Due to the launch of the website, the passenger volume had increased to a whooping estimated 7million passengers covering different routes across Europe. The picture below illustrates the route map across Europe.
Figure 5: Ryanair’s routes across Europe
In 2002, Frankfurt Hahn became Ryanair’s second European base with the launch of 10 new routes to Ireland, UK, Norway, France and Italy. Due to this new improvement, the airline out-competed other low-cost airlines by attracting a higher percentage of German passengers (millions) because the airline offered the lowest air fare to and from Frankfurt. As a result of the influx of passengers, Ryan air announced the largest aircraft order by an Irish airline by increasing their aircraft order with Boeing from 45 to 125 firm aircraft. Furthermore, during that year, ryanair was awarded No1 in Europe for customer service defeating all other European airlines for punctuality, lesser cancellations and least lost bags.
As at early 2007, Ryan air opened new bases in Alicante, Belfast, Bristol, Dusseldorf and Valencia. The international air transport association (IATA) confirmed ryanair as the world’s largest international airline. The graph below illustrates passenger growth from early 2000 to 2008.
Figure 6: Ryanair’s passenger growth in millions
About 69% of the company is owned by Rosedale Aviation Holdings Ltd, 16% of shares are owned by staff and management through an Employee Share Scheme. The remaining 15% is owned by British Airways as a result of Flybe’s acquisition of BA Connect.
Flybe history began when New Jersey European airways was created with its regional services operating from jersey. As at late November 1983, the company was acquired by the walker steel group, which was already the parent company of Blackpool-based charter airline ‘Spaceground’.
In 1985, Jersey European airways and spaceground were merged with the decision to make Exeter the airline’s headquarters of technical services. The merger was successful and it contributed to the continued growth of the company in the 1990’s with the acquisition of six additional Fokker F27s as passenger volumes continued to soar up.
In addition, the company Jersey European earned the award of ‘Best UK regional airline’ for 1993 and 1994 at the ‘Northern Ireland travel and tourism awards’
As at May 2000, Jersey European became ‘British European’ which was now regarded as the UK’s third-largest scheduled airline. In 2002, British European became ‘Flybe’ with changes to its commercial fleet and operational policies earning the company the award of ‘The Most recommended UK low-fare Airline’ by holiday which? Magazine.
Flybe currently, is Europe’s largest regional low-cost airline following its successful acquisition of ‘BAconnect’ in March 2007. Its network route is about 70% domestic flights within the UK, 20% European business and 10% European leisure destinations. Its major bases include; Birmingham, Southampton, Belfast, Manchester, Jersey, Guernsey, Inverness, Edinburgh and Glasgow. The new larger Flybe after acquisition proposes to have the following dimensions:
- 12 Countries
- 167 routes
- 24 UK airports
- 30 European airports
- 7 million passengers in 2007
- £500m in revenues
- Europe's largest low-cost regional airline
- 77 aircraft
Easyjet was founded by Sir Stelios Haji-Ioannou in 1995, with his family being major shareholders in the airline. Sir Stelios separately owns the company that owns the “easy” brand and licenses it to the airline ‘easyGroup IP licensing Ltd’. The company adopted the no-frills model of the US carrier Southwest airlines and also based its concept on the belief that demands for short-haul air transport is price elastic. i.e. if prices for flights are being reduced, more people will fly.
Their concept has contributed largely to their success with passenger growth increasing from 30,000 in 1995 to a whooping 37million in 2007 and also revenues and profit. See details below
Passenger statistics of east jet
As the growing passenger figures detailed below indicate, since its advent in 1995 easyJet has made air travel an affordable option for many more people by offering a reliable, quality service at great value prices.
Table 4: easyjet’s passenger growth in millions
Financial information of easyjet
Table 5: easyjet’s revenue and profit figures
In November 1995, easyJet started flights from Luton to Glasgow and Edinburgh with Boeing 737-300 which had a capacity of 148 seats offering prices of £29 one way. Seats were being sold over telephone reservation system only. As at 1996, easyJet receives delivery of its first completely owned aircraft and goes international with first services to Amsterdam from Luton. A year later (1997) easyJet launched its website, easyjet.com which from 1998 onwards formed a fundamental part of its business concept. (Providing for about 90%of its bookings today).
