Reasons For Strategic Decision At Thai Airways
An inspired and properly considered business strategy can be utilized to guide a company to achieve greater profitability and accomplishment, as it is known that strategy may very well be plan, ploy, pattern, posture and perspective (Kourdi 2009, p3). To those businesses that rely on good deal to attract customers, such as budget airlines, business approach plays a significant role within their business. However, business approach should be predicated on the understandings about competition and threats in the market, micro and macro environment factors that affect the victory of their business, and strengths and competitive benefits of the company. Only can business strategy that is predicated on these understandings be utilized to have success of business
Reasons for Launching a Low-cost Airline with Thai Airways
Tiger Airways will probably launch a low-price airline with Thai Airways, that will target domestic and foreign destinations within five time’ flying times distance based on Bangkok (Creedy 2001). There are various reasons that Tiger Airway launched this airline jointly with Thai Airways, and the next five reasons are the most crucial ones:
To compete effectively. It might be seen from the case that, by jv, it is less complicated for Tiger Airways to increase its business in Thailand, and will compete effectively in this region with Jetstar and AirAsia (Creedy 2001).
Additional network advantages. By joint venture, it will build better network marriage with Thai Airways and could how to write a summary example have advantages to handle future spread risk and competition, as Thai Airways becomes a partner rather than a competitor (Creedy 2001).
Additional cost advantage. By possessing 49% of the jv, and other 51% possessed by Thai Airways, Tiger Airlways provides chance to utilize the benefit of Thai Airways to keep up and also strength its low priced advantage (Creedy 2001).
To reduce risk. By further network and cost positive aspects brought from this package, Tiger Airways is capable to face further spread risk.
Pan-regional strategy. This jv is an important step forward in Tiger’s pan-regional approach. It is noted by CEO of Tiger Airways, Tony Davis, that “Bangkok is one main South East Asian gateway within striking length of both India and China (Creedy 2001). By additional network advantage from joint venture with Thai Airways, it becomes easier for Tiger Airways to put into action this strategy.
Reasons for Strategic Decision
Tiger Airways’ decision of launching a new airline jointly with Thai Airways can be viewed as as a strategic decision. Reasons are mentioned as follows:
This decision damaged the long-term direction of Tiger Airways. As mentioned above, this decision was an essential step forward for its pan-regional strategy (Creedy 2001).
This decision helped gain advantages for Tiger Airways. Additional network advantages with Thai Airways and expense advantages were achieved by this joint venture decision.
This decision expanded the activities scope of Tiger Airways to low-cost trip to Bangkok/ Thailand, and may increase to India and China as well This decision had major resource implication. It really is mentioned in the event that by 2015, 68 flights would be assigned to this low-expense airline (Creedy 2001).
This decision created fresh chance of Tiger Airways. By this decision, Tiger Airways started to be more competitive with Jetstar and AirAsia, which created latest opportunity for the growth of Tiger Airways (Creedy 2001).
This decision affected operational decisions of Tiger Airways. Purchase in this new airline should be taken into consideration by Tiger Airways.
Obviously, this decision can be viewed as an idea, a ploy, a structure, a posture, a perspective. Therefore, it is just a strategic decision.
Macro Environment Analysis
PESTEL model is an effective technique that could be utilized to analyze macro environment factors that affect the industries, and low-cost airline industry. It includes six factors which happen to be Political, Economical, Public, Technological, Legal and Environmental factors (Robinson 2009, p75).
Political: Authorities instability is a significant point to the low-cost airline industry. For example, the affairs of Prime Minister of Thailand, Thaksin Shinawatra and his Red-Shirt, led to a fatal drop in tourism industry, which may reduce the customer amount of low-cost airline industry (BBC 2010).
Economical: Market recession and financial crisis damaged the profitability of low-cost airline sector players. A study carried by Airline Business indicated that although earnings didn’t show decline, profitability was afflicted by the financial crisis. Various players encountered a loss in 2008 in comparison to 2007 (Dunn 2009).
Social: The attitude of salary distribution and balancing work and leisure are elements that can not be neglected. Those who are willing to distribute their money on traveling and their leisure time of leisure will increase the customer volume of the industry.
Technological: Technology that makes standing seats for airlines available effect this low-cost airline industry seriously. The option of standing chairs for airlines will cut down the price of industry can make it more appealing (BBC UK, 2010).
Legal and Environmental: Work laws, competition law, risk of natural causes, skin tightening and emission are other elements of the low-price airline industry.
Corporate Strategy, Business Level Approach and Operational Strategy
Corporate Level Strategy
According to the definition from Collis and Montgomery (2005, p8), corporate level strategy can be explained as the way a enterprise uses to create worth through configuration and coordination of its multimarket actions. There are three primary emphases of the definition, value creation, configuration and multimarket activities. It really is indicated in Appendix 1 that the corporate technique of Tiger Airways is usually that: To produce a portfolio of profitable routes throughout Asia and Australasia by establishing airlines in market where low-fare, low priced business design has exceptional potential for sustainable profitability with ancillary services such as for example luggage upsize, chair selector and sports tools check-in.
