Strategic Analysis of Air New Zealand

Introduction

The present report provides suggestions to senior management of Air New Zealand on their strategic plans based on the perspectives of an engineering management consultant. As evident from the given case study, Air New Zealand is recognized as the national airline of the country and mainly provides air passenger and cargo transport services. The airline renders its services within New Zealand as well as to Australia, South West Pacific, Asia, North America and the UK. It operates about 22 domestic and 29 international flights in approximately about 16 countries. This report aims to carry out strategic analysis of the company for improving its performance in the future. For this purpose, it includes a detailed analysis of the influence of external and internal environment on the company's organizations strategy. In addition to this, the report aims to evaluate the strategic options available to the company and proposes suitable recommendations for mitigating the risks identified in the current set-up. 

Strategic Analysis

Strategic analysis is important for an organization in order to develop its strategic business plans for future growth and development. Strategic analysis of an organization includes internal and external analysis for assessing its current strategic position and capability.

External Analysis

The external environment of Air New Zealand can be analyzed through the application of strategic management tools such as PESTLE and Porter five force’s model. It will help in identifying the major strategic issues that can affect the future profitability of the company (Thompson & Martin, 2005). The PESTLE analysis of the company is carried out as follows:

• Political Factors: Political factors have a large impact on the future growth prospects of an organization. The government of New Zealand plays a significant role in the growth and success of the airline. This can be demonstrated through the fact that the country’s government is known to hold largest number of shares in the airline that is about 82% (OECD, 2003). Moreover, the government has extended its huge support to the airline in times of financial crisis it had suffered in the year 2001 through investing large amount of capital in the company. The government extends full support to the airline to support the growth and development in the tourism sector. The airline is currently in active partnership with tourism sector to promote tourism in New Zealand (Air New Zealand supports Government’s increased investment in Tourism New Zealand to grow tourism, 2013).
• Economic Factors: Business organizations are largely impacted by the economic conditions prevalent in a country. The economy of New Zealand and other countries such as Australia and gulf countries from which the airline is operating is good and this seems to be favorable for the future growth of the company. There is relatively increase in the demand of airline services in the countries where the company is currently operating and this has enhanced its profitability (International Monetary Fund, 2002).
• Social Factors: Social factors include the impact of lifestyle trend, culture, income, taste and preferences of people on the growth and development of an organization. Air New Zealand aims at providing services in accordance with the differing values and cultural opinions of the population of the various countries. The staff of the airline is well trained and efficient to address the people belonging to different cultures in an appropriate way (About Air New Zealand, n.d.). Also, the airline places a lot of importance in incorporating all the social factors in its marketing strategy for making themselves appealing to the people. For example, the aircrafts of the airline were painted in black color for supporting the ‘All Blacks’ rugby team of New Zealand in rugby World Cup (Tribe, 2011).
• Technological Factors: Business organizations need to continuously adapt and implement innovative technologies for achieving a competitive advantage in the market. It can be demonstrated from the fact that airline provides best seating and booking facilities in order to achieve customer satisfaction and stay ahead of the competitors in the market (Air New Zealand Economy Class Review, 2014).
• Legal Factors: All airlines in New Zealand have to abide by the ‘New Zealand Civil Aviation Act 1990’. The airline is abiding by all the rules and regulations of this act (Air New Zealand, 2011).
• Environmental Factors: Airline companies need to place special emphasis on protecting the environment from any adverse effects from their operational activities. In this context, Air New Zealand has introduced carbon offset program for minimizing the air pollution. Moreover, the airline is actively contributes towards Air New Zealand Environment Trust (Angwin, Cummings & Smith, 2011).

Porter Fiver Forces helps in analyzing the competition existing in the external environment for Air New Zealand model as follows:

• Bargaining Power of Suppliers: It refers to the power of suppliers providing input resources to an organization. Air New Zealand emphasizes on developing good relationships with the suppliers. It helps them to achieve long-term commitment from them essential for their sustainability growth and development. The airline has numerous suppliers through which they purchase their operational fleets (Gilbert, 2014). The two main suppliers of the airline are Boeing and Airbus. In addition to this, skilled labor can also exert a power in the airline industry. Thus, competitive force of suppliers is to be taken into account for the companies operating in the airline industry (Nhuta, 2012). Thus, bargaining power of suppliers is said to be medium for Air New Zealand.
• Bargaining Power of Buyers: It refers to the pressure exerted by the consumers for gaining higher quality services at minimum cost. The airline provides its services to different countries and thus has a very strong customer base. Also, customers can easily switch from one airline to another due to availability of large number of airlines operating in the sector. Thus, bargaining power of buyers is also perceived to be higher for the airline company (Nhuta, 2012).
• Threat of New Entrants: It is relatively low in the aviation industry due to huge investment required to operate in the industry and also there is high risk existing in the sector (Nhuta, 2012).
• Threat of Substitutes: Airway is recognized to be the fastest mode of transport in the international market. On this basis, threat of substitutes is perceived to be low for the airline (Nhuta, 2012).
• Rivalry between existing competitors: The airline has to face intense competition from the domestic as well as international airlines and thus rivalry is relatively high. The main competitors for Air New Zealand are Qantas Airways, Virgin Australian Airlines, Emirates Airlines and many others (Nhuta, 2012).