In August 2002 easyJet expanded its fleet and routes by acquiring British Airways’ low-cost subsidiary ‘Go’. Also, later on that same year, October 2002 the airline signed a deal to purchase 120 Airbus, which will facilitate the airline’s ongoing growth strategy.
In April 2008 the airline won the Hitwise award for the ‘most visited commercial airline website’ also winning the award for the ‘most visited transport website.’
4.0 ENVIRONMENTAL ANALYSIS OF THE NO-FRILLS AIRLINE INDUSTRY (PEST)
The ongoing changes within the society make an environment uncertain therefore impacting on the operations of the no-frills industry. According to Kotler (1998), the PEST analysis can be defined as a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The analysis examines the influence of certain factors such as political, economic, socio-cultural and technological on the no-frills industry.
4.1 POLITICAL-LEGAL: The political-legal factors include;
4.1.1 EU Expansion: In 1997, the European Union deregulated the air industry permitting airlines from one EU country to operate flights between other EU member states which provided access to new markets for many no-frill carriers. The expansion of the EU in may 2004 to include 10 more member states has given no-frill carriers renewed momentum with new services starting from central and eastern Europe as a result of the deregulation that comes with EU membership resulting in an increase in traffic of 10% in 2005. The EU is expanding the aviation markets beyond its boundaries signing agreements in morocco, Turkey and Ukraine. Airlines are taking advantage of this expansion for example; Ryanair has invested heavily in expanding the volume of its fleet with a list of 115 European destinations being served by more than 750 fleets a day pioneering services to and from airports such as Frankfurt Hahn and Stockholm Skavsta.
4.1.2 EU abolishment of Duty free sales: Duty-free sales occur wherever international travel takes place such as airports. Most of the duty-free goods are mainly dominated by alcohol and perfumes. The idea behind duty-free sales is that passengers can purchase goods free of taxes as long as the goods will be consumed at the consumer’s proposed destination.
In July 1999, the EU abolished duty-free shopping of which according to the EU regulatory body, the idea behind the abolishment was that duty-free shopping distorts trade by substituting the place of ‘duty-paid sales’ which according to the EU officials, leads to a reduction in income for the EU exchequer.
The abolishment of duty-free sales would have serious implications for no-frill airlines especially for airlines that accrue a certain percentage of revenues from having airport retail outlets such as ‘Aer Rianta’. According to an interview with the Group commercial manager of Aer Rianta Frank.O Connell, he said that “ The abolishment of duty-free and its loss of revenue will not be helpful for its international retail business”. He further emphasised that the abolishment of duty-free sales in the EU could cost Aer Rianta up to £20million.
4.1.3 Climate protection change: International aviation emissions are becoming a growing concern in the UK in terms of its impact on climate and the environment. Between 1990 and 2003, the UK greenhouse gas emissions (carbon dioxide, nitrogen gas and water vapour) increased by nearly 90% due to the growing influence of cheap-flight revolution (no-frill airlines).
The latest white paper on ‘The future of transport’ (Dft, 2004b) states; “if UK aviation is defined as all international departures from the UK, then the aviation sector currently contributes about 5.5% of the UK’s CO2 emissions but because of radioactive forces, 11% of total UK climate change impact”. The EU is keen to take the matter through legislation. According to mintel reports, EU airlines have decided to join the EU Emissions Trading Scheme by 2011. Airlines exceeding emissions limits will be forced to buy carbon credits from other industries. No-frill airlines have expressed their concern. European airline associations estimates that only a third of the EU scheme will be recoverable from passengers
4.1.4 Increased Trade-union pressure: In terms of industrial relations, trade unions have been very significant. Trade unions are known for concentrating on negotiating acceptable terms and conditions for their fellow colleagues in their employment sector. In other words they act as the ‘Voice’ of their fellow employees. In relation to no-frill carriers, trade unions have been trying to enlist new members to gain recognition and strengthen their bargaining power however they have faced hostility on different occasions.
