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Air New Zealand Limited is a group of airlines that offers international and domestic passengers and cargo transportations services. This airline group offers services all over the world, primarily in Australia and New Zealand, as well as in UK, Asia; Europe’; North America and pacific islands. The company also offers engineering and maintenance services that includes ground handling; travel wholesaling and retailing services; booking system as well as repair; aircraft maintenance etc. (BusinessWeek, 2016). The company aims to become number one in every market by serving distinct services to its customers. They focus to create an efficient workplace where employees are committed to serve quality service to the passengers or customers (Careers.airnz.co.nz, 2016). This report will analyse the key strategic issues by understanding the external and internal environmental factors. These factors influence the performance of the organization. The paper will also develop range of strategic options and evaluate them. Various strategic tools will be utilised to for identifying the strategic position of Air New Zealand. In addition to this, the report will also advise the company on their strategic plan, highlighting the benefits and risks associated with present set up.
The external and internal factors influencing the performance of the company can be identified through environment scanning. This enables to find out the current or forthcoming scenario that the company going to face. This section will identify those factors by using some strategic models.
Political Factor: The government of New Zealand has large influence on Air NZ but it does not regulate the business decisions. Therefore, in New Zealand, the neoliberal nature of government assists globalization and barrier free market. The government owned major stake of this company, so the company faces less trouble from political front. However, the aviation industry of this nation has to deal with heavy regulation, but the policies benefitted the company. However, polices, taxes and regulations of the foreign market affect the organization (Hamilton & Webster, 2015).
Economic Factor: Air NZ is directly influenced by the economic condition. This is because; the numbers of passengers are tightly interrelated with the performance of the economy. Poor economic condition will lower down the traveling through flight. The fuel cost is another major factor that affects the profit of the company. Though the global economy is gloomy, this country is economically in a far better position. Therefore, the Air New Zealand has greater scope to continue its business.
Social Factor: The lifestyle; trends wealth distribution affects the business of the Air NZ. The preference of the travellers are also changing over times. The choices of people in the business class and a person in the economy class re different from each other. Therefore, this company focuses on the diverse culture in their services. This strategy of the company appeals the people.
Technological Factor: Airline NZ is strongly affected by the technology as its main business function solely depends on the technology. Innovation in the technology will benefit the Air NZ to improve its services. The rapid implementation of online booking; check in support; low fares; more availability of seats etc. transformed this organization dramatically.
Legal Factor: The regulations of employment; health and safety have to be abided by this aviation company. The laws applied to this industry are very stringent as this kind of industry operates in huge infrastructure; engages numerous workers and consists of many stakeholders.
Environmental factor: The rise in environment awareness is a key issue of this industry. Air flights emit huge amount of greenhouse gases into the air. However, it has been trying to achieve its green image through adopting strategic methods. It aims to minimize its impact on the environment using Carbon Offset programme and donating for Air NZ Environment Trust.
Threats of New Entrants: To enter the aviation industry a firm will require huge capital and it has to go through some stringent procedures to get license. There is not much scope of product differentiation and strong brand value is needed. Therefore, threats of new entrants in this air industry is very low.
Threats of substitutes: The substitutes of this industry can be travelling through road or water transport or railways, which are cheaper than flights. However, these are time consuming than travelling through airways. Moreover, at present, business travel can be reduced through video conferencing. Therefore, the threats of substitutes in this industry is moderate in nature.
Bargaining Power of Buyers: There are many airline companies operating in New Zealand. Customers want high quality service at possible cheaper price. However, the tickets are not bought in bulk and customers have only certain flexibility to buy it from other suppliers. They choses airline by comparing their services. Therefore, the power of buyers in this sector is medium.
Bargaining Power of Suppliers: The power of suppliers in this industry is very strong. This is because; there is only two suppliers of aircraft, Boeing and Airbus. The suppliers of fuel also change price that affects the cost of doing business. The labour union of this industry is also very strong.
Competitive Rivalry: In the operating region of Air NZ, some other dominant airline companies also operate. The potential rivals are, Trans-Tasman; Qantas; Emirates and Virgin Blue. Air NZ competes with these companies in determining price. The competition and rivalry in this sector is quite high.
A company is said to have sustainable competitive advantage over one resource, if it is valuable; rare; inimitable and organized (VRIO) (Stadler, Helfat&Verona, 2013). The intangible resource of Air New Zealand is their relationship with the government. It is the national flag carrier of the country. This is valuable as with the help of government support the company can exploit an opportunity and neutralized threats of the company. It is also rare, because, no other Airline of this country has this advantage in their hand. It is also hard to imitate; as other company will require huge cost to offer its stake to the government, or obtaining any kind of help of authoritarian body. Air New Zealand also has the capacity to capture the value and it is ready to exploit this resource.
A company is said to have competitive parity if the resource is Valuable. Technology and other airline equipment of Air NZ is valuable. The buildings with other assets of this company is also valuable resource of the organization. However, it is not rare as other airline firms also have control over technology and airline equipment. It can also be imitated by other companies as these resources can be duplicated by others.
A company is said to have temporary competitive advantage if the resources are valuable and rare. The brand identity of Air NZ is valuable as the company can exploit opportunity through its brand name (Low & Lee, 2014). It is rare, as other airlines brand do not have the same brand status. The brand name cannot be imitated, as any other company cannot use the same.