Business Level Strategy
One model developed by Bowman called The Strategy Clock can be used to get very good understanding about business level strategy, which relates competitive advantage to cost benefit and differentiation gain. These successful strategies could be illustrated as following amounts: Low selling price/ low added value, Low price, Hybrid, differentiation without value premium and Centered differentiation (Angwin et al 2007, p121)
All these different technique are classified based on two factors, value and value. It could be seen from Appendix 1 that the price tag on Tiger Airways is definitely low because the company implement price leadership approach. Besides, compare to other airlines, the value added by Tiger Airways is bound. Luggage is bound to a particular size; seat collection will be charged. Just is bought food or beverage is allowed compare to free drink and food in SIA. Thus, the activities are low value-added. Accordingly, based on these two factors, the business enterprise level technique is Low cost/Low added value.
According to this is of Lowson (2002, p57) that operational approach can be looked at widely as a worth delivery strategy. It really is about decisions which helps make and deliver product/service, value to clients through companies’ main competencies. Therefore, the main operational approach of Tiger Airways is to maintain and improve the key competencies of low fare/ low cost. Many decisions have already been made based on this strategy:
Joint venture with Thai Airways to release new airline.
Install advanced 3-D weather radar to improve efficiency (Tiger Airways.com 2010)
Minimize service that costs customers on customers’ behalf.
Porter’s Five Forces Analysis
Porter’s five forces style is probably the most well-known models in business literature that make the competitive situation in any industry (Beamish & Williams 2008 pp76-77). The five forces and their relations are indentified the following:
Threat of new entrants
Threat of substitutes
Bargaining power of buyers
Bargaining power of suppliers
Intensity of rivalry
Source: Caneval Ventures. Styles on the dynamics of development. http://www.caneval.com/vision/innovation/innovation2.html [Last accessed: Dec. 7th 2010]
Threat of new entrants
The threat of new entrants of the low-cost airline industry is very fierce (4 away of 5). Although the investment of setting up new airline businesses is huge to those organizations that are not in the airline industry, it really is feasible to other corporations which already are in airline industry to establish new companies which serve the low-cost airline industry. The establishment of Tiger Airways can be an example to support this aspect. Tiger Airways is partially by SIA, which may be the leading airline service provider worldwide.
Threat of substitutes
Long distance coaches, trains, passenger ships, network and other airline service providers (such as for example SIA) are the main substitutes of the low-cost airline industry. It really is seen from Appendix 2 that, although the low-cost airline market is a booming industry with high growth charge, Network airline companies are still the key service provider in the airline sector. And Long distance coaches and trains play a lot more significant role in transport in countries such as for example China because of the indegent development of air transport. Therefore, this threat is very huge (3 out of 5).
Bargaining power of buyers
low-cost airline sector, though customers are easy to find substitutes but these substitutes could cause higher price or take additional time to attain their destinations. As a result, the bargaining electricity of buyers isn’t so good (2 out of 5). For instance, it is plainly seen from Appendix 3 that SIA go back ticket for travelling between Singapore and Hong Kong is around 100SGD expensive than that of Tiger Airways.
Bargaining power of suppliers
Obviously, the main way to obtain low-cost airline industry ought to be the aircrafts, and Boeing and Atmosphere Bus are the two suppliers of aircrafts to low-cost airline industry. It means that these two companies are in the positioning of monopoly. Therefore, their bargaining electric power is extraordinary strong (5 out of 5).
Intensity of rivalry
The strength of rivalry of low-cost airline industry isn’t therefore fierce (2 out of 5). Although the primary competency of low-price airline players is low fare/low price, they have regional characteristic, which means simply few airline players are identified by customers in a certain areas. For example, in South East Asia, Tiger Airways and AirAsia are the two recognized players by clients.
In bottom line of the evaluation of Porter’s five forces model, the outcome can be summarized as the next picture. Low-cost airline market can be an attractive industry, as clients don’t have strong bargaining power, and this market is a seller industry; low threats of substitutes means low-cost airline is an effective choice among the products or services. Besides, although bargaining electricity of suppliers is remarkable high, every player in the industry will face this issue, and as a result of a booming sector with high growth rate, low-cost airline industry is an attractive industry.
Value Chain Analysis
Porter’s value chain version is an average value chain style, which state nine microsoft powerpoint help varieties of business actions (Wang 2007, p81). And these business activities are classified into associate and basic activities, that may stated as below:
Wang Weijun (2007). Integration and creativity orient to e-society. New York: Springer Science+ Business Mass media, LLC. p81.