Internal Analysis

Internal analysis deals with identifying strengths, weakness, resources and capabilities of a firm that will help it to achieve growth and profitability. Value chain analysis is a strategic tool for carrying out internal analysis that can be visualized as follows:                         

Source: Turban. (2007).

Information Technology For Management: Transforming Organizations In The Digital Economy. John Wiley & Sons.

These are analyzed as follows:

• Inbound Logistics: Air New Zealand achieves competitive advantage in its inbound operations through maintaining good relationship with suppliers that helps them to gain access to latest technology equipped aircrafts (Gilbert, 2014).
• Operations: The airline achieves competitive advantage in its operational activities through providing online booking system, high quality check-in and security services to the customers. It has implemented high digital technologies in wide range of its business processes that enhances its operational efficiency (Air New Zealand, 2016).
• Outbound Logistics: The outbound logistics activities of airline companies include presence of effective baggage system, good flight connections, providing rental car and hotel reservation system for customers. Air New Zealand has good baggage system and has also introduced a biometric technology for providing self-service bad dropping facilities at Auckland Airport (Air New Zealand launches biometric-enabled self-service bag drop, 2015).
• Marketing and sales: The marketing and sales strategy of the airline is quite appealing in order to attract large customer base. It adopts the use of sales promotions, online advertising, public relations and direct marketing that provides it a competitive advantage (Evans, 2015).
• Service: The complaints and queries of the customers are handled appropriately by the airline that helps it to attain competitive advantage (Air New Zealand, 2016).
• Firm Infrastructure: The airline has best seating facilities and its aircrafts have pleasing infrastructure that helps it to attract customers (Air New Zealand Economy Class Review, 2014).
• Human Resources: The airline has competent staff and managers for providing proper services to the customers (About Air New Zealand, n.d.).
• Technology Development: The airline continually implements innovative technological measures in its operational activities for enhancing customer satisfaction (Air New Zealand, 2016).
• Procurement: The airline procures its input resources from the best suppliers that help it to provide high quality in-house services to the customers (Gilbert, 2014).

Summary of key issues and justification of internal and external analysis

The key issues identified through external and internal strategic analysis of Air New Zealand can be summarized through the use of SWOT analysis.

Strengths:

• The airline is recognized to be the best airline worldwide and thus has a good brand image (Air New Zealand SWOT Analysis, USP & Competitors, 2016).
• It incorporates the use of environment friendly fuels in order to minimize the air pollution (Angwin, Cummings & Smith, 2011).
• High technologically equipped and comfortable seating facilities of the company help it to attain customer satisfaction (Air New Zealand Economy Class Review, 2014).

Weaknesses:

• The destinations served by the airline are still less as compared with other international airlines (Air New Zealand SWOT Analysis, USP & Competitors, 2016).

Opportunities:

• Extensive support from the government of New Zealand that can further foster the airline growth plan. The airline can expand its operations to many new international destinations in the future period of time with huge governmental support (OECD, 2003).

Threats:

• Increase of fuel prices in the future context pose a major threat for the airline (Air New Zealand SWOT Analysis, USP & Competitors, 2016).
• Increase of competition from the international market by major firms such as Qantas and Cathay Pacific (Air New Zealand poised to deliver on "go beyond" strategy, still facing stiff competition, 2013).

