APPLIED BUSINESS QUESTION
UNIT 7
Celtic Airlines
Celtic Airlines plc has been in business for almost twenty years and continues to
operate profitably on routes between Ireland and the UK. In the past five years it took a
successful first step into mainland Europe and now uses its fleet of modern jet aircraft to
operate daily flights to and from several capital cities in western Europe. These
destinations include Paris, Berlin, Madrid and Rome. Celtic Airlines has managed to find
a lucrative niche and markets itself as a ‘some frills’ airline. Its service offering and
pricing strategy have found an audience with the vast majority of European citizens who
have neither the income to travel business class nor the patience to tolerate the ‘pay as
you go’ approach of the budget airlines. Celtic Airlines offers its passengers a moderate
level of comfort and an exceptional level of customer service. Customers also seem
happy with the affordable pricing policy and the fact that it operates a fleet of modern
aircraft into a network of major cities. Customer satisfaction is very high and word-ofmouth endorsements create a huge marketing benefit for the company. The airline also
spends a large amount of its marketing resources on TV, newspaper and social
networking commercials.
The airline industry has undergone a huge upheaval in recent years and as a result of
increased competition and a poor economic climate several major airlines have gone
out of business. Despite this turmoil and economic uncertainty, Celtic Airlines is
contemplating broadening its horizons and is formulating strategic plans to enter the
long-haul market. It sees great potential in eastern European markets and is planning to
locate a flight hub in Germany from which to serve this region. The citizens of many
eastern European states have become increasingly mobile in search of employment
and economic prosperity, especially since the enlargement of the European Union and
the break-up of the Soviet Union. There are, however, concerns over the dominant
market position of low-cost rivals on eastern European routes, which suggests members
of the target market are very price-conscious.
Deregulation in the industry has also provided Celtic Airlines with the opportunity to
operate on transatlantic routes, and while these routes would bring the threat of major
competition the airline sees these transatlantic routes as a more natural ‘fit’ for its
service offering and pricing policy. The major downside to this transatlantic expansion
would be the requirement to purchase long-haul aircraft coupled with continued oil price
volatility. The need for additional aircraft would require Celtic Airlines to embark on an
© Edco 2012. It’s the Business – ABQ Solutions
immediate capital investment programme. Any funds raised would be used to place
orders for new aircraft or alternatively to purchase second-hand aircraft from airlines
which are closing down. There is also the possibility that Celtic Airlines may be able to
increase the scale of its operations by taking over some smaller European carriers.
(a) Describe the impact on or consequences for Celtic Airlines of any major
European Union policies. (20 marks)
(b) Describe the challenges which may exist for Celtic Airlines in trading
internationally. Comment specifically on the increased risks associated with a
global strategy. (30 marks)
(c) Evaluate the potential for Celtic Airlines to develop into a global business. In
your answer make specific reference to the company’s marketing mix. (30 marks)
SUGGESTED SOLUTIONS
(a) Describe the impact on or consequences for Celtic Airlines of any major
European Union policies. (20 marks)
The Single European Market (SEM)
It removes custom duties and barriers to trade between member states. Celtic Airlines is
free to trade freely across the whole of the European market (more than 600 million citizens).
It leads to the free movement of goods, services, finance, and people around the EU.
The citizens of many eastern European states have become increasingly mobile in
search of employment and economic prosperity, especially since the enlargement of the
European Union and the break-up of the Soviet Union.
Celtic Airlines is likely to benefit from increased passenger numbers as many of these economic
migrants are price-conscious when it comes to international travel.
Business risks are reduced because of reduced dependence on the domestic market.
© Edco 2012. It’s the Business – ABQ Solutions
EU Competition Policy
Seeks to regulate the power of large and influential companies that may attempt to
undermine fair competition. This implies that the best guarantee for the consumer of
getting quality goods and services is to have a number of suppliers competing for the
business, i.e. the existence of competition among suppliers.
All European airlines including Celtic Airlines will need to comply with strict guidelines aimed at
ensuring that their industry is run on a competitive basis.
The EU restricts businesses from forming anti-competitive cartels to share markets
between them or to keep prices artificially high, or block newcomers from entering the
market. Celtic Airlines would be prohibited from forming cartels or having a monopolistic
market at any given location.
Governments cannot provide special funding or subsidies to indigenous firms if this
funding is likely to provide the recipient with an unfair competitive advantage over its
rivals. This will mean that a more level playing field will operate between all companies
in the industry and all airlines will need to seek finance on commercial markets rather
than availing of state subsidies.
The Commission has the power to control large mergers or takeovers that might restrict
competition in the EU.
Social Policy
Seeks to improve quality of life for all EU citizens and has specific provisions that
attempt to protect the rights of workers and consumers.
Several social policy directives have been introduced which aim to strengthen the rights
of consumers.
Health and safety standards for workers, minimum wage levels, improved working
conditions and holiday entitlements have all resulted from the introduction of the EU’s
Social Charter.