However, this model is aimed at manufacture businesses. Tiger Airways is on the market of low-cost airlines, that is a service industry, so, the model needs to be modified predicated on the assumptions as follows:
All the purchases are for infrastructure advancement purpose.
Service is made once buy happens.
Therefore, it might be seen from the case and other facts from site and Tiger Airways 2010 gross annual reports that the value added actions are presented the following:
In the case, it is said that by 2015, 8 flights would be allocated to the new launched low-cost airline; this is actually the value-added activity which evolves the infrastructure of Tiger Airways (Creedy 2001).
In the gross annual report, it is explained that” new directors to the Plank are briefed by Supervision on the Group’s organization activities, strategic directions, and you will be sent for external training and development programmes”. This can be a value-added activities on manpower resource operations (Annual record 2010). By this, Tiger Airways is able to find out better corporate, business level and operational approaches for the long-term development of the business and sustain the cost advantage as well.
According to the press release of Tiger Airways, in 2010 2010, by partnering with Honeywell, the business set up advanced 3-D weather radar enhance basic safety and passenger comfort. This is often seen as a value-added activity based on technology production (Tiger Airways.com 2010).
The annual reported mentioned that by renewing agreements with airports, ground solutions, providers and additional suppliers, and acquired two aircrafts from Airbus (very own rather than lease), allowed Tiger Airways to further reduce operating cost and in tune boost value to consumers (Annual report 2010).
According to the web site, extra program is provided such as for example luggage upsize, seat collection and as well as related service, for instance, accommodations, insurance and car hire to improve the types of provider that customer can get pleasure from through Tiger Airways.
There are a great many other business activities performed by Tiger Airways, which enrich the worthiness of service provided by Tiger Airways and gain large recognition among customers, it is the exact reason can help Tiger Airways be one of many leaders in South East Asia to supply low-cost airline service.
Common Cost-cutting Strategies
According to many literatures, there are many different types of cost-cutting strategies, for example, rationalization, standardization, central processing of transactions, technology software and cost management technique (O’Brien & Datta 1989, p165). Therefore, related to low cost carriers, the normal cost-cutting strategies could be presented the following:
Rationalization. To low priced carriers, non-value-added activities are removed and only do those value-added actions remain. For example, there is one guideline in Tiger Airways that just is purchased food or drink up is allowed.
Standardization. Another strategy is definitely to standardize the services of low priced carriers. It might be seen for Appendix 4 that the provider of Tiger Airways is usually standardized, as extra solutions will be charged by a particular price.
Central processing of transactions. Crucial processes are identified by low cost carriers that require to be give attention to to provide the basic service to their customers.
Technology application. New technology can be put on reduce operational expense and even decrease the proportion of risk. As mentioned above, the 3-D temperature radar is used by Tiger Airways to raise the accuracy of weather condition prediction to reduce unnecessary loss by reason of inclement weather (Tiger Airways.com 2010).
Cost management strategy. This strategy is used by low priced carriers to understanding the elements that influenced the cost such as for example gas, labour, distribution, inventory management, purchasing, and foreign exchange (IATA Training Portfolio). Consider Tiger Airways as an example, both main business regions happen to be South East Asia and Australia. Accordingly, the foreign exchange amount between AUS Dollar and SGD is definitely a factor that cannot be neglected Another evidence explained in Tiger Airways 2010 total annual survey that by renewing contracts with airports, ground offerings, providers and additional suppliers, and acquired two aircrafts from Airbus (very own rather than lease), enabled Tiger Airways to further reduce operating cost.
Three Future Strategies
The strategies will get according to Ansoff’s merchandise/market matrix.
Source: Berger Roland., Kotler Philip., Bickhoff (2010). The Quintessence of Strategic Supervision. London: Springer Heigelberg. p36.
Market Penetration. To Tiger Airways, it will use activities such as advertising, sales promotion to increase seat occupancy rate, which in turn will reduce the operating cost, this is the way to build solid core competencies.
Market Development. It is evident in the event that market production is a suitable strategy for Tiger Airways to reduce operating cost and company development (Creedy 2001). With the addition of brand-new airlines through joint ventures with various other airline companies, it’ll give Tiger Airways have got chance to reap the benefits of advantages of other airline companies.
Diversification. There will be two primary types of diversifications, related and unrelated diversification. So, To Tiger Airways, the business may use related diversification strategy to expand its business, such as to international express organization. Through this plan, the company can reduce the operating cost.
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Figure 1: Airline Industry Share by Type of Carrier
Note: Others is mostly regional jet carriers but can include a small percentage of planned charter carriers.
Source: M.R. Dayton, “Developments and Demand in Aviation Marketplaces,” presentation at the ATCA/FAA/Nav Canada Complex Symposium, Workplace of Inspector General, U.S. Department of Transportation, 2004.