Literature review
STRATEGIC ANALYSIS OF AIR BLUE..AYESHA JAMIL AFRIDIDANISH
MEHMOODNOOR FESHANIMRA KHURSHIDRABBIA SHOAIB
Pakistan airline industryAirline industry is a service providing
industry that provides air transport servicesfor
travelersandfreight can classified as domestic, international,
intra-continental or intercontinental. PakistanInternational
Airlines (PIA) was established as a first Pakistani airline in
1955Airblue( our project)Literature reviewOverview of airline
industry in Pakistan over the yearsProblemsAccidentsFuture growth n
prospectsanalysis
problemsrapid increase in the fuel prices, Labor cost,
navigation and airport chargesTaxationeffect of politics
international airlines operating in pakistanPoor managementLow or
poor maintenanceOver staffingaccidentsCrashes and emergency
landings due to :landing gear crumblingFuel leakageIncapable pilots
or junior staffPhysical Defects No incorporation of new
technology
Future growth and prospectsInternationally air travel is
flushing very well there has been a vast increase in air
travelthere has been a 6% annual growth in the air transport
businessPakistan recently allowed 5 international airlines to begin
direct passenger and cargo flights from Sialkot International
AirportAnalysisPakistan airline industry has a lot of opportunities
for growth regardless of the challenges it faces. The private
airlines operating in Pakistan are in comparison treated unfairly
they are charged with heavy taxes and fuel sold to them is also on
higher prices. They have to face tougher regulations and rules than
pia as well. the conditions there inability to introduce
improvements in the existing structure and reluctance in building
new airports is another reason why our local airlines are facing
scrutiny. However, amidst all those challenges new private airlines
are springing up they promise a brighter future of the airline
industry of Pakistan..Competitors of Air Blue
National competitors
PIAAIR INDUSSHAHEENBHOJA AIR AERO ASIA
International airlines operating in Pakistan
EMIRATESTHAI AIRWAYS QATAR AIRWAYS
PESTEL Analysis
PESTEL Analysis
It consists of macro-environmental factors that may have a
positive or negative impact on the company and gives a chance to
address problems at the right time.
It includes following factors Political Economic Social
Technological Environmental and LegalPolitical Factors
In 1993, the airline industry was deregulated by the GOP which
allowed private airlines to operate ,so it lead to greater
competition
Political instability in Pakistan affects airline industry as
much as it affects any other business.
When government organizations has to choose an airline for staff
travel, they usually give preference to PIA as it is owned by
government.
Political Factors
Due to the influence of democratic government in Pakistan,
private businesses are flourishing and as a result it has positive
impact on growth and success of Airblue.
Government still owns a major stake in PIA and gives it frequent
subsidies in the form of financial credit and oil
Political Factors
In the past years, Pakistan civil aviation authority (CAA)
discouraged the investors to invest in the airline industry by
imposing strict rules and regulations regarding taxes and aircraft
ownership requirements .
Economic Factors
Increasing interest rates influencing investment decisions
Rupee depreciating against dollars (exchange rate changes)
GDP increase and increase in spending power of people has
positively influenced the airline industry of Pakistan.
Tickets prices are reduced.
Social Factors
Awareness among customers has increased through multiple
information channels such as television, internet, newspapers
etc.
Customers are now well aware of the price differences between
different companies in the same industry as well as differences in
the services provided by each company.
Social Factors
Due to privacy issues customers are reluctant in providing their
credit card information for E-ticketing.
Needs, demands and spending patterns of customers are
changing
Technological Factors
Airblue is the first Pakistani airline which introduced
technological advancements and so they have first mover
advantage
Major technological changes are taking place in airline
industry; in-flight entertainment facilities and automated check-in
counters are examples of technological advancement. Air blue has to
constantly make efforts to maintain these services.
Technological Factors
Airblue was the first airline to install SABRE system. PIA
imitated air blue and introduced this technology later on.
SMS service provided by different airlines and also airblue is
one of the technological advancements
Environmental Factors
Environmental rules and regulations must be followed by every
organization.
Weather changes and natural disasters affect flight schedules
Disruptions in air traffic control system affect smooth flow of air
traffic
Legal factors
Rules laid down by Civil Aviation Authority have to be followed
by every organization in the airline industry and so Airblue also
has to follow every rule and has good relations with CAA.
After the 2010 plane crash Airblues costs have increased to
ensure safety and security of its passengers due to strict legal
obligations imposed by the Civil Aviation authority.
