Strategic Management : University of Westminster

University of Westminster
FINAL ASSIGNMENT:
Question 1, 2 and 3
Strategic Management
Module Code: 7BUSS016W.1
Mariya Hristova
Student ID: W1813886
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Question 1
The Airline Deregulations Act in America in 1978 which affected the aviation market brought about
the removal of restrictions over costs, routes and timetables. This led to the variation of prices and
the exposure of incompetences in the industry due to the pressure from possible and present
competition (Morrison and Winston, 1987; Borenstein, 1992). Although, there was high competition
in the years to follow post the deregulation of 1978, it was apparent that the aviation industry had
started to mature once more (Walker et al., 2002). The period of maturity with airlines that is
determined by the low-priced discrepancy is one that can potentially showcase less competitors,
higher resemblance of operations, simulation and more dependence on habitual methods (Klepper
and Graddy, 1990). These types of climates doubtlessly put the relationship between aviation
companies’ strategy and their performance to the test which, according to Rumelt at al. (1994), is
what makes up the contemporary strategic management study.
The resource-based view (RBV) hypothesizes that if the resources and capabilities of a company are
valuable, rare, inimitable and non-substitutable, which formulates the VRIN analysis, then that
means that they are able to guarantee a sustainable competitive advantage (SCA) (Wernerfelt, 1984;
Barney, 1991). D’Aveni (1994) debates whether the competitive advantage of a company gained,
and especially in the airline industry, can be observed as progressively open to attacks and thus this
company is left with no choice but to look for additional capabilities to stay atop the competition.
Specificity and scarcity in RBV are considered to be key economic powers which restrict the
magnitude of which the competitive advantage of a company can be copied via the actions of other
companies which for short is called isolating mechanism (Rumelt, 1984). Aviation carriers are
distinctly outlined but are also part of an akin market. Customers are seen as something to be
delivered and which make up for the revenue of the airline company. The magnitude of competitors
in the airline market can be influenced by overlaps in supplies in the industry (Chen, 1996; Gimeno
and Woo, 1996).
The resource-based view defines the company as an array of capabilities and resources (Peteraf and
Barney, 2003). Through the perspective of the aviation industry, this can be seen as the operation of
perplexing system of connections instead of the navigation of a single airplane (Helfat and Winter,
2011). Resources are defined as tangible or intangible assets and are specific to a company which
ensues a type of continuity (Wernerfelt, 1984) and these resources have to be regulated by the
specific company as per Barney (1991). He also claims that they are the same as, or at least contain,
capabilities. According to Makadok (2001), resources are regarded to as tangible assets while the
capabilities are seen as intangible ones and Teece et al. (1997) claims that the core capabilities of a
firm are considered to be at the center of the company’s main actions. Nonetheless, there is a
possibility that those could become constrictions for the company in the airline industry when a
period of maturity arises intertwined with overlaps of industry and resources. According to Helfat
and Peteraf (2003), companies direct their attention to efficiency when the capabilities become
mature as well as per analysis of the life course of the latter.
It is almost impossible for air travel companies to gain competitive advantage on American soil. This
is due to the market being extremely homogenous when it comes to aspects of cost, quality as well
as passenger load factor which are supposed to have major impact on the performance of any given
company. The US market overlaps and the companies in the country attain their resources from
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universal resource pools (Chen, 1996). For example, American Airlines were the first airline company
to introduce a loyalty programme, implement a digital reservations department and also present
numerous extensive modernizations and amenities on the aviation market (D’Aveni, 1994).
However, all of its competitors eventually have managed to reach the company and duplicate its
modernizations in a similar way. There is an apparent intimidating scene when it comes to
competitiveness and success is hard to achieve and especially maintain in the US airline industry.
In the year of the deregulation, the aviation market was a mature one but it faced considerable
uncertainty in the performance of the established companies which took about ten years to be
rectified and maturity to be reached again (Walker et al., 2002). The powerful current airlines had to
come up with stronger marketing strategies to acquire more passengers and increase switching costs
which, unfortunately, were immediately imitated by their competitors (Borenstein, 1989). Winston
(1993) explains that aircraft carriers had to abide by strict regulations and were forced to turn to
wider industry standards like processes at the airports and staff-to-passenger quotas. Aviation
companies in America have to answer and rectify any commercial and security issues as per the
demands by the Department of Transportation and the Federal Aviation Administration (Gerchick,
2013).
Helfat and Winter (2011) state that one of the most important core capabilities in aviation is to
sustain a strong system of flights. The United Stated has an outlined market borderline of
individually operated airports which incentivises aviation companies when it comes to coverage and
unavoidably draws competitors at the network position. In the airline industry, there are several
factors which are essential for operations of the company to run smoothly and they are
trustworthiness, approachability, cost efficiency and timely delivery (Schefcyzk, 1993). According to
Teece et al. (1997), the capabilities of an operation are essential part for the company to survive
which is particularly applicable in the aviation industry. Productivity in this market can be measured
by passenger load factor and space usage (Schefcyzk, 1993).
