PEST Analysis of the External Environment Essay

The paper provides an analysis of the Case Study for Westjet Airlines, Canada. The case is taken from the work done by Peter Yannoupoulus (pg 376-380) Problem Statement The following problem statements are proposed: 1. Westjet Airlines total debt is higher relative to its shareholder equity a measure that may call for external financing. The company needs a strategy to ensure its self-sufficiency. 2. Westjet has many competitors and has to come up with strategies to ensure it remains in the market and makes profits. The major questions that management of Westjet have to deal with is whether to maintain its status quo of offering low cost and low fare, whether to venture more in the third party charter segment or whether to be involved in the Trans borders segment. The management has to decide the best strategy it will use to achieve its expansion plan and decision must be made urgently. PEST Analysis of the External Environment Political/ Legal After the 9/11 attack operating in the small markets has become uneconomical due to increased costs. Legal measures by the government translated to higher costs to airlines, which were transferred to consumers. Non-profit airport authorities have also led to the increased prices that act as a disincentive to air transportation. Most customers are price sensitive and care must be taken to maintain its competitiveness. Westjet incurred added costs by providing amenities to its customers like leather seats, snacks leg rooms and television. Economic It offers quality services, empowers its employees and shares profits. This way it maintains its competitiveness. Having good relationships with employees creates good relationships with customers. Employees can make decisions and solve customer problems without the unnecessary delay of contracting the management. Employees are made to feel as if they are part of the company. By offering quality services and on job training it improves its highly motivated employees skills. It employs qualified people who also have a right attitude. Employees are motivated by the profit sharing where they get additional money from what the company makes. Through its employees share purchase plan, it encourages its employees to invest in the company’s stock. Pricing Its fares are 55% lower than air Canada fares. It offers services at a low cost so as to increase the traffic flow. It attracts passengers who would prefer other means of transport as well as those without the traveling idea but attracted by the prices. Westjet intends to expand its scope to serve the central and eastern Canada. By early 2004, it was serving 24 Canadian cities. (P. 376) Environment/ Technological In increasing its efficiency Westjet may be obliged to incur high costs but the benefits are worth it. For instance the installation of winglets that cost $ 635,000 per plane would result to $ 112,500 savings p. a per plane. (p. 379) Social and Cultural Westjet airlines provide passenger, cargo and third party charter services to Canada’s domestic market. It started its operations in 1996 with 3 aircrafts and 220 employees by 2003. It has expanded and now employs 3610 employees and 14 aircrafts. It has entered an agreement with Air transit, the leading Canadian charter airline and it rent its airplanes during off-peak seasons like in winter months. It also did its maintenance and rented some of its simulators. Competition Air Canada, the largest competitor has more resources and a higher command in the market. It accessed over 90% of Canadian airline industry, US trans border and international markets. It makes counter decisions to be at better grounds than Westjet. Other low fare competitors include Cantet, HMY airways, Zoom airlines, Tango, and Jazz and Zip air. Decisions Alternative and Solutions Alternative -1 Tran border expansion Westjet may decide to expand in Tran border operations. Venturing into this area calls for increased cost in increasing aircrafts. Tough competition from subsidiary airlines of stronger airline could threaten its low fare strategy. There is very high competition in the trans-boarder market as it includes both the Canadian as well as the US airlines. Replacing the older aircrafts would also be essential to pave way for efficient aircrafts to travel non-stop across cities in Canada as well as across the borders. Alternative -2 Offer low cost and low fare and increase Canada market Westjet can maintain its status quo. It can strengthen or empower its employees results to increase their satisfaction that is further projected to the customers. Its small size will ensures low cost structure and fewer employees. Operating in the profitable routes makes it more efficient than large airlines. It must also ensure that it offers convenient schedules. It can increase or maintain these profits by increasing its scope. Westjet can advertise its services extensively through it the advertising and new media division in its sales and marketing. Advertisements can be through magazines, outdoors advertising, radio, television, and transit messaging and web advertisement. (P. 378). It can also increase offers to act as incentives like random promotion for instance, the prime ministers day special. Westjet offers tickets less reservation system through Internet bookings that are very convenient and effective to consumers. It also eliminated unnecessary costs that go with printing distribution and tracking of tickets Alternative -3 Venture more in charter segment. Westjet can opt to expand in the third party sector or the charter services. It is appropriate as the unutilized aircrafts can be utilized during winter. It can team up with established charter flight businesses. Most Favored Alternative The strategy that best suffice Westjet expansion is to expand its operation in Canada. Westjet has only exploited 10% of its potential market share and therefore has more potential to expand. (p. 375). It can increase the number of flights made and venture into areas that have not been exploited. Profits and ROI In 2001 Westjet had $ 478 million profits that rose to $ 680 million in 2002. It can continue with this trend if it exploits the unexploited 90% of its potential. (P. 380) References: Peter Yannoupoulus. West Jet Airlines Case 4 pg 376-380