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External Environment Analysis

Discuss about the Logistics Selection for Strategic Management.

Air New Zealand is a global and domestic airline group that provides air travellers and freight transport services within New Zealand. The airline was operated in the year 1940 however; the name was Tasman Empire Airways Limited. It was renamed in the year 1965 as Air New Zealand Limited. Until 1980s, Air New Zealand functioned with a shared DC-8 and DC-10 fleet. The airline was becoming truly international as it was expanding its business to North America and Asia. In the year 1999, Air New Zealand became a complete member of the Star Alliance group. The Star Alliance group mainly comprises of Air Canada, ANA, Asiana Airlines, Austrian Airlines, LOT Polish Airlines, Singapore Airlines, SAS, South African Airways, SWISS, Thai Airways, United Airlines, US Airways and Varig (Walker, 2015).

A conditional agreement was announced by Air New Zealand in the year 1996. According to this agreement, Air New Zealand will make a purchase of 50 percent of Ansett Holdings Limited from News Corporation Limited at an amount of A$580m. In the year 2002, the way by which travellers travelled with Air New Zealand changed completely. The business was modernized by Air New Zealand in order to offer considerably low fares as well as simplified booking rules. The first Boeing of Air New Zealand touched down in Auckland on the eve of Christmas in the year 2010 (Freed, 2015).

Porter’s five forces Analysis

The five forces model assesses three possible horizontal threats as well as two vertical threats. Horizontal threats are represented by the threat of substitutes, threat of new entrants as well as industry competition. On the other hand, vertical threats are represented by power of sellers and power of buyers.

Industry Competition: High – Air New Zealand is exposed to both direct competition as well as indirect competition from diverse airline alliances in the long-haul market. This is mainly a because of poor industry return that has made Air New Zealand severely competitive. The competitions in domestic markets are more intense as compared to long-haul market due to lack of substitutes as well as augmented identification of brand. Moreover, competitive pressure in the long-haul market is to some extent improved because of policy share coalition agreements. In the year 2004, the accumulation of 12 Boeing aircraft to the fleet was announced. Direct competition is reduced with the generation of new markets through incorporating capabilities. This in turn, leads Air New Zealand to earn more profit. With the exit of Virgin Blue, competition in the domestic market should alleviate however, short-haul market remains highly competitive. This is mainly because of the low-cost barriers that are highly harmonized (E. Dobbs, 2014).

Internal Audit

Air New Zealand

Figure: Air New Zealand

(Source: Foodtech-portal.eu, 2016)

Threat of New Entrants: Average to High - The airline industry is one that necessitate enormous capital expenditure, which been an effectual barrier in averting probable entrants. Threat of new entrants has although increased due to deregulation however, recognized technological systems as well as brand identity had made it difficult for new airlines to enter the market. On the other hand, these factors are becoming inappropriate with each passing day. Southwest Airlines, for example has adopted innovative business model that permitted them to exceed the barriers. As a result, threat of new entrants is average to high (Rothaermel, 2016).

Threat of substitutes: Low – There is no such obtainable substitute to worldwide travel other than ship. However, travel by ship is inferior in both time and speed. As a result, individuals will prefer to choose the mode of travel that will be time consuming. Unless a trip is too short, no techniques of travel rate as possible alternate for air travel. Qantas Airways is not considered a substitute for Air New Zealand with the start and ends (Grant, 2016).

Porter’s five forces Analysis

Figure: Porter’s five forces Analysis

(Source: Airnewzealand.co.nz, 2016)

Power of Buyers: High – The buyers of Air New Zealand have enormous negotiating power, as the cost necessary to switch from one carrier to another is negligible. Problems worsened with the appearance and powerful popularity of intermediary trip booking websites as well as Smartphone apps. Most of the travelers do not contact an airline such as Air New Zealand to book a flight directly. The travelers mostly prefers to contact sites or apps in order to evaluate rates across all carriers. Air New Zealand can act in response to this market force by performing market research and presenting more undeviating flights at low prices to the destinations fliers search for most often on third-party proposal. Air New Zealand also needs to reinforce their relationships with the credit-card companies in order to offer attractive rewards to the customers (Andreassen, 2015).

Power of Suppliers: Low – The list of suppliers in the airline industry is quite huge. Air New Zealand has a strong inducement to keep a good relation with its suppliers. However, there are various suppliers and as a result, if the relation goes bad with any supplier Air New Zealand will easily find a replacement for it.

VRIO Analysis

The relationship of Air New Zealand with the government acts as an intangible resource. With the support of the government, Air New Zealand will be able to exploit the opportunities and counteract threats. Air New Zealand is the only airline industry to get direct support from the government. If the resources are valuable, the company will be have added advantage to exploit the resources. Air New Zealand will also be able to exploit opportunities with the help of its brand name.

Value Chain

Air New Zealand value chain analysis engages the adoption of a methodical advance in the analysis of competitive advantage. The value chain analysis structure mainly involves distinction between primary and a support business activity recognizes the sources of competitive benefit for every action.