The chain of activities of an organization can be divided into primary activities and support activities. Primary activities include direct creation of product; sales and delivery and after sales support. The support activities facilitate the primary activities (Fearne, Garcia Martinez & Dent, 2012). This includes procurement; human resources etc. The primary activity of Air New Zealand includes research and development in bio-fuel. The company creates its product through highly skilled workforce. The experienced employees are specialized in the offering high quality items. Air NZ is also engaged in loyalty marketing. It provides loyalty program for the frequent flyers. Points add for each trip and by redeeming sufficient points, they avail certain benefits. This airline company has also adopted customer loyalty strategies by offering aftersales service to them. This support to the consumers create values for the company. The support activities of Air NZ are mainly linked with organization infrastructure. In order to succeed any uncertain situation like recession, Air NZ has established efficient strategy and realigned its procurement system.
Source: Belobaba, Odoni& Barnhart, 2015
Air New Zealand is in a favourable environment to operate its business. In spite of some legal constraint and global political factors, this firm is in a better situation. Moreover, the firm faces challenges because of the bargaining power of the suppliers and growing airlines in the global market. The resources of Air NZ have enabled the company to achieve competency. The company’s primary and secondary activities also creates value that improves the competitive advantage of the firm. From the external and internal analysis, the following summary can be obtained, where strength and weakness is the internal scenario, whereas, opportunity and threats are external situation of the environment.
STRENGTH | WEAKNESS |
· Established brand identity in the domestic market · Low carbon emission Fuel usage · Majority stake hold by the government · High quality service · High skilled employees · Increasing routes · Special Routes for trade and marketing · Online service and self-check-in · Own repairing and maintenance service
| · High fare charges · Lower market share in the global market · Number of destination is lesser than other airlines · Small global brand value compared to other international airlines |
OPPORTUNITY | THREATS |
· Increasing demand for travelling for holidays and business purpose. · Exploration of new tourists’ spot. · Qualified labour supply in New Zealand · Possibility to expand internationally. · Technological improvement | · High level of competition in the international market. · Increasing fuel price · Terrorism or Plane Hijack · High wage to the workers · Global economic crisis
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The porter’s generic strategies can be used for analysing the competitive advantage of the Air NZ Company. The generic strategies are “Cost Leadership”, “Differentiation” and “Focus”. Porter has divided Focus into two further categories: differentiation focus and cost focus (Tanwar, 2013).
Source: Metzger, 2014
The strategy of Air NZ has been formulated in order to meet its vision. The company aims to offer unique services by creating an effective workforce, in order to enjoy high industry return. The strong point for this airline is its constant innovation approach. The self-check in; premium economy space-seat and economy Sky-couch are some innovation of the company that has improved its brand value and make it more competitive in nature. Delivering Kiwi brand experience has set the company apart from its competitors (Airways.co.nz, 2016). The innovation and the superior brand value result into higher profit for the company. Innovation enables the company to differentiate from other airline companies. Their innovation is continuous and it is oriented to approach that is more personal. The strategies of Air NZ make it superior to its rivals like Qantas, Pacific Blue etc. AirNZ also puts effort to become most sustainable airline as a part of its strategic goals. This company has committed to reduction in carbon emission by ensuring saving on fuel usage in flight operations (Careers.airnz.co.nz, 2016). It has successfully reduced its carbon gas emission per year and continues to reduce this level furthermore. Air NZ also focuses on increasing Airline’s Fleet that are fuel-efficient. The new fleets are also technologically savvy, which is more customer friendly. Therefore, it can be said that, Air NZ follows differentiation strategies. This is because; its strategies are mainly developed to enhance its services and relationship with the employees and customers. The strategic choice of Air NZ has differentiated itself from other airline companies and it has gained competitive advantage over others.
The principles of Air NZ were to increase satisfaction level of the customers; to achieve competitive advantage. The company focuses on customers as well as the employees. They believe that engaged satisfied worker is crucial for satisfying the customers as well. An efficient workforce of this company offers competitive advantage. Air NZ focuses on the niche market and emphasizes on the top class quality of service only with an aim of reducing the cost. Irrespective of cost focus, their unique treatment to the customers has attracted client and created greater brand trust.
Cost focus on the niche market may not be beneficial to the company. This is because; there are many airlines companies that offers top class quality to all level of passengers at a better price. Moreover, Air NZ is yet to be recognized in the international market. Therefore, niche market may not prefer or aware of this brand. Air NZ can attract the travellers of the domestic niche market, but there are other reputed airlines like Qantas Singapore Airline etc. Therefore, it is expected that Air NZ will not be able to earn significant revenue if it follows the cost focus approach because “differentiation” involves more capital. However, it is recommended to continue with the “differentiation” strategy. This is because in such a challenging global competition, it is most important to differentiate the products and services of the Air NZ. By offering innovative and new product, the company will be able to increase its revenue. The high standard technology; qualified workers can be utilised to expand the business in the international market.
From the above discussion, it can be suggested that Air New Zealand should act according to their strategy and adjust itself in the changing environment. The opportunities must be exploited and the strategies must be adopted in order to win over the challenges. Continuous development of strategies will enable the company to stay competitive in the market. It is recommended that Air NZ should invest in the new market to establish its brand in the international market. They should increase their fleet along with more routes and destinations. It must focus on its brand image development and invest in promotional activity (Trinnan, 2016). The major disadvantage of this airline is its high. It is recommended that Air NZ must compete in price with other airline companies. The low fare will attract more clients and their satisfaction level will increase. Since, its competency lies on the performance of human resources; it is recommended that the company should recruit proper candidates and train them efficiently. It must keep on innovating new product and services to maximize the customers’ satisfaction level. High quality with low price will increase its competitiveness in the global market.
In the above discussion, the PESTLE analysis of Air New Zealand Group has been conducted for understanding the macro environment. The industry competitiveness has been analysed with the help of Porter’s Five Forces. The report has also carried out VRIO and Value Chain Analysis in order to identify the competencies. Generic strategies of Air NZ have been analysed in order to identify the competitiveness. The report has also conducted SWOT analysis and recommended strategies for future development of Air New Zealand.
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