These issues may have implications for Celtic airlines staff (minimum rates of pay and length of
working day etc), while consumers will also receive increased protection. This is likely to impact
on the airline in the event of flight delays or cancellations.
© Edco 2012. It’s the Business – ABQ Solutions
Economic and monetary union (EMU)
Seeks to create an economic union, with member countries sharing a single monetary
policy and a single currency (the Euro). Ireland is one of 17 (Jan 2011) Eurozone
countries.
The introduction of the euro may be beneficial to large airlines that operate right across the EU
as it will reduce exchange rate risk and some business costs.
(b) Describe the challenges which may exist for Celtic Airlines in trading
internationally. Comment specifically on the increased risks associated with a
global strategy. (30 marks)
Increased competition
Deregulated global markets mean Irish firms face increased competition. For example,
the Open Skies agreement allows US airlines greater access to European cities. This
means that Celtic Airlines would now compete with other international carriers.
Dominant firms
Global markets are increasingly dominated by a small number of very large companies.
These companies have huge advantages over smaller rivals like Celtic Airlines,
particularly in the areas of operating costs, marketing, advertising and brand
development.
‘There are concerns over the dominant market position of low-cost rivals on eastern European
routes, which suggests members of the target market are very price-conscious.’
Language/culture
Irish companies that trade internationally will need a good understanding of the
marketing and cultural needs of overseas markets. Goods or services may need to be
adapted or modified in order to meet customer or legal requirements. Dealing with
clients who do not share our language can also prove troublesome.
© Edco 2012. It’s the Business – ABQ Solutions
Celtic Airlines will need to ensure that staff have the necessary language skills to operate in
markets where English is not widely spoken. They may also need to modify some aspects of
their operating model to provide information to passengers. This will involve additional printing
or design costs.
Distribution/service delivery
International trade will inevitably involve additional transportation costs. Due to Ireland’s
geographic location (on the periphery of Europe), the impact of these costs may be
even greater.
Celtic Airlines may need to relocate its operational hubs to ensure that its aircraft and crews are
based close to their major markets. If they choose to retain their fleet HQ in Ireland this may
increase fuel and depreciation costs for the business.
We are told the airline is planning to locate a flight hub in Germany from which to serve this
region.
Expansion costs:
While a growing business can benefit from lower unit costs due to economies of scale, it
needs to be remembered that an expansion programme is also likely to bring an
immediate increase in capital costs.
The major downside to transatlantic expansion would be the requirement to purchase longhaul aircraft coupled with continued oil price volatility.
(c) Evaluate the potential for Celtic Airlines to develop into a global business. In
your answer make specific reference to the company’s marketing mix. (30 marks)
A global business identifies world markets for its products and then produces for that
global market. It plans and co-ordinates all activities on a global basis.
© Edco 2012. It’s the Business – ABQ Solutions
Global product
This is the element which is least likely to be changed, as to do so will involve a lot of
extra costs. Creating a strong and recognisable brand name is an important step in
generating demand on a global scale. ‘Celtic Airlines is contemplating broadening its
horizons and is formulating strategic plans to enter the long-haul market.’
This transatlantic expansion would require a huge capital investment programme along
with the purchase of a number of aircraft. It may also find that the ‘Celtic Airlines’ is not
such a good fit outside of its home (European ) market. For a service provider like Celtic
airlines these would represent major changes to its operating model and are likely to
increase its short-term costs substantially
Global price
A global strategy is likely to see the introduction of several pricing policies as
businesses seek to satisfy the needs of a more diverse target market. For example,
there is likely to be greater scope for premium-priced fares on long-haul flights as costs
increase and passengers are more willing to pay for comfort when travelling long
distances.
Celtic Airlines are very aware of their competition in the low cost area. They may have
to operate a duel pricing strategy which runs the risk of alienating members of their core
target market. This type of strategy will also increase the complexity of their operating
model. At present ‘members of the target market are very price-conscious’.
Global place
The cost of reaching global markets can be high. The main aim is to get the most costeffective method to provide a reliable service to customers.
Celtic Airlines is formulating strategic plans to ensure that they have a global airline to serve
both the European and Transatlantic Services.
Global promotion
© Edco 2012. It’s the Business – ABQ Solutions
This is used by business enterprises to let customers know about the products on offer
and to get them interested in buying the goods. The most common promotional
methods are: advertising, sales promotion, public relations, personal selling.
Market research undertaken by Celtic Airlines has revealed that word-of-mouth is a huge
marketing benefit to the business and the airline spends a large amount of money on marketing
including TV, newspapers and social networking commercials. It is likely to benefit from
substantial economies of scale as it markets itself globally.
Evaluation: While there are some benefits associated with the planned expansion
(mainly via economies of scale), on balance it seems the risks and additional capital
costs associated with the proposed global expansion are too great to make it a viable
proposition. Celtic Airlines might be best advised to expand organically by sticking to
what it does best.
© Edco 2012. It’s the Business – ABQ Solutions