Competitive Strategy: Internal and External Analysis of Air New Zealand

This report discusses the internal and external factors affecting Air New Zealand's business operation and recommends strategies for long-term viability.

Running head: COMPETITIVE STRATEGY
Competitive strategy
Name of the student
Name of the university
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Executive summary
The aim of this report was to discuss about the internal and external business factors important in
the business operation of Air New Zealand. Resource based view model is used to identify the
internal effectiveness of Air New Zealand in dealing with the business challenges. In addition,
the external analysis also identified that emergence of the low cost carriers and the increase in jet
fuel price is the two major challenges for Air New Zealand. Based on it, a few strategies are
discussed. These strategies can help Air New Zealand in enhancing their long term viability.

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Table of Contents
Introduction......................................................................................................................................3
Analysis of the internal environment...............................................................................................3
Identification of the resources.....................................................................................................3
VRIO analysis..............................................................................................................................4
Aircrafts...................................................................................................................................4
Human resources.....................................................................................................................5
Capital and financials..............................................................................................................6
Intellectual property.................................................................................................................6
Analysis of the external environment..............................................................................................7
Emergence of low cost carriers....................................................................................................7
Fluctuation in fuel price...............................................................................................................8
Analysis of the industry environment..............................................................................................8
Bargaining power of the buyers...................................................................................................8
Bargaining power of the suppliers...............................................................................................9
Threat of new entrants.................................................................................................................9
Threat of substitutes...................................................................................................................10
Competitive rivalry....................................................................................................................10
Recommendations..........................................................................................................................10
Conclusion.....................................................................................................................................11

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Regards..........................................................................................................................................13

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Introduction
The current business scenario in the global airline industry is one of the most challenging
due to the presence of large number of carriers. The increase in the competition is further putting
pressure on the existing players in managing their long term business viability. Air New Zealand
is the leading and flag carrier of New Zealand. It is operating since 1940 is ranked as the safest
airline in the world in 2014 (Tsui 2017). However, even these competitive advantages, Air New
Zealand are facing the challenges posed by the new competitors. Hence, it is important for them
to review their current internal and external business factors and initiate new strategies
accordingly.
This report will discuss about the major key trends being faced by Air New Zealand
currently along with the other external factors. In addition, the internal expertise of them will
also be discussed and based on the identified factors; a few strategies will be recommended.
Analysis of the internal environment
Analysis of internal environment for Air New Zealand will involve identification of their
key resources and competencies. This will help to identify the extent to which Air New Zealand
is gaining competitive advantages from their available resources. Resource Based View (RBV)
model will be used for determination of the internal competencies of Air New Zealand.
Identification of the resources
In terms of the tangible resources, the current fleet is one of the major resources for Air
New Zealand as the fleet is the component for providing the services. In addition, the other assets
such as building and hub are all the tangible resources of Air New Zealand. This should be noted

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that they are publicly listed company and thus their capital is also considered as the tangible
resources, which can be used for further investment and development (Lin and Wu 2014). In
terms of the intangible resources, the reputation being gained by Air New Zealand in all these
years of their operation is a major resource. This is due to the reason that their brand identity is
helping them in attracting the new customers till now. Moreover, the trademarks and other
intellectual property being possessed by Air New Zealand are also their intellectual property. For
example, the livery and the logo being used in the aircrafts of the Air New Zealand is their
intellectual property and helping them in creating distinctiveness (Bromiley and Rau 2016).
VRIO analysis
Based on the above identified resources of the Air New Zealand, it is important to
analyze the extent to which these resources are creating competitive advantages for the brand.
VRIO framework will be used in this case.
Valuable Rarity Inimitability Organizational
capability
Aircrafts  
Human resources   
Capital  
Intellectual
property
   
Aircrafts

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From the above analysis, it is identified that there are number of areas from where the
available resources for Air New Zealand are gaining competitive advantages. In terms of the
aircrafts, they are valuable due to the reason that aircrafts are medium of offering services to the
customers for Air New Zealand. The quality of the aircrafts will determine the extent to which
the passengers will be satisfied. However, they are not rare and inimitable due to the reason that
same aircrafts are being used by other airliners also. It is also identified that Air New Zealand is
capable enough in managing their current fleet. According to McKenzie-Williams (2017),
awarding the Air New Zealand as the airline of the year and safest airline in 2014 proves that
they are capable enough in managing their current fleet. The authors have also stated that Air
New Zealand is having diverse sets of aircrafts ranging from Boeing 777, Airbus A320 Neo to
turboprop powered aircrafts and still ensuring the best level of efficiency. This is also proving
the fact that they are capable enough in managing their fleet.
Human resources
Human resources are also adding value for Air New Zealand due to the reason that their
productivity and performance is determining the level of organizational effectiveness. Moreover,
the effectiveness of the human resources is also influencing the service delivery process quality.
The brand value being gained by Air New Zealand due to their efficient and ideal customer
service is the result of the value creation by their human resources. They are not rare as other
airliners are also having access to the skilled employees (Kellermanns et al. 2016). However, the
individual skill sets of the employees for Air New Zealand cannot be imitated as they are unique
for each one of them. Moreover, it will prove costly for the competitors of Air New Zealand to
imitate the same level of efficiencies from their employees. Air New Zealand is also capable for
managing their human resources as being proved by their customer service quality. This is also