Value Chain Analysis

Figure: Value Chain Analysis

(Source: Research Methodology, 2016)

Inbound Logistics – Inbound Logistics of Air New Zealand is complicated as it involves the appropriate release of fleet of planes, catering goods and a broad range of other aboard products. The inbound logistics activities are further complicated as Air New Zealand deals with ensuring the cleanness of foods and drinks provided during the journey. Air New Zealand has gained competitive advantage with the help of inbound logistics by establishing fragmentary relationships with suppliers (Antràs & Chor, 2013)

Operations - The preparation of commodities and services that are sold to customers are categorized under this stage. The scope of business operation is widespread for this airline. In other words, it is a renowned airline that is operating all over the world. Air New Zealand have a diversity of competitive advantages in operations. The business offers its customers with increased security for the luggage of the customers. It also offers fast enroll services and offers online booking services. It also offers additional availability of seats as well as enhanced loyalty reimbursement for recurrent flyers. Additionally, a high level of customization of service stipulation and a widespread exploitation of digital expertise in a broad range of business procedure symbolize solid sources for benefit for Air New Zealand. Air New Zealand also became the first airline to initiate every day, inexpensive journey across the Tasman (Pearce, 2013).

Outbound Logistics - Outbound Logistics mainly involves distribution of ready goods to customers for utilization. Beside manufacturing companies, outbound logistics is also applicable for airline industry. Outbound Logistics also involve the system of hotel reservation. Air New Zealand obtains value in outbound logistics main operations by means of well-organized handling of luggage in the point of destination. The business also utilizes a highly developed information and communication system (Biedermann & Levy, 2015).

Marketing and Sales – Marketing strategy of Air New Zealand is directed at the communication of the marketing message to the target customer section. In the terms of sales, Air New Zealand is growing at about 12 percent per year. The marketing message to the target customer is communicated through an efficient utilization of a range of essentials of the marketing communication mix. Fundamentals of the marketing communication mix include media advertising as well as promotion and direct marketing (Tretheway & Markhvida, 2014).

Primary Activities

Service – Post-sale service is recognized as an important ground by Air New Zealand. Post-sale service mainly involves setting up of the product as well as management of complaints regarding the product and services. A post-sale service helps the airline business to achieve competitive advantage. This will help Air New Zealand to communicate with the customers through a series of channels. Air New Zealand has one hundred fleet sizes and being served by Boeing 747 as well as Airbus A320 aircrafts (Aguezzoul, 2014).

The company mainly faces challenges due to bargaining power of buyers that are extremely high. The increasing competition in the global market is also acting as a challenge for the organization. However, with the help of the resources the company is able to achieve competency. With the help of the internal and external analysis, the following SWOT Analysis can be obtained for the company.

Strength

With the help of outbound logistics, Air New Zealand is able to obtain value (Bull et al., 2016).

Air New Zealand has also developed special routes that have been designed in order to promote trade and marketing. It has signed a deal with Tourism New Zealand in order to promote tourism in Australia, the UK, Japan, Europe and China (Hollensen, 2015).

Air New Zealand involves environment friendly usage of fuel. It is the member of International Air Travel Association.

The company has an established brand identity in the market

Weakness

One of the biggest weaknesses of Air New Zealand is that it accepts credit card however; it does not accept cash. This poses a problem for foreigners, as they have to pay surcharge on their card transaction.

The inbound logistics are very complicated.

It charges a high fare price.

The services provided by Air New Zealand are often delayed and crewmembers are often not organized.

Opportunities

Air New Zealand has the opportunity to earn miles with the tickets by categorizing them under gold and silver. This is mainly categorized by depending on the class in which the travelers travel.

Technological improvement will help to expand the business

Threats

The increasing power of the buyers had also posed a threat for the organization.

Air New Zealand is facing both direct competition as well as indirect competition from varied airline coalition in the long-haul market (Grant, 2016).

The airline is also facing challenges as the New Zealand dollar comes off its highs and rivalry inclines up in routes. An international financial downturn unconstructively affects leisure, travel, as well as business journey.

Increasing threat from new entrants

Two distinct strategic options for the organization are Porter’s Generic Strategy and Ansoff Matrix.

Porter’s Generic Strategy

Figure: Porter’s Generic Strategy

(Source: BusinessSetFree.com, 2013)

Cost-Leadership - The cost-leadership approach is the easiest among all the generic approaches. The focus of this strategy is to minimize the cost of Air New Zealand. This strategy is mainly important for Air New Zealand, as the company has reduced profitability. The company was unable to provide lower fares to the travelers as they were not able to generate profit. As a result, Air New Zealand requires focusing on this strategy by introducing new routes (Moon et al., 2014).

Differentiation – The Company pursuing this strategy will mainly focus on offering the market with a unique product. Differentiation mainly deals with external business environment. This strategy will help Air New Zealand to accomplish a low-cost position in the market by increasing profit. With the help of this strategy, the company has been able to enlarge diversification in geographic existence in worldwide (Tansey, Spillane & Meng, 2014)

Focus – This strategy is an amalgamation of cost-leadership and differentiation. This strategy helps to define the behaviors of the cost sensitive customers in precise segments.