Ryanair is known to operate a very hostile anti-union policy. In 1998 the company opposed a union recognition by their baggage handlers in Dublin who were protesting poor pay in relation to their counterparts in other airlines resulting in a disagreement. In addition, the airline also rejected to deal with unions representing pilots protesting a comparable pay with staffs of other airlines in the sector. Due to this reason, the International Transport workers Federation (ITF) has set up a website () to give Ryanair staffs freedom of speech in discussing their employment conditions and other related problems. In 2005, the ITF’s secretary explained that the website had been very useful. He also claimed that the contributions on the website have been shocking with tales of job threats and bulling within the sector. It is assumed that the continuous neglection of trade unions within the UK no-frill airline will result in an enormous loss of staffs and passengers in the future
4.1.5 Threat of war and terrorism: After the July 7 bombing in 2005 which was assumed to be a response by terrorists to Britain’s participation in Iraq’s invasion, the EU made counter-terrorism its top priority. The EU union laid a proposal to amend existing regulations of aviation security in September 2005. The sole aim of the proposal was to bring into line current rules on aviation security and introduce new measures on in-flight security. In addition, the recently foiled attempt of 24 people suspected of planning to smuggle liquid explosives onto aircrafts, has pushed the UK to raising its terrorist threat alert to the highest level also tightening airport security resulting into a disruption in air travel.
Due to this increased threat of terrorism, No-frill airline Ryanair threatened to claim compensation from the UK government if airport security measures were not restored to normal. The airline estimates that the disruptions to flight schedules have cost up to £2million. The chief executive Michael O'Leary said: "If they allow these restrictions to stay in place, then the government will have handed the extremists an enormous PR victory." Other airlines such as easyjet, flybe, Aer rianta have also vowed to claim compensation if security is not restored to normal because they claimed it didn’t give passengers a calm environment to travel in.
Looking at the whole industry, consumers of no-frills airlines are scared of travelling due to the increased threat of terrorism resulting in a loss of revenues and increased costs for no-frills airlines. Consumers might begin to look for alternative mode of transport if the threat continues.
4.1.6 Allegations of misleading advertising: In 1997, the Air Transport users council (ATUC) complained to the Advertising Standards authority (ASA) about allegations of misleading advertising by airlines. They claimed that airlines were advertising fares net of taxes which consumers complained was unfair. Due to this reason, the ASA carried out a research on airline websites and found out that additional charges often totalled up to more than the basic ‘fare’ of which they emphasised its very common with no-frills carriers including easyjet, flybe, Bmibaby and most of all Ryanair. It was also found that the taxes, charges and fees charged quoted by different companies differed even on the same route. In addition, other forms of misleading advertising were also noticed for example, Ryanair was ordered by the ASA to stop advertising its flights from London to Brussels are faster than rail connection ‘Eurostar’ on the basis that the advertisement was misleading due to required travel times to the airports mentioned.
In April 2008, Ryanair faced a probe by the UK office of fair trading (OFT) based on a sequence of complaints about its adverts. The company was found to have breached advertising rules an estimated seven times in two years.
4.1.7 Pressures from local authorities for airport expansion: Due to the growing emergence of no-frills carriers. It’s a known fact that some of the no-frills airlines are hungry for rapid expansion. Local airports are beginning to see a possibility of building a network of air services which has prompted Passengers demand to a shift in travelling from their local airports rather than travelling to London or major international airports. However, the no-frill carriers have faced strong oppositions from local environmentalist who claim that the expansion of airports will increase noise and emissions into the air.
4.2.1 Oil price volatility: Despite modern efficiency and technological developments, costs of fuel continue to apply pressure on the aviation industry. According to IATA estimates, $112 billion was spent on aviation fuel in 2006, a rise of 23% against the previous year. This amount estimated to be two and a half times that spent in 2000. Within the same period, passenger numbers have increased by only 34%.
It is estimated that fuel costs now typically accounts for around 30% of total costs compared to 14% in 2000. The increase in fuel price since 2003 has pushed no-frill airlines into adopting hedging policies in order to maintain costs. The volatility in fuel prices are beginning to increase costs of services provided by no-frills airline resulting in their profits being squeezed. On may 7 2008, Easyjet reported losses in the first half of its financial year due to rise in oil prices with their share price also falling. The airline also recorded a net loss of £43.3 million in 6 months to march 2008. In addition the price of oil has increased over the past three months to 35% and it’s currently 80% over the last year.
Due to the increase in fuel costs, many no-frills airlines are beginning to add ‘fuel surcharges’ to their tickets because they see that as the only way of combating rising fuel costs. The effects of the increase in fuel price on the short-term is to charge higher ticket prices which might probably lead to a loss of passengers because no-frills airline are known for providing cheap fares at lower operating costs of which if fuel costs continue to rise, operating costs will also rise leading to higher ticket prices. The figure below illustrates fuel price increase from year 2000.