Strategic Choice and Justification

Air New Zealand is currently having good profitability but need to make a strategic choice for sustaining its present growth and development. On the basis of the current position of the airline, the following strategic options are available for the company:

• Strategic Alliance: Strategic alliance can be defined as agreement between two or more independent organizations that aim to work in co-operation for achieving common strategic objectives. The firms in strategic alliance retain their individual entity and unlike joint ventures do not collaborate to form one firm. Air New Zealand has already developed a strategic alliance with Singapore Airlines for duration of about four years. Minister of Transport has announced a strategic alliance between the two airlines on 7^th of August, 2014 (Scott et al., 2013). Qantas has also proposed a strategic alliance with Air New Zealand and aims to become one of its shareholders.  Qantas and Air New Zealand are the members of star alliance and thus the strategic alliance would prove beneficial to both the companies. Air New Zealand can expand its international market through the use of strategic alliance. Qantas is recognized to be one of the major international airlines and this would prove to be extremely beneficial for Air New Zealand in brand building in the international destinations. This would increase the customer base of the airline and as such its profitability and market share (Scott, Laws & Brideaux, 2013).
• Joint Venture: Strategic joint venture can be defined as an agreement between two firms that collaborate permanently for attaining specific goals. For example, the Singapore Airline has proposed a joint venture with Air New Zealand by enhancing its stake in the company from 25% to 50%. (Scott et al., 2013). This would help the company in gaining substantial investment from Singapore airline for supporting its international growth plan Edmunds, 2015).

Recommendations

The airline is recommended to implement and adopt the option of strategic alliance for enhancing the profitability of its current set-up and attaining a competitive advantage in the future context.  Strategic alliance would provide airline the opportunity of sustainable growth and development by enhancing its customer base. The strategic alliance of Air New Zealand with Singapore and Qantas airlines will provide the opportunity to the company for expanding its Pacific Rim operations and increase its sales in Asia, Europe and Southern Africa (Air NZ shares record profit with staff, 2016). The inbound and outbound operations of the company can be managed effectively through well-trained staffs of Qantas or Singapore airlines. Thus, Air New Zealand can overcome from its weakness of inappropriate staff services in its non-domestic flights through the help of strategic alliance with Qantas or Singapore airlines (Scott et al., 2013).  The main strategic advantage of strategic alliance is that it will facilitate the airline to offer improved services and also retaining its core competencies. On the other hand, the strategic option of joint venture would cause the airline to lose its individual identity and capabilities (Edmunds, 2015).

Moreover, Air New Zealand will gain customer recognition in entirely new market segments across the world. Strategic alliance would facilitate the airline to increase brand awareness in new markets and thus enhancing its profitability (Brockett, 2016).  Therefore, it can be said that alliance would provide the opportunity to Air New Zealand to reach wide audiences without any investment. The airline can save its time and capital through the means of strategic alliance and at the same time can improve its brand awareness.  Strategic alliance would also offer the opportunity to the airline to gain access to new resources that would otherwise be possible only with the investment of extra capital (Edmunds, 2015). Air New Zealand has attractive strategic option of creating alliance with Qantas and grows as a brand in the international market. The strategic alliance with Singapore airlines has already provided strategic advantages to the airline of gaining access to new and improved services through would help it in brand building.  The airline can retain its core competencies and can focus on its specialized services through establishing strategic alliances with other international airlines (Air New Zealand makes record half year profit, 2016). 

However, the biggest challenges that exist in creating strategic alliances with other airlines for Air New Zealand is selection of right strategic partner. The airline should ensure that the strategic partnership would prove to be beneficial to both the business organizations (Beisheim et al., 2012).  Also, the airline needs to carry out proper research on the company and should enter a strategic alliance only if they both carry out some common strategic objectives and goals.  The present strategic option of creating a strategic alliance seems to be beneficial for both Qantas and Air New Zealand as both the companies are a part of star alliance. They share common strategic objectives and goals and their strategic alliance would facilitate them to gain access to new routes and destinations thus increasing their profitability and growth (Beisheim et al., 2012).

Conclusion

Thus, it can be concluded from the above discussion held in the report that Air New Zealand is a premium airline of New Zealand and enjoys extensive support from the country’s government. It also caters to international markets but still aims to provide services to new market segments across the world.  The airline is recommend to adopt the strategic option of creating strategic alliances with the international airlines such as Qantas and Singapore airlines to gain access to new market segments.  However, it should carry out proper research of the respective companyso that it is able to reach its strategic objectives throughentering into strategic alliance.

References

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Air New Zealand makes record half year profit. (2016).  Retrieved August 6, 2016, from http://www.radionz.co.nz/news/business/297406/air-nz-flies-high-with-record-profit

Air New Zealand poised to deliver on "go beyond" strategy, still facing stiff competition. (2013).  RetrievedAugust 6, 2016, from http://centreforaviation.com/analysis/air-new-zealand-poised-to-deliver-on-go-beyond-strategy-still-facing-stiff-competition-103058

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