Ansoff Matrix

Figure: Ansoff Matrix

(Source: Ansoffmatrix.com, 2016)

Market Penetration - Air New Zealand is already operating in several existing markets however; it needs to expand its business in various other key markets.

Market Development – The selling of existing products to new market will help Air New Zealand to improve growth of business. Air New Zealand is connected to New Zealand through services to 22 domestic destinations (Hussain et al., 2013).

Product Development – This strategy involves the process that is utilized to introduce new products into new markets. Air New Zealand has introduced Boeing 747-400 that is referred to as ‘Daddy’s yatch’. This will help the travelers to work, eat and sleep in the special cabin.

Diversification – A substantial business strategy attempts to improve both productivity and prosperity. This is mainly done by introducing new products in the market (Thijsen, Tong & van Leer, 2014).

Out of the two strategic options, the one that is recommended is Porter’s Generic Strategy, as it will help Air New Zealand to increase market share as well as change rules in order to create individuality. Porter’s Generic Strategy will also help to make cost of differentiation an advantage. This will in turn, help to improve growth of the business. Cost-leadership strategy will help Air New Zealand to set the market prices that can be at or near the industry. With the help of this strategy the company will be able to provide low fare prices to the customers. Differentiation strategy has also helped the company to accomplish important revenue growth.

Conclusion

It can be thus concluded that The biggest strength of Air New Zealand is that Stryrax has rated it as eighth best airline in the world. In the terms of sales, Air New Zealand is growing at about 12 percent per year. It has also been concluded that Air New Zealand obtains value in outbound logistics main operations by means of well-organized handling of luggage in the point of destination. As far as operation is concerned, Air New Zealand has a variety of competitive advantages in operations. Most of the travelers do not contact an airline such as Air New Zealand to book a flight directly as they book the ticket through an app from online. Air New Zealand had faced severe competition as due to poor industry return.

References

Aguezzoul, A. (2014). Third-party logistics selection problem: A literature review on criteria and methods. Omega, 49, 69-78.

Airnewzealand.co.nz. (2016). Operating Fleet. [online] Available at: https://www.airnewzealand.co.nz/fleet [Accessed 19 Aug. 2016].

Andreassen, H. (2015). Strategic responses to digital disruption in the outbound wholesale travel industry: a New Zealand perspective (Doctoral dissertation, Auckland University of Technology).

Antràs, P., & Chor, D. (2013). Organizing the global value chain. Econometrica, 81(6), 2127-2204.

Biedermann, M., & Levy, D. (2015). The Impact of Mobile Services on the Interaction between Airlines and Passengers. GRIN Verlag.

Bull, J. W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., ... & Carter-Silk, E. (2016). Strengths, weaknesses, opportunities and threats: A SWOT analysis of the ecosystem services framework. Ecosystem Services, 17, 99-111.

BusinessSetFree.com. (2013). Your Small Business Competitive Advantage • BusinessSetFree.com. [online] Available at: https://www.businesssetfree.com/small-business-competitive-advantage/ [Accessed 19 Aug. 2016].

Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Freed, J. (2015). Air New Zealand reveals plans to fight threat from Qantas.

Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Hollensen, S. (2015). Marketing management: A relationship approach. Pearson Education.

Hussain, S., Khattak, J., Rizwan, A., & Latif, M. A. (2013). ANSOFF matrix, environment, and growth-an interactive triangle. Management and Administrative Sciences Review, 2(2), 196-206.

Moon, H. C., Hur, Y. K., Yin, W., & Helm, C. (2014). Extending Porter’s generic strategies: from three to eight. European Journal of International Management, 8(2), 205-225.

Pearce, B. (2013). Profitability and the air transport value chain. IATA Economics Briefing, (10).

Research Methodology. (2016). Value Chain Analysis - Research Methodology. [online] Available at: https://research-methodology.net/theory/strategy/value-chain-analysis-2/ [Accessed 19 Aug. 2016].

Rothaermel, F. T. (2016). Competitive Advantage in Technology Intensive Industries. Technological Innovation: Generating Economic Results (2nd Edition)(Advances in the Study of Entrepreneurship, Innovation &amp, 26, 233-256.

Tansey, P., Spillane, J. P., & Meng, X. (2014). Linking response strategies adopted by construction firms during the 2007 economic recession to Porter’s generic strategies. Construction Management and Economics, 32(7-8), 705-724.

Thijsen, T., Tong, T., & van Leer, J. (2014). Ansoff Model. Marketing.

Tretheway, M. W., & Markhvida, K. (2014). The aviation value chain: Economic returns and policy issues. Journal of Air Transport Management, 41, 3-16.

Walker, K. (2015). Taking the high road: Air New Zealand is riding a performance wave and taking eco-aviation responsibility to a new level. AIR TRANSPORT WORLD.

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