Table 6: Fuel price increase from year 2000
4.2.2 Depreciation of the US dollars (dollar sensitivity): UK no-frill airlines have important exposure to the US dollar due to its costs relating primarily to aircraft purchase, aircraft maintenance, aircraft financing and fuel. Although hedging activities provide a level of protection against short-term movements of exchange rates, the no-frills sector still remains exposed to significant volatility in the US dollar against the local currency such as the EURO and the sterling (£) which is important to their cost base. The following table illustrates the potential impact on 2006 EBIT (earnings before interest and tax) of the US dollar fluctuations on the local currencies Sterling and EURO for ryanair, SkyEurope and Easyjet.
Table 7: impact of fluctuating US dollar on local currencies
4.2.3 Recession: According to the BBC news in January 2008, Its was reported that “the UK economy is set to experience its weakest period of growth in 15 years and there is a risk of recession in the next two years a report warns”. Recession occurs when there is a decline in the real GDP or in other words a decline in economic activity (employment, investment) spread across the economy. It’s usually associated with rising or falling prices.
Due to this recession, business passengers will keep an eye on their travel expenses i.e passengers will keep an eye on their expenses focusing on basic needs and necessities. This might lead to a decline in the number of passengers travelling on no-frill airlines likely resulting in loss of revenues and higher operation costs. In addition, airlines might reduce their labour force by making some of their staffs redundant due to high costs.
4.2.4 Introduction of the EURO: The Euro is regarded as the official currency of over 20 different European countries i.e it’s a currency used by over 300 million Europeans. Due to the introduction of this new currency, Europe becomes more integrated, bringing more business to no-frill airlines such as easyjet and ryanair. Passengers find it easy to move from one European country to another with a universal currency.
4.2.5 EU commissions rulings: The European commissions have made rulings regarding different scenarios in the airline industry which include;
- Overbooked passenger compensation i.e Passenger should receive a form of compensation in cased of flight being overbooked
- Cancel flight compensation i.e. On 11th January 2006, it was reported that airlines must pay compensation to stranded passengers regarding flights being cancelled. The compensation can be in form of a financial or non-financial inducement.
- Reimbursement of delayed passenger i.e Passengers should get re-imbursements in cases of delay
- Illegal subsidies from airports
4.2.6 Globalisation: This factor is expected to boost traffic in the long-term with passengers flying from one destination to another.
4.2.7 Rising airport taxes: According to mintel reports, the continuous rise in airport taxes will affect no-frill airlines due to airports charging airlines higher costs on slots.
4.3.1 Increasing travelling lifestyles and UK spending priorities
In spite the budget connotations; the no-frills market is actually motivated by the wealthier socio-economic groups splashing out on multiple trips. Travelling is more or less a priority for today’s consumers with passenger volume increasing. The graph below illustrates the UK spending priorities
Table 8: UK spending priorities, January 2007
4.3.2 Increased Business travelling
Most of the passengers using no-frill airlines happen to be leisure travellers. However given the size of the short haul business market, a significant number of business travellers are using no-frills airlines to meet their business travel requirements. EasyJet have indicated that on some routes, business traffic accounts for about 50%. (Haji Ioannou 1999)
According to the Civil aviation authority (1998b), about 40% of domestic passengers travelling on no-frill airlines from Luton and Stansted were travelling for business purposes. This demonstrates that the no-frill airline has taken some significant business traffic away from the traditional scheduled airlines. In addition, the annual Corporate Air Travellers Survey (CATS) undertaken by IATA 1997, reported that 23% of European travellers surveyed had used a no-frill airline with 71% indicating that they would use their services for business purposes again. Out of those that refused to use the no-frill airlines, 18% said the reason was because it contradicted with the company travel policy while the remaining 12% said the no-frill airlines didn’t provide sufficient schedules. The diagram below illustrates short-haul business travel from the UK.
Figure 7: Short haul European business travel from the UK
4.3.3 French and German Public
According to easy jet, winning over the French and German public proves to be very difficult. The airline claimed that passengers from both countries still appear to be reluctant in using credit cards over the phone and Internet.
4.3.4 Passenger’s reaction to cheap flights
In general, the public are respond positively to the prospect of cheap flights provided by no-frill airlines. However they may feel angry when they see promotions found in newspapers where flight are for about £30 just to find that the actual cost is way higher for the particular time or day they intend to fly on.