Swot analysis
StrengthsSecond largest private airline of Pakistan enjoying
almost 30% market share on domestic routes Offers low fares as
compared to PIA, Shaheen and Air Indus by using cost leadership
strategy Airblue has eliminated all the paper work by deploying
EDNET intranet software There is a special package for special
childrens and students
StrengthsAirblue has an excellent refund policy.In September
2012, the company invested in A-340 long range commercial passenger
jet to cover longer routes for international flights.Airblue had
the first movers advantage by starting e-ticketing in Pakistan for
the first time.
StrengthsAirblue was the first airline in Pakistan to introduce
wireless check-in and self check-in kiosk facilities.Customized SAP
ways software implementation has facilitated business process
integration as well as coordination .Airblue had an agreement with
ONAIR to launch mobile onair voice and data services on up to 12 of
its airbus A320 aircraft beginning in 2009.
Weaknesses
Doesnt have business class they have economy class for all
customers. People who want to travel in business class dont travel
in Airblue and they prefer other airlines. Lack of marketing
efforts and brand image promotion.Company officials still travel in
PIA as they have contracts with PIA and PIA offers discount.
Airblue doesnt provide such facilities.Airblues 2010 plane crash
affected brand image adversely.
WeaknessesAirblue has small fleet of aircrafts ,due to this they
have to do refueling of aircrafts during flights to foreign
countries from international suppliers Airblue doesnt have its own
repair and maintenance facilities.
OpportunitiesUntapped domestic and international markets can be
tapped through market development.Route expansions to Europe and
North America.There is an increasing demand for freight. Taking
advantage of this opportunity, Airblue should expand its cargo
operations to destinations other than UAE and UK.
OpportunitiesCan generate high revenue by providing high quality
services to less-price sensitive customers.
Can expand its services by having a section for business class
travelers.
OpportunitiesAirblue is the market leader in private Airlines
and because of its current position in the market it can easily
form alliances with other airlines to enhance its market reach.
There is a growing trend of internet usage in Pakistan. Airblue can
use it as an opportunity for advertising and online services
promotion.
Threats
PIAs possible privatization.Shaheen Air International and Air
Indus are progressing. International airlines such as Emirates and
Qatar Airways are internationally renowned airlines and have
international standards. If they reduce their fares, Airblues
customers may switch to them because of the good quality services
provided by them.Airfares are dependent on oil prices which are
increasing day by day. Increase in taxes by civil aviation
authority is also a threat for the company.
36SO StrategiesWO StrategiesMore bookings through internet by
using e-ticketing (S6, O7)Add new destinations and increase market
share by offering low fares (S1, O1/O2)Increased use of online
services due to excellent refund policy (S3,O7)Invest in more A-340
Jets to cover international destinations (S4,O1)Start providing
services for business class (W1, O4)Market through online
advertisements (W2, O7)Sign contracts with companies by giving
excellent offers for Staff travel. (W3/O6)ST StrategiesWT
StrategiesProvide low fares with good quality to beat competitors
(S1, T2/T3)Purchase more A-340 Jets to reduce threat of competitors
and gain competitive advantage (S4, T1/T2/T3)Offer high quality
services for business travellers to be in a better position to
compete with PIA (W1, T1)Improved marketing and brand promotion
efforts to reduce threat of competitors. (W2, T2)Industry
Analysis
Threat of New Entrant:
A high initial investment is the main barrier to entry in the
airline industry. Sometimes banks provide credit for capital
investment and new entrants can come in the market with few leased
aircrafts.
In 1993 the civil aviation industry deregulated and they opened
the airline industry for private sectors to invest here. They
wanted competition in airline industry so better services can be
provided to customers at low fares. As a result so many private
companies entered into the industry but many left too soon due to
heavy taxes levied by CAA. Bhoja, Hajvery, and Raji closed their
operations years ago Other private airline safe airways
incorporated in Pakistan in 1999 but it had to close its operations
in Pakistan due to heavy taxes levied by CAA and it couldnt pay
some of those taxes.The barriers to entry are significantly high,
consequently decreasing the threat of new entrants. plane and
flying experience. When any new firm wants to become a part of
airline industry they have to get licensed which can take about a
year. So the threat of new entrants is low due to the time and
expenditure required to even enter in airline industry.