Airline companies are part of a notably mature industry where competing has its restraints especially
given that they use universal resources. The market does not offer opportunities for competition to
be maintained and, as stated by Helfat and Peteraf (2003), the lack of capabilities can lead to
decreased value for airline carriers with time. When it comes to value for customers, however,
airlines indulge their passengers by tailoring to their needs like flexible timetables, economy and
business class availability, online booking systems, etc. This indicates that the companies create
value for their customers.
Question 2
Porter’s Five Forces is a type of analysis that can help to distinguish the level of the competition in
the airline industry. Porter has stated that competitiveness consists of various aspects, not only one
– competitors (Porter et al., 2010). There are, in fact, five aspects or forces that must be considered
and those are threat of new entrants, the bargaining power of buyers, the bargaining power of
suppliers, the treat of substitutes and competitive rivalry which is the competitors. It is essential to
understand and take all of them into consideration to establish the possible profitability in the airline
industry based on the case study about the American airlines. If most or all forces are high then that
would mean that the air transport companies do not gain appealing returns of their investments.
However, if these are low, the companies have the ability to earn better returns on their
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investments. According to the case study from 2007, there are 3 high and 2 low forces which have
been examined in more depth below.
Threat of New Entrants
The aviation industry in the United States has changed drastically following the Airline Deregulation
Act from 1978. The legal aspects of it have allowed new low-cost airlines to penetrate the market by
running a point-to-point operation by utilizing identical airplane designs as the established airlines
(Dess, Lumpkin, Eisner, & McNamara, 2014). The new Act has made it possible for aviation
companies to make shifts to their operational routes and to carry out different beneficial pricing
strategies which are less costly thus transforming the airline industry into a more aggressive one.
Low-cost airlines have increased their demand since 1993 leading up to 2007 when, as per Tan
(2016), they were responsible for 38.6% of the total of the market share in national travelling and
even more so Southwest Airlines have managed to accumulate 1286 routes between 1993 and 2009
thanks to this increase in share. Regardless of this growth, the threat of new entrants is not a
significant one as there is a need for an extensive initial expenditure to enter and expensive
established costs to obtain an aviation company. Additionally, the US government has stern
regulations in place for issues such as radiation and pollution, safety measurements and high taxes
which hinder the chances of new entrants in the airline industry. The outcome from this is one
where new entrants in the airline industry have been forced to expect abrupt payback from the
competition which is already present on the market (Dess et al., 2014).
The Bargaining Power of Buyers
There is a high bargaining power of buyers in the aviation industry. This is because consumers have
control over their selections as the service is the same and people have access to vast quantity of
data and information in helping them reach a decision about which airline to use. Budget companies
like Southwest depend on offering their customers low-cost air transportation, whereas big-name
companies like United Airlines and Delta offer better conditions and a bigger number of amenities
for a higher price. Technology is the reason for the increase in the bargaining power of buyers as it
gives them the ability to research and compare quality, costs and services of the different airlines in
order to reach a decision which aviation company to use. Air travel is the main and most time-
efficient mean of transport to day.
The Bargaining Power of Suppliers
The bargaining power of suppliers is high because there are only two available suppliers on the
market that specialise in manufacturing and those are Boeing and Airbus. The two have extensive
bargaining power as the aviation industry is known for its expensive switching cost when it comes to
different aircrafts. Airplane carriers suffer from fuel costs as the price of it is immense and they are
reliant on the price and quantity provided by the supplier. Hence why the major US airlines were hit
by the increase in fuel after the deregulation unlike the low-cost carriers who had fuel-efficient
airplanes and excessive stock of the product. Labour unions also have a strong bargaining power as
they are the main supplier for the airline industry. Thus companies must ensure secure and lasting
relationships are built with Boeing and Airbus, the fuel suppliers and the unions as they have a
strong bargaining power in the airline industry.
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The Threat of Substitutes
The threat of substitution is low to moderate in the aviation market as there are some other
transport types that the consumer may choose. People can use vehicles, trains and buses but the
aspect of switching costs is present in this case which is why these types of transportation are
preferred options when there is short travel involved and when flight tickets are too expensive
(Strategy Development, 2016). Nonetheless, travel by air is the fastest and most convenient means
of transport.
Competitive Rivalry
The competitive rivalry in the airline industry is high due to aviation companies trying to increase
their market share and gain leading power over their competitors. Budget airlines have managed to
build a reputation after the deregulation of 1978 which has led to rivalry amongst aviation carriers
when it comes to services and ticket prices. Another reason for the high competitiveness is that
airlines have almost identical marketing strategies which is the cause for low distinction between the
services and products provided by the different aviation companies. Also, the switching costs are
insignificant because many air transport carriers have higher percentage number in the allocated
market. Brand loyalty does not play a role in this industry despite the efforts of the aviation
companies to acquire this through different programmes and incentives. The key concerns of the
customer are ticket and service cost, flight route and time schedule (Strategy Development, 2016).