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denoting that customer service quality is one of the areas of gaining competitive advantages by
them.
Capital and financials
Access to capital is also providing competitiveness for Air New Zealand in terms of their
further development and improvement. Starting from the trans-Tasman route and currently being
expanded across the world is the contribution of their access to capitals. Thus, it can be
concluded that capital is also adding value for Air New Zealand in terms of their business
performance. In the future also, capital resources will be valuable for them due to the fact that it
will help Air New Zealand in taking the challenge to their competitors by developing and
improving. Air New Zealand is a publicly traded company and thus they are capable of
managing the capital (Almarri and Gardiner 2014). As the government of New Zealand is the
major parent entity, the management of the capital funding is more effective and efficient.
Intellectual property
Intellectual property of Air New Zealand is their one of the major sources of gaining
competitive advantages. This is due to the reason that they are unique in any perspectives.
Intellectual property of Air New Zealand is valuable due to the reason that they are initiating
differentiation with their core competitors. For example, the livery being used by Air New
Zealand inside and outside of their aircrafts is creating distinctive value proposition for the
customers. Moreover, it is also rare due to the reason that not every airliner in the business is
being able to gain the same level of identity from the intellectual property (May 2015). However,
it should also be noted that there are number of other airliners in the region such as Qantas,
which are enjoying the higher value and exposure of intellectual property. On the other hand,

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intellectual advantage of Air New Zealand is also imitable in nature due to the reason that logo
and livery cannot be duplicated. This is also creating competitive advantages for Air New
Zealand.
Analysis of the external environment
Emergence of low cost carriers
There are number contemporary factors being faced by the current airline industry
including the Air New Zealand. One of the major trends being faced by them is the emergence of
low cost carrier concept. In the recent time, there are number of low cost airliners introduced in
the market that are offering of short haul and no frills services in low cost compared to the legacy
airliners such as Air New Zealand. It is reported that by 2027, more than 50 percent of the airline
market share in Europe will be controlled by the low cost carriers (David 2013). In addition, it is
also reported that average growth rate of the low cost carriers is higher compared to the legacy
airliners and is estimated that low cost airliner market will get increased by more than 8 percent
in the coming years. According to Pels, Njegovan and Behrens, the major reason behind the
increase in the popularity of the low cost carrier is mainly the involvement of low cost.
Traditionally, airline is the most expensive mode of transportation, which kept away the larger
middle class segment. However, with the emergence of the low cost carriers, this middle class
segment is being tapped. Middle class segment constitute the largest segment in the world and
hence low cost carriers are having the advantages over the legacy carriers such as Air New
Zealand. Contemporary customer segments do prefer no frills services over the holistic service
processes. Thus, the business model of the low cost carriers is also better aligned with the current
preferences pattern of the customers. This trend is having adverse impact on the business

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viability of Air New Zealand due to the reason that emergence of the low cost carriers will
reduce the existing market share of Air New Zealand (Akamavi et al. 2015). This should be
noted that trans-Tasman routes can be considered as the shorter haul routes and can be travelled
with the narrow bodied aircrafts. Majority of the low cost carriers are using narrow body
aircrafts, which will pose challenges to the existing market position of Air New Zealand.
Fluctuation in fuel price
Price of jet fuel is taking the upward trends in the recent time, which is further proving
challenges for Air New Zealand. This is due to the reason that the more will be the cost of jet
fuel, the more will be the cost of operation for the airliners. However, on the other hand, with the
tighter competition in the market, it is also not possible for the airliners to increase the fare price.
Hence, the average profitability will get down. Different political issues such as the problems
among the Middle Eastern countries and issues between the United States and Iran, which cause
sanction in importing of oil from them, are further amplifying the situation. Emergence of the
political issues between the countries in the coming years will also pose the challenge for Air
New Zealand because these issues will further increase the cost of fuels (Turner and Lim 2015).
Moreover, it should also be noted that the trend of increasing cost of fuel will continue in the
coming years as well considering the natural and artificial factors. In the case, the major
challenge for Air New Zealand will be to strike the equilibrium between the increasing cost of
fuel and competitive price structure in the market.
Analysis of the industry environment
Bargaining power of the buyers

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Bargaining power of the buyers is high for Air New Zealand due to the reason that there
are number of other airliners also offering same services in the trans-Tasman routes. Thus,
customers are having more options to choose from. In addition, airline market for Air New
Zealand is price sensitive and thus pricing strategy of Air New Zealand is determined by the
market forces. According to Greenfield (2014), service approaches are being designed by the
airliners in respect to the preferences of the customers and in the case of Air New Zealand,
differentiation of the service process can only reduce the bargaining power of the buyers.
Bargaining power of the suppliers
Bargaining power of the suppliers is also high for Air New Zealand due to the reason that
they are providing the airline service only. Air New Zealand is depended on Boeing and Airbus
for aircrafts and oil companies for jet fuel. Both these are the key elements in the service process
of Air New Zealand (Heese 2015). Thus, the price of the aircraft manufacturers and the oil
companies is having influence on the operational cost of Air New Zealand. However, it should
be noted that there are number of suppliers operating in the market and thus competition based
pricing is expected.
Threat of new entrants
Threat of new entrants is low for Air New Zealand in the airline sector. This is due to the
reason that huge cost and infrastructure is required for the new entrants to match up with the
existing ones. In addition, there are certain regulations should also be followed by the new
entrants in operating in the airline industry. Thus, there are numbers of barriers is present in this
industry and associated threat is less for Air New Zealand (Fresard and Valta 2016). However,
on the other hand, it should also be noted that large scale multinationals are entering in the airline

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business leveraging on their capital sources. They are also having the capability to compete with
the existing players.
Threat of substitutes
Threat of substitute is high for Air New Zealand due to the presence of similar service
providers in the market. Each of the airliners in the Trans-Tasman route is offering same hauling
services. Moreover, with the introduction of the low cost carriers in the market, the substitutes
are getting more for Air New Zealand. Switching cost of the customers is also low, which is
affecting the customer loyalty for the particular brand. However, in this case, the customer
loyalty program such as frequent flyer program will be beneficial in fending off the threat of
substitute.
Competitive rivalry
Competitive rivalry is high in the airline industry in the Trans-Tasman route and each of
the present players is tapping the limited market opportunities. Increase in the market share of a
airliner will depict the reduction of another. Thus, the intensity of the rivalry is high for Air New
Zealand. Seasonal discounts and other offers are initiated in attracting the customers.
Recommendations
 It is recommended that Air New Zealand should initiate cost leadership strategy over
their existing differentiation strategy. This is due to the reason that initiation of the
differentiation strategy is helping Air New Zealand in offering distinctive value
proposition for the customers but it is not reducing the operational cost for them. Thus,
with the help of the cost leadership strategy, Air New Zealand will be able to reduce their

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cost of operation and can offer the existing services in more cost effective manner. This
will enhance their competencies in facing the challenge of the low cost carriers.
However, in this case, it is also recommended that existing differentiation strategy of Air
New Zealand should also be followed. Offering of distinctive services in lower cost will
ensure the maximum value proposition for the customers.
 It is also recommended that Air New Zealand should initiate growth strategies in the
developing countries. This is due to the reason that developing countries are witnessing
rapid growth in economy airline sector as well. However, Air New Zealand is majorly
concentrating on the western countries with New Zealand, which is becoming less
profitable. On the other hand, the passenger traffic is increasing in the Asian-Oceania
routes. Thus, initiating the growth strategy in the routes of developing countries will be
beneficial for Air New Zealand in terms of their long term business viability. This will
also ensure the enhancement of the brand value and identity of Air New Zealand in the
new regions. Thus, in this case also, they should change their existing business level
strategy in terms of the operating routes.
 It is also recommended that Air New Zealand should introduce a new sub brand in the
low cost carrier market. This new brand will offer low cost services in the region. Thus, it
will be beneficial for Air New Zealand in tapping both the premium as well as the cost
sensitive customers, which will further increase the target customer base for them. On the
other hand, it should also be noted that with the help of the new sub brand, market
identity of Air New Zealand will further get penetrated. They will be able to tap the
changing preferences in the market with their diversified service offerings.
Conclusion

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Thus, it can be concluded that Air New Zealand is having a majority of advantages and a
few limitations. In this report, analysis of the internal factors of Air New Zealand identified that
their major resources are creating value as well as other competitive advantages. Moreover, it is
also identified that the two major trends being faced by Air New Zealand are the emergence of
low cost airlines and increase in the cost of jet fuels. This will have adverse impact in the long
term business viability of Air New Zealand. Moreover, the intensity of competition in the market
is also more for Air New Zealand in the Trans-Tasman routes. Based on the identified factors, a
few recommended steps are also being discussed. These strategies will further help Air New
Zealand in coping up with the change in the market effectively.

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Regards
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