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2018Reasons For Strategic Decision At Thai Airways
Reasons For Strategic Decision At Thai Airways
An inspired and carefully considered business strategy works extremely well to steer a company to achieve greater profitability and achievement, as it is known that strategy may very well be plan, ploy, pattern, placement and perspective (Kourdi 2009, p3). To those businesses that rely on good deal to attract customers, such as budget airlines, business strategy plays a substantial role in their business. However, business strategy should be predicated on the understandings about competition and threats in the market, micro and macro environment elements that affect the success of their business, and strengths and competitive benefits of the company. Only can business strategy that is based on these understandings be used to have success of business
Question 1:
Reasons for Launching a Low-cost Airline with Thai Airways
Tiger Airways is going to launch a low-price airline with Thai Airways, which will target domestic and overseas destinations within five time’ flying times distance on the basis of Bangkok (Creedy 2001). There are various factors that Tiger Airway released this airline jointly with Thai Airways, and the following five reasons are the most important ones:
To compete effectively. It really is seen from the case that, by jv, it is less difficult for Tiger Airways to grow its business in Thailand, and can compete effectively in this area with Jetstar and AirAsia (Creedy 2001).
Additional network positive aspects. By joint venture, it’ll build better network romantic relationship with Thai Airways and could have advantages to manage future pass on risk and competition, as Thai Airways becomes somebody instead of a competitor (Creedy 2001).
Additional cost advantages. By possessing 49% of the joint venture, and other 51% owned by Thai Airways, Tiger Airlways offers chance to utilize the benefit of Thai Airways to keep up and also strength its low cost advantage (Creedy 2001).
To reduce risk. By more network and cost advantages brought from this deal, Tiger Airways is competent to face further pass on risk.
Pan-regional strategy. This joint venture is an important step forward in Tiger’s pan-regional strategy. It is mentioned by CEO of Tiger Airways, Tony Davis, that “Bangkok is one main South East Asian gateway within impressive distance of both India and China (Creedy 2001). By additional network edge from jv 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 stated as follows:
This decision affected the long-term path of Tiger Airways. As mentioned above, this decision was an essential step forward because of its pan-regional strategy (Creedy 2001).
This decision helped accomplish advantage for Tiger Airways. Extra network gain with Thai Airways and expense advantages were attained by this joint venture decision.
This decision expanded the activities scope of Tiger Airways to low-cost flight to Bangkok/ Thailand, and may expand to India and China as well This decision had key resource implication. It is mentioned in the event that by 2015, 68 flights will be assigned to this low-expense airline (Creedy 2001).
This decision created fresh opportunity for Tiger Airways. By this decision, Tiger Airways started to be more competitive with Jetstar and AirAsia, which created new opportunity for the expansion of Tiger Airways (Creedy 2001).
This decision damaged operational decisions of Tiger Airways. Investment in this different airline needs to be taken into consideration by Tiger Airways.
Obviously, this decision can be viewed as a plan, a ploy, a structure, a position, a perspective. Therefore, it is a strategic decision.
Macro Environment Analysis
PESTEL model is a good technique that can be useful to analyze macro environment factors that affect the industries, in addition to low-cost airline industry. It contains six factors which happen to be Political, Economical, Sociable, Technological, Legal and Environmental factors (Robinson 2009, p75).
Political: Federal government instability is a significant component to the low-expense airline industry. For instance, the affairs of Prime Minister of Thailand, Thaksin Shinawatra and his Red-Shirt, led to a fatal drop in tourism industry, which may decrease the customer quantity of low-cost airline sector (BBC 2010).
Economical: Market recession and financial crisis damaged the profitability of low-cost airline market players. A study carried by Airline Organization indicated that although income didn’t demonstrate decline, profitability was damaged by the financial meltdown. Various players encountered a damage in 2008 compared to 2007 (Dunn 2009).
Social: The attitude of profits distribution and balancing do the job and leisure are elements that can not be neglected. Individuals who are ready to distribute their cash on traveling and their leisure time of leisure will improve the customer amount of the industry.
Technological: Technology which makes standing seats for airlines available influence this low-cost airline sector seriously. The availability of standing chairs for airlines will decrease the price of industry can make it more appealing (BBC UK, 2010).
Legal and Environmental: Career laws, competition law, risk of natural causes, carbon dioxide emission are other factors of the low-price airline industry.
Question 2:
Corporate Strategy, Business Level Technique and Operational Strategy
Corporate Level Strategy
According to this is from Collis and Montgomery (2005, p8), corporate level strategy can be defined as the way that a enterprise uses to create worth through construction and coordination of its multimarket activities. There are three main emphases of this definition, value creation, configuration and multimarket activities. It is indicated in Appendix 1 that the corporate approach of Tiger Airways is certainly that: To create a portfolio of profitable routes throughout Asia and Australasia by establishing airlines in marketplace where low-fare, low cost business model has exceptional potential for sustainable profitability with ancillary services such as for example luggage upsize, seat selector and sports equipment check-in.
Business Level Strategy
One model produced by Bowman called The Strategy Clock can be used to get great understanding about business level approach, which relates competitive benefits to cost edge and differentiation benefit. These successful strategies can be illustrated as following amounts: Low price/ low added value, Good deal, Hybrid, differentiation without selling price premium and Focused differentiation (Angwin et al 2007, p121)
All these different approach are classified based on two factors, price and value. It might be seen from Appendix 1 that the price of Tiger Airways is certainly low because the company implement price leadership approach. Besides, compare to other airlines, the worthiness added by Tiger Airways is bound. Luggage is bound to some size; seat variety will be charged. Just is purchased food or beverage is allowed compare and contrast to free food and drink in SIA. Thus, the activities are low value-added. So, predicated on these two factors, the business enterprise level approach is Low value/Low added value.
Operational Strategy
According to this is of Lowson (2002, p57) that operational approach can be viewed widely as a worth delivery strategy. It is about decisions which helps make and deliver item/service, value to consumers through companies’ key competencies. Therefore, the primary operational approach of Tiger Airways is certainly to maintain and improve the core competencies of low fare/ low cost. Many decisions have been made based on this strategy:
Joint venture with Thai Airways to start new airline.
Install advanced 3-D weather radar to increase effectiveness (Tiger Airways.com 2010)
Minimize service that fees customers on customers’ behalf.
Question 3:
Porter’s Five Forces Analysis
Porter’s five forces version is probably the most well-known models running a business literature that create the competitive situation in virtually 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. Models 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 innovative entrants of the low-cost airline industry is very fierce (4 out of 5). Although the investment of setting up new airline companies is huge to those organizations that are not in the airline industry, it is feasible to other institutions which already are in airline industry to establish new companies which serve the low-cost airline sector. The establishment of Tiger Airways is definitely an example to support this aspect. Tiger Airways is usually partially by SIA, which is the leading airline company around the globe.
Threat of substitutes
Long distance instructors, trains, passenger ships, network and other airline companies (such as for example SIA) are the key substitutes of the low-cost airline industry. It is usually seen from Appendix 2 that, although the low-cost airline market is a booming market with high growth fee, Network airline companies are still the main service provider in the airline market. And Long distance instructors and trains play much more significant role in transportation in countries such as for example China because of the poor development of air transport. Therefore, this threat is quite substantial (3 out of 5).
Bargaining power of buyers
In
low-cost airline sector, though customers are easy to find substitutes but these substitutes could cause higher price or take more time to reach their destinations. So, the bargaining vitality of buyers is not so good (2 out of 5). For example, it is obviously seen from Appendix 3 that SIA go back ticket for exploring between Singapore and Hong Kong is just about 100SGD expensive than that of Tiger Airways.
Bargaining power of suppliers
Obviously, the main supply of low-cost airline industry should be the aircrafts, and Boeing and Weather Bus are the two suppliers of aircrafts to low-cost airline industry. It means that these two companies are in the position of monopoly. As a result, their bargaining vitality is extraordinary strong (5 out of 5).
Intensity of rivalry
The strength of rivalry of low-cost airline industry is not therefore fierce (2 out of 5). Although the core competency of low-price airline players is low fare/low expense, they have regional characteristic, which means simply few airline players happen to be acknowledged by customers in a specific areas. For instance, in South East Asia, Tiger Airways and AirAsia will be the two known players by clients.
In bottom line of the examination of Porter’s five forces model, the outcome could be summarized as the following picture. Low-cost airline sector is an attractive industry, as potential buyers don’t possess strong bargaining power, and this market is a vendor market; low threats of substitutes means low-cost airline is an effective choice among the services or products. Besides, although bargaining power of suppliers is incredible high, every player in the industry will face this issue, and as a result of a booming market with high growth fee, low-cost airline industry is an attractive industry.
Question 4:
Value Chain Analysis
Porter’s value chain style is an average value chain model, which state nine sorts 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 technology orient to e-society. New York: Springer Science+ Business Media, LLC. p81.
However, this model aims at manufacture businesses. Tiger Airways is in the industry of low-cost airlines, which is a service industry, subsequently, the model should be modified based on the assumptions the following:
All the purchases are for infrastructure creation purpose.
Service is produced once pay for happens.
Therefore, it is usually seen from the circumstance and other information from web page and Tiger Airways 2010 annual reports that the value added actions are presented the following:
In the case, it is stated that by 2015, 8 flights would be allocated to the new launched low-cost airline; this is the value-added activity which evolves the infrastructure of Tiger Airways (Creedy 2001).
In the annual report, it is stated that” new directors to the Plank are briefed by Operations on the Group’s organization activities, strategic directions, and you will be sent for external training and development programmes”. It is the value-added activities on manpower resource supervision (Annual statement 2010). By this, Tiger Airways has the ability to find out better corporate, business level and operational strategies for the long-term production of the business and sustain the cost advantage aswell.
According to the media launch of Tiger Airways, this year 2010, by partnering with Honeywell, the company mounted advanced 3-D weather radar enhance security and passenger comfort. This is often seen as a value-added activity based on technology advancement (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 (personal rather than lease), enabled Tiger Airways to further reduce operating price and in tune boost value to customers (Annual report 2010).
According to the website, extra service is provided such as luggage upsize, seat assortment and the as related service, for example, hotels, insurance and car work with to enhance the types of service that customer can delight in through Tiger Airways.
There are a great many other business activities carried out by Tiger Airways, which enrich the worthiness of service provided by Tiger Airways and gain wide recognition among customers, this is actually the exact reason assists Tiger Airways be one of the leaders in South East Asia to supply low-cost airline service.
Question 5:
Common Cost-cutting Strategies
According to numerous literatures, there are numerous varieties of cost-cutting strategies, for instance, rationalization, standardization, central processing of transactions, technology application and cost management strategy (O’Brien & Datta 1989, p165). Therefore, related to low cost carriers, the common cost-cutting strategies can be presented the following:
Rationalization. To low cost carriers, non-value-added activities are removed and just do those value-added activities remain. For example, there is one rule in Tiger Airways that simply is bought food or beverage is allowed.
Standardization. Another strategy is normally to standardize the service of low cost carriers. It usually is seen for Appendix 4 that the provider of Tiger Airways is definitely standardized, as extra services will be charged by a certain price.
Central processing of transactions. Crucial processes are identified by low cost carriers that need to be give attention to to provide the essential service to their customers.
Technology program. New technology can be applied to reduce operational cost and even reduce the proportion of risk. As mentioned above, the 3-D conditions radar is utilized by Tiger Airways to improve the accuracy of temperature prediction to lessen unnecessary loss by motive of bad weather (Tiger Airways.com 2010).
Cost management strategy. This plan is used by low cost carriers to understanding the factors that afflicted the cost such as energy, labour, distribution, inventory supervision, purchasing, and forex (IATA Training Portfolio). Consider Tiger Airways as an example, the two main business regions happen to be South East Asia and Australia. So, the foreign exchange fee between AUS Dollar and SGD is certainly a factor that cannot be neglected Another evidence stated in Tiger Airways 2010 total annual survey that by renewing agreements with airports, ground services, providers and various other suppliers, and purchased two aircrafts from Airbus (very own rather than lease), enabled Tiger Airways to further reduce operating cost.
Three Future Strategies
The strategies will be given according to Ansoff’s item/market matrix.
Source: Berger Roland., Kotler Philip., Bickhoff (2010). The Quintessence of Strategic Administration. London: Springer Heigelberg. p36.
Market Penetration. To Tiger Airways, it will use activities such as advertising, sales promotion to increase seat occupancy rate, which will certainly reduce the operating cost, this is the way to build solid core competencies.
Market Development. It really is evident in the event that market advancement is a suitable strategy for Tiger Airways to reduce operating cost and enterprise development (Creedy 2001). With the addition of fresh airlines through joint ventures with various other airline companies, it will give Tiger Airways own chance to reap the benefits of advantages of other airline companies.
Diversification. There happen to be two key professionalism essay types of diversifications, related and unrelated diversification. Thus, To Tiger Airways, the business may use related diversification strategy to expand its business, such as for example to international express organization. Through this plan, the company can decrease the operating cost.
References:
Angwin Duncan., Cummings Stephen., Smith Chris (2007). The strategy pathfinder: core ideas and micro-cases. Oxford: Blackwell Publishing. pp121-122.
Annual report (2010). Chairman’s statement. http://www.tigerairways.com/news/Annual_Report_2010.pdf [Last accessed: Dec. 7th 2010]
BBC (2010). Thailand red-shirts lay out new conditions. http://news.bbc.co.uk/2/hi/8671991.stm [Last accessed: Dec. 7th 2010]
BBC UK (2010). Are standing seats a position joke? http://news.bbc.co.uk/2/hi/8779388.stm [Last accessed: Dec. 7th 2010]
Beamish Karen., Williams John (2008). Analysis and Analysis. Oxford: Elsevier Ltd. pp76-77
Berger Roland., Kotler Philip., Bickhoff (2010). The Quintessence of Strategic Operations. London: Springer Heigelberg. p36
Caneval Ventures. Types on the dynamics of advancement. http://www.caneval.com/vision/innovation/innovation2.html [Last accessed: Dec. 7th 2010]
Collis J. David., Montgomery A. Cynthia (2005). Corporate technique: a resource-based approach.
New York: McGraw-Hill. P8.
Creedy, S. (2001), ‘Tiger Airways to begin Thai low-expense airline’, The Australian, http://www.theaustralian.com.au/business/tiger-tostart-thai-low-cost-airline/story-e6frg8zx-1225900253006 [Last accessed: Dec. 7th 2010]
Dunn Graham (2009). Low-cost carriers: All set for battle. http://www.flightglobal.com/articles/2009/04/21/325429/low-cost-carriers-ready-for-battle.html [Last accessed: Dec. 7th 2010]
IATA Training Portfolio. Price Reduction Strategies. http://www.iata.org/training/courses/Pages/talf02.aspx [Last accessed: Dec. 7th 2010]
Kourdi Jeremy (2009). Organization Strategy: A Guide to Taking Your Organization Forwards. 2nd ed. London: Profile Books Ltd. p3.
Lowson H. Robert (2002). Strategic operations management: the new competitive benefits. 1st ed. Oxon: Routledge. p57
O’Brien Richard., Datta Tapan (1989). International economics and financial marketplaces. Oxford: Oxford University Press. p165.
Robinson Peter (2009). Operations Management in the Travel and leisure Market. Oxford: CAB International. p75.
Tiger Airways.com (2010). Tiger Airways to set up advanced 3-D weather radar; first low-expense airline in Asia to use latest technology what is a literary essay on A320s. http://www.tigerairways.com/news/20100616.pdf [Last accessed: Dec. 7th 2010]
Wang Weijun (2007). Integration and invention orient to e-society. New York: Springer Science+ Business Mass media, LLC. p57.
Appendix 1:
http://www.tigerairways.com/sg/en/about_us.php
Appendix 2:
Figure 1: Airline Market Share by Kind of Carrier
Note: Others is mainly regional jet carriers but can include a small percentage of scheduled charter carriers.
Source: M.R. Dayton, “Trends and Demand in Aviation Marketplaces,” display at the ATCA/FAA/Nav Canada Technical Symposium, Business office of Inspector Standard, U.S. Section of Transportation, 2004.