4.3.5 Increase in youth market
According to Mintel reports, the youth market (25-44 years old) currently occupies the major share of the no-frills market with projections that the youth market will expand.
4.4.1 Technological advancements (internet)
The internet has become a very important factor in running businesses. Infact some businesses have most of their operations running online. In the no-frills airline industry, the internet can be used for various purposes such as bookings, e- ticket purchase and even check-in therefore internet is very vital to the industry. According to Easyjet, the internet is very important because its use on distribution and cost synergies from industry consolidation can counterbalance upward pressures on prices and costs.
E-commerce or E-business is what happens when you combine the broad reach of the internet with vast resources of traditional information technology systems. It is dynamic and interactive (IBM). In the area of e-commerce, no-frill airlines have to keep track of technological advancements in order to gain a competitive advantage.
4.4.3 Increase in internet competition
No-frill airlines are beginning to compete through the use of internet by providing new services online to gain competitive advantage such as check-ins and other related services.
4.4.4 Wireless Technology expansion
Due to the increase in wireless technology expansion, some no-frills airlines are beginning to offer satellite television on their aircrafts which act as a means of gaining competitive over their rivals.
4.4.5 Aircraft advancements
The UK government have started assign quotas and regulations regarding the emissions and pollutions created by no-frill airlines. Due to this reason, airline manufacturers such as Boeing are beginning to design aircrafts that produce fewer emissions for no-frill airlines.
5.0 PORTER’S FIVE FORCES
Complexities of the economic structure of an industry are as a result of long-term social trends and economic factors. Porter’s five forces model helps to assess and analyse the competitive strength of an organization or industry. The model identifies 5 major factors used to assess the structure of any industry which are as follows;
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of new entrants
- Threat of substitutes
- Rivalry among competitors
The strength of the five forces combined together determines the profit potential of an industry by influencing the prices, costs including required investment return on the business. The diagram below illustrates the five forces model;
Figure 8: Michael porter’s five forces model
5.1 The threat of substitutes
The substitute’s factor is very significant because substitute products could decrease demand. In addition, consumers are always looking to research on offers that give better value for money compared to those made available by present occupiers of the competitive arena.
In regards to the no-frills airline industry, the threats of substitutes are very ‘minimal’. As a matter of fact, it has been stated that the no-frills sector has managed to decreased the amount of people travelling on ferries. (O’Higgins 2004). Substitutes include; Eurostar express trains, coaches, ferries and high speed trains available in mainland Europe. The time and cost advantage of the no-frill airlines outweighs the comfort and flexibility of trains or cars (e.g. on the route Luton/London to Glasgow a train takes around 6 hours and costs around £80 while an EasyJet or Ryanair plane takes just one hour and costs around £29 to £35). Regarding international routes distances are usually too immense for car or train to be an alternative to air travel, except routes from London to Paris, which can be reached by Euro Star.
5.2 Bargaining power of Suppliers
The bargaining power of suppliers can be regarded as a mirror reflection of the bargaining power of buyers since suppliers supply to buyers and vice versa. The Strength of suppliers is high if they are concentrated. i.e. if they supply to many buyers and their products are differentiated.
In relation to no-frill airline industry, the main airline manufacturers are Boeing and Airbus. The two airline manufacturers are mainly concentrated in the industry giving them high supplier power as airlines in the industry such as ryanair and easyjet rely heavily on these companies (Boeing and Airbus) for new aircrafts and spare parts and other related services. Due to this reason, it would be very expensive for airlines within the industry to switch suppliers (planes, parts engineers) i.e. the switching costs are very high. In addition, large international airports have high supplier power because many airlines within the industry rely on them for slots. However, smaller regional airports such as Luton, Southampton have small supplier power because they rely heavily on a few airlines to ensure the airports remain active. For example, Ryanair is known for using smaller regional airports offering lower charges and negotiating the access fees with the airports. It is assumed that on the long-run, as the no-frills airline industry continues to expand, their power over suppliers will increase.
5.3 Bargaining power of buyers
The strength of the bargaining power of buyers within any industry is dependent on various factors such as concentration of the buyers, quantity of purchase and information.
In regards to no-frill airline industry, buyer power is relatively strong because customers are price sensitive and will look for airlines that provide the better price option especially with airline’s high dependence on internet sales. Discrepancies in price can be found easily by the consumers therefore airline operators must maintain regularity in checking the prices of their products and services. There is also a need for customer loyalty due to low switching costs however, because passengers often look for cheaper price options, brand loyalty is more or less regarded as irrelevant.
In addition, passengers have the backing of the Civil Aviation Authority (CAA) which provides against the detriments of organised travel failures for customers that purchase package holidays or discounted air tickets. Also the CAA ensures full compliance with European and UK legislations relating to liability and insurance of airlines.
5.4 Rivalry among competitors
The competition for market share and profits within the no-frill airline industry is very intense with the airlines adopting different strategies to out-compete each other. The intensity of rivalry is based on different factors such as market growth, market power high exit barriers and product differentiation. The major rival within the UK no-frill airline industry include; Ryan air, BMIbaby, EasyJet and flybe. Germanwings and Air Berlin might become competitors in the light of future expansion plans. Irish carrier Ryanair is the only airline so far to have succeeded and shown a continuous yearly profit. An increasing number of tour operators such as Thomas cook are selling air only scheduled seats to reduced price. Finally larger carriers such as British airways are competitors as well although on a smaller scale due to different market segments being targeted.
5.5 Threat of new entrants
Threats to entry in any industry are dependent on various factors such as economies of scale, cost of entry, access to distribution channels, and government regulations.
In the UK no-frills industry, high capital requirement reduces the threat to a certain extent for example easyjet started with a loan of £5 million, with a total of 2 leased aircraft, but required a £50million investment which was raised by debt and equity in its second year to speed expansion. In addition, availability of airports as well as price wars between airliners is a deterrent to for new entrants to come in as well as high start-up costs. (O’Higgins 2004).
The UK no-frill industry is quite mature in comparison to the rest of Europe with easyjet and ryanair being the biggest competitors. However survival and expansion into new European markets might prove more difficult as established for example Ryanair bought KLM’s budget airline ‘BUZZ’ for a fraction of its price.
In 2004, the chief executive of Ryanair Michael O’Leary forecasted a battle in the sector due to new entrants entering the market with several carriers exiting the market (Volare, Duo, V-bird, Air polania, Snowflake) and the UK’s MyTraveLite cut down its operations. (AEA, 2005).
Finally, in order for new entrants to come into the UK no-frills airline sector, they have to adopt the ‘loss-leader’ generic competitive strategy proposed by Michael porter i.e. they probably have to make a loss in its first couple of years in order to gain recognition in the industry and strength their competitive advantage.
The no-frill airline industry is continually evolving and changing due to many external factors affecting it such as the events of September 11 which resulted in airline restructuring. It is believed that the large volume of no-frill carriers in Europe will reduce.
On the long-run, the growth of no-frill carriers in Europe is expected to slow down due to the era of falling yields which boosted air travel growth in the past disappearing gradually. In addition, cost trends are expected to be less encouraging in the future due to continuous increase in fuel costs, congestion and other related environmental issues. Also there is a possibility of higher security and insurance costs to reflect the risk of terrorism. Moreover, the effect of the internet on distribution costs and synergies from industry consolidation might counterbalance pressure on prices.
7.0 FUTURE OUTLOOK
Its is expected that the UK no-frill airline industry will experience further growth for the next 2 to 3 years as new operations start-up. However, as the market becomes more saturated due to the possibility of new entrants, the airlines are likely to focus their developments on major European hubs.
The course work was mainly limited by the word limit (6500 words). Emphasis was laid more on the Political and economical factors affecting the industry because those were the major factors affecting the industry. In addition most of the data found were between 2000-2005 making it very difficult to find current issues
8.1 EVALUATION OF PEST ANALYSIS
Most of the factors were in-related most especially the political and economic factors making it difficult to differentiate. In addition, factors affecting the industry is universal i.e. The environmental factors affected both the no-frills and traditional scheduled services making it difficult to differentiate which factors specifically apply to no-frills airline. Moreover, the PEST analysis only analyses the external environment disregarding the internal. For proper analysis, a combination of PEST and SWOT would be appropriate.
8.2 EVALUATION OF PORTER’S FIVE FORCES
The model does not take into account radical changes within the society such as globalization and information Technology. In addition, just like the PEST analysis, it also focuses on the external environment and ignores the internal.
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