Threat of Substitutes
Substitutes such as buses, cars, trains, ships are all a threat
for the airline industry as they are substitute means of
transportation. Airblue offers low fares to its customers. Low fare
offering enhances the chances of preferring air travel over other
substitutes.Other means of transportation are still preferable and
cheaper for price sensitive customers especially when it comes to
travelling short distance. Bargaining Power of Suppliers
The suppliers in airline industry are aircraft manufacturers and
fuel supplier.The airfares are very much dependent on oil prices.
Airbus, Aircraft Parts Suppliers and Reservation System Providers
dominate the supply chain of airblue.
Airbus A319, Airbus A320, Airbus A340 were all taken on lease
from airbus (leading aircraft manufacturer) except one airbus A340
which airblue owns. As there are few aircraft manufacturers main
are Airbus, Boeing and ATR so bargaining power of suppliers is very
high.Airblue has small aircrafts thats why they have to purchase
fuel from foreign countries which increases bargaining power of
foreign fuel suppliers.
Bargaining Power of Buyers
Buyers have a high bargaining power since they have a lot of
options to choose from according to their price demands. Advanced
technologies have now enabled the customers to conveniently check
and compare prices online. Customers are well aware of the
differences between prices charged and services provided by
different national and international airlines.Rivalry among
Competing Firms
PIA, Air Indus, and Shaheen are the various competitors of
Airblue. PIA is Airblues biggest competitor which is supported by
government and makes it difficult for Airblue to attract and retain
customers. There are high exit barriers in airline industry. As the
fixed cost is very high in airline industry and it is hard to leave
the airline industry because the aircrafts are on lease like in
case of airblue so there are long term loan agreements to stay in
business.There is comparatively low product differentiation in this
service but we can differentiate the services when it comes to
international airlines operating in Pakistan like Qatar airways and
emirates.
Cross-functional analysis is integration of information from all
levels of management.At times unstructured strategic decisions are
also made by cross functional teams such as what markets to compete
in, what new production technologies to invest in, and what return
on investment to requireIn our cross functional analysis we will
see how the major different departments within the organization
work together in cooperation with each other to provide smooth
working of the organization
Cross Functional AnalysisThere are certain departments in which
do not have directors instead they have senior managers.Airblue has
an open organizational culture and centralized organizational
structure.The flow of information and communication of long-term
and short-term goals and objectives within the organization is from
top to bottom.The annual or short term goals which are directed
towards department are communicated to the departments in the
monthly meeting.
Cross Functional Analysis
Company Structure Of Air Blue:
Marketing:The marketing department of air blue is not as
distinct as the other departments mainly because of the fact that
promotion through advertising within airline industry is different
as compared to promotion for other products or services the
department consists of only 2 employees the airline industry
markets its itself at airports, ticket counters, travel agents and
travel and in-flight magazines and by sponsoring an event this way
of promoting and advertising for an airline has been proven
successfulThe DepartmentsThe marketing department further consists
of the commercial department which includes sales and call
center.These both sub departments are focused mainly on assisting
with online and call reservations of customers and also manual
counter ticketing.MarketingMarketingOperations DepartmentThe IT
department is there to manage and update the companys website and
provide smooth functioning of its e-ticketing service and assist in
online and call reservations
IT DepartmentThe engineering department consists of all the
engineers technicians and plane maintenance support crew that work
hard to make air blue planes and flights safe.
Engineering Department
Finance And AccountsThe finance department is further subdivided
into 2 departments : Accounts Procurements Air blue incurred more
variable costs than fixed cost. The cost structure of an average
air blue flight depends on the route it takesAir blue is required
to pay off monthly leases with the amount of lease payment varying
with the plane size Finance and AccountsIAS 17Leasesit gives the
rules for the accounting policies and disclosures applicable to
leases, for lessees as well as lessors. Leases are of two types
finance lease and operating leases and a lease has to be classified
under these two heads IAS 17 was reissued in December 2003 and
applies to annual periods beginning on or after 1 January 2005Air
lines use this standard for leases because most of them lease air
crafts so they have to do the accounting treatment for leases in
accordance with the international accounting standard 17
INTERNATIONAL ACCOUNTING STANDARD 17
Corporate governance
Principles of corporate governance
Rights and equitable treatment of shareholders Interests of
other stakeholders Role and responsibilities of the boardIntegrity
and ethical behaviorDisclosure and transparency
Principles of corporate governance and air blue
private limited companyDont issue shares7 days term agreement
with supplierscorporate social responsibility Plant A Tree
programmer in march 2008 relief campaign in May 2009
