work. As he is a strict head of the enterprise, the style of the chief executive is autocratic. This means that he disposes of significant decisions; the main steps of the projects are determined by him; he appoints the right men for the right tasks; his personality is more like friendly than being rigid; he tries to give as much freedom to his employee as he can. This type of style in most cases, reaches the best productivity but restricts the workers’ latitude. Because the workers are said to what to do and they have to be ready for a certain date.

Role József Váradi, as he is the head of the Wizz Air, always has to give new informations for the customers through television, radio or newspapers. He has to be ready to answer all questions of journalists that sometimes is not easy. According to John Kotter the role of the leader can be defined as:        

he focuses on the leading of employee; he needs followers; he is thinking in long-term; he mostly has visions; he supervises the departments; he motivates teh employee; he promotes the decisions; his dynamism is proactive.

SWOT analysis 1. Strengths Low operational costs: Wizz Air’s greatest advantage clearly is that it has the lowest fares on the market (besides Ryanair). The importance of this lies in the fact that, according to surveys, price is what matters the most to passengers when they decide which company to fly with, while other factors such as comfort or the location of airport have much smaller influence on their decisions. It is important to mention that Wizz Air resisted the temptation of adding extra services for greater comfort, and thus managed to keep prices under control. Its devotement to primal plans and its focus on strategy are both for the company’s long term benefit. Harmony of novelty and experience: On one hand, Wizz Air has a group of managers with relevant experience led by a CEO with great charisma and clear objectives and execution plans, on the other hand it owns the novelty and freshness of new companies. Quick decision-making mechanism: As responsibility is little divided, decisions can be made quickly, and the company is able to react immediately to the changes on the market (for example the bankruptcy of MALÉV). Knowledge of the Central- and Eastern-European market: Wizz Air knows more the Central- and Eastern-European market and people than its competitors as most of the company’s managers is from this region and has gained relevant experience. Union of standardization and differences between regions: Standardization is an efficient way of saving resources (for example airplanes of the same type are maintained the same way, the same booking system is applied everywhere). However consumers in every country can think a little of Wizz Air as their own since for example in Hungary Wizz Air employs Hungarian stewardesses and has a Hungarian website.

2. Weaknesses Dependence from one business line: Wizz Air is only focusing on the flying (and the accessory services). It can make them really sensitive for the changes in the section. The detterrence of the low operation cost: To stay at the lowest prices, Wizz Air has to do arrangements that is uncomfortable for some people, moreover it can deter them from chosing this company. Size: Wizz Air is way smaller still than their greatest rival (Ryanair), that is why they have smaller savings, and the long-term race in prices can consume it.

3. Oppurtunities Growing flying attitude in Central- and Eastern-Europe: As the ex-socialst countries fall into line with Western-Europe, they take on a capitalist life-attitude, and the citizens’ spending power is growing too, through the advance in standard of living (although the world crisis set this process back), citizens are more and more willing to fly with airplanes. Co-operation with other flying companies: This process can lead the company to a better position in the market. They can co-operate with charter airlines and with travel agencies, but this is a ”whip-saw”, because it would raise the utilization, and the number of passengers, but it would also widen the strategic focus that would lead to losing the leadership in the competitive edge. Growing oppurtunities: There are great markets open for Wizz Air. They can expand in Hungary too (for example in Debrecen), but if we look to the long-run goals, it is the Russian and the Chinese market that is a huge opportunity for them. Replacement of the Malév: Because the state airline have fallen out, there is space for Wizz Air. With good marketing it can be reached that Hungarian people would to look at WizzAir as an own flying company, like they did with Malév.

4. Threats Raise of oil prices: It is a huge challenge for them. When they started the company, oil prices were12% of the whole budget. Now it is 42%. If they could buy a big amount of oil in advance, they could reduce these costs. Taxes of air traffic: It will be a plus charge for them. Accidents, terrorist actions: In the history of Wizz Air there were no accidents, but if there would be, it could destroy the whole company. Especially if staff would be responsible, it could have a catastrophic consequence.

Income-destroyer price race: Ryanair could make WizzAir go in a price race that can shake their companies (but it would also make a huge loss for Ryanair). Negative effects of the crisis: If the economic crisis lasts long and people permanently spend less money on travelling, it would really have a negative effect on the selling of tickets and on the amount they could fill the airplanes with people. That would make hard to keep up the increasing line of Wizz Air.

WizzAir vs. MagyszAIRv If we look at the structure, we could say that both company is functional. However, there are main differences between the organizational charts. Our company is not a discount airline, that is why we do not necessarily need the same structure. A vital difference is that while at MagyszAIRv there are around 250 employees, at WizzAir there are 1500 of them. Our fleet is just 10 Boeing planes (that is not a surprise, because we are a starter air company), while WizzAir has 36 airplanes in their Airbus fleet. Our company’s list of accessory services is not as wide as WizzAir’s, but we are constantly working on it. Looking at the ownership, we are a 100% hungarian owned company, while WizzAir has foreign investors too. The biggest advantage of the WizzAir, is that they have more years of history, so they have a lot of experience in this industry. The proof for it, is their constant growing, so it is sure that we can learn from them a lot.