Following the deregulation in 1978, the airline market was deeply affected and instability arose
especially after the events of 2001 in America. Low-cost companies like Southwest were one of the
few that managed to stay above by offering affordable services to the public. They provide one of
the main features that consumers look for and that is low fare cost thus gaining value. As the
bargaining power of buyers is high and aviation companies’ strategies are almost identical, it is
difficult to estimate whether airlines have fully benefited from the value from customers.
Differentiation within the industry is low and brand loyalty does not play a role but rather consumers
look for flight prices, routes and timetables. According to the case study, 2007 has brought
profitability to the airline carriers which points to increase in demand and potentially growth in value
from customers.
Question 3
Overcoming COVID-19 has been a persistent battle all over the world. Governments struggle to
convince people to get vaccinated and in such times it is crucial to persuade the hesitant to do so by
providing any necessary research, information and support. It is essential for the governments and
healthcare providers to engage with the public in order to resolve any hesitancy and gain trust in the
COVID-19 vaccination. An important angle that can be considered in this transition process is public
values intertwined in the vaccine programmes as this would help different people to relay and ease
into the acceptance of the newly developed vaccines. If healthcare workers are provided with
enough recourses, it would enable them to build a strong foundation with the community and win
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their trust which could help with forming policy change, ensuring everyone has access to COVID
testing and proper treatment, focusing on the exposure and poor healthcare issues, and
guaranteeing the impartial distribution of vaccines. There are six strategies distinguished to help
battle hesitancy and gain trust in the COVID-19 vaccine.
Create Partnerships with Various Organizations in the Community
It is important for governments to establish partnerships with organizations that are already part of
and embedded into the community as they already have a close-knit relationship with their
followers, are aware of what information to provide and how to present it and have representatives
who have gained trust in the community. According to Quinn et al. (2020), many researches have
come to the conclusion that a true partnership is built upon open two-way communication in order
to gain trust and establish a common goal for resolving the issue at hand, public engagement in the
process of resolution, and most importantly produce data which is comprehensible and matches
with the demands of the population. Pflugh et al. (1992) state that a good communication strategy
must include these steps: recognising the problem, deciding upon common goals, understanding the
problem but also your public and limitations, evaluating your audience, recognising messages and
means, putting said strategy into action, and also assessing, judging and following up. This type of
approach can help governments to appropriate and influence their audience, the connections
between social networks and assets to increase the faith in the COVID-19 vaccines. Some of the
partners they can turn to are churches, mosques, various healthcare programmes, activists and
human rights groups, etc.
Put People First
According to Schoch-Spana et al. (2020), in order to combat the mistrust in the vaccines and
highlight their importance, the governments need to put people in the center for achieving this goal.
There is evidence that suggests that the accomplishment of this can be reached by having a two-way
communication and discussions, raising awareness by accumulating influences in the society and the
individual, involvement in the community and involvement of the community in decision-making and
implementations of any necessary changes for achieving adequate trust (Dubé et al., 2015; Jarrett et
al., 2015; NASEM, 2020a). Social media is a powerful tool which can be used to battle hesitancy and
gain confidence in the vaccines.
Community engagement on Multiple Plaforms
Governments must ensure that there is interaction present with the communities which will need to
be across different platforms. This is because there are various factors that need to be considered
such as foreign-speaking people, people with disabilities, working people, etc. Given this, any COVID-
19 vaccination announcements and engagement in regards to the same will have to be adjusted in
such a way that they reach as many people as possible (NASEM, 2020a). Each government must
decide independently what are the best ways and platforms to be used to reach their own nation.
Some of the channels that government personnel can use for communication are charity events,
churches, mosques, press conferences, etc.
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Battle Inequality in the Communities
Governments need to recognise the inequality that exist in the community especially when it comes
to people of colour. A possible angle that the health department can target is to acknowledge that
racism has led to a detriment of these people and to showcase a path for resolving this and
providing healthcare to all.
In the battle against vaccine hesitancy, governments must recognise that getting vaccinated is not
just about the individual decision but also is affected by numerous factors such as disabilities,
employment, accommodation and access to healthcare. It is essential to outline that the vaccines
are a way to combat inequity especially in the most afflicted communities during this period and that
this type of work will continue post COVID-19. The pandemic has revealed countless health
discrepancies, and governments have to demonstrate a better engagement to impartiality
(Berkowitz et al., 2020).
Public Ownership of the Vaccines
The public does not have very much trust in the healthcare in place in modern days especially within
minority communities and people of colour. For vaccination percentages to improve, governments
can improve their