Due to the current taxation structure in the UK, Europe’s largest regional airline Flybe has decided to curb domestic aircraft deployment. According to the company’s chief executive, Jim French, Flybe intends to reduce its domestic business, which at present accounts for 75% of Flybe’s customers, to not more than 25% in the next five years. To maintain its profitability, Flybe would focus on increasing passenger and revenue abroad. (Topham 2012)
French said that the government should urgently address taxation, particularly the air passenger duty (APD). He suggested passengers should only be charged APD for one way or cut tariffs outside London. However, he was fully aware that the government would be adamant to implement tax cuts. With this, Flybe opted to seek alternative revenue sources abroad. (Topham 2012)
In this news report, it is evident how the taxation policy has affected Flybe. In this case, the APD, which is heavily taxing travellers from London, is seen to negatively impact the demand for air travel. For example, APD amounting to £324 must be paid by a family of four flying economy class to the Caribbean region from a UK airport, an increase of more than 300% from only £70 in 2007 (Smith 2012). During economic downturns, it could be expected that demand for air travel especially for holidays is highly elastic since it could be easily substituted by other forms of transportation or alternative activities which are more affordable.
As French asserted, Flybe’s domestic flights have already declined by 21%, compared to only a 2% reduction in its international flights (Topham 2012). Given the expected further decline in air travel demand due to substantial price increase brought about by the increase in APD, Flybe is geared to explore aviation markets abroad to protect its earnings.
Article 2 - Vodafone slides into the red after Southern Europe slumps
Telecom giant Vodafone announced loss of almost £500million for the first half of the year. Its organic revenue, which takes into account income from calls, texts and internet but excludes one-offs such as handset sales, has likewise fallen for the first time since 2010. The decline in income is primarily attributed to the ongoing recession in the eurozone. The company’s chief executive, Vittorio Colao, cited the challenging market conditions, especially in Southern Europe, drove down sales for the period. With the economic slump, consumers cut down on spending, while phone companies discounted prices in response. (Garside 2012)
To combat the decline in consumption in Europe, the company plans to implement “worry free usage” for subscribers. This scheme would ensure that subscribers would not go beyond their monthly limits. In addition, the company is promising to offer more attractive pricing for roaming. (Garside 2012)
The prevailing recession would have definitely affected incomes of consumers in Europe. Since mobile phone usage can be classified as a normal good, meaning demand is directly related to income, consumers would then cut back on mobile phone spending. This could be illustrated by Graph 1.
Decline in disposable income resulting from the recession would shift the demand curve for mobile phone usage to the left (from D1 to D2). Given the same level of supply, both quantity and price are driven down.
As Colao pointed out, Vodafone has discounted phone charges in the Euro market and will further offer better package for roaming services. These are just some of the ways companies like Vodafone face falling revenues amidst decreasing demand. By reducing prices, they hope to encourage consumers to continue to patronise their service.
Article 3 - Apple and HTC call off hostilities
To end the 32-month legal battle between Apple and HTC, both companies have decided to sign a ten-year licensing agreement. The said settlement would enable HTV to use Apple patents on its devices for a fee. Based on suggestions by industry sources, the fee hovers around $5 to $20 per handset utilising Google’s Android operating system. However, these details have not been confirmed by either party. In terms of effect on revenue, HTC clarified that the deal would not have a material impact on its profit-and-loss statement. Both firms are glad to end the dispute so they could instead focus on product innovation. (Arthur 2012)
As a background, Apple and HTC had been suing each other for more than two years in Europe and US in relation to patent infringement. In 2011, the International Trade Commission (ITC), which controls the importation of goods in the US, ruled the temporary blocking of US imports of HTC Android phones.
This report illustrates how changes in competitor company and legal factors such as patent laws could significantly affect firms. With the intense completion in the smart phones market, Apple has become very protective of its patents. This is evidenced not only by its legal battle with HTC but also with Samsung.
In the case of Apple vs. HTC, the latter suffered diminished sales as the ITC ruled in favour of Apple and blocked its US imports. Although HTC asserted that the licensing agreement it struck with Apple would not have any material effect on its bottomline, the licensing fee to be paid would still add to its variable cost, if the charge is indeed on a per handset basis. As a result, we should expect an increase in the price of HTC smartphones in the coming months.
Article 4 - Prefabs sprout as Britain embraces timber-frame housing
Persimmon, one of Britain’s biggest housebuilding firms, is adopting a relatively new technology and investing heavily in prefabricated housing. This housebuilding technology, dubbed as “second-generation closed-panel timber-frame” housing by the firm, was likewise used by Ikea in 2007 when it developed Britain’s first flatpack village in Gateshead. However, Persimmon differentiates its timber kit house by adding cladding so it closely resembles a brick-and-mortar home. By making it look like a traditional house, Persimmon addresses the negative perception about prefab housing in the UK market. In the past, UK builders like Barratt had considered doing prefab houses but backed out due to bad press about the technology. (Kollewe 2012)
The primary advantage seen in adopting the prefab technology is the ease of assembly. It only takes six to eight weeks to fully build a prefab house including assembly, wiring, plumbing and fitting interiors. A traditional home takes fourteen to sixteen weeks to complete. Another advantage pointed out by Persimmon is that their homes are 50% more energy efficient than a traditional home because of the pink phenolic foam insulation into the timber-house frame.
This news report illustrates how technological advances in an industry may potentially impact the competitive environment (Henry 2011). By coming up with the technological innovation of making prefab houses look like a traditional home, Persimmon has somehow gained competitive advantage over other UK builders who stick to the traditional way of housebuilding. With the shorter building time, the firm is able to save on input cost, particularly direct labour cost. As such, it would be able to sell at a more competitive price. In terms of marketability, the firm is also able to address homebuyers’ negative perception towards prefab housing and build houses with the traditional look and greater energy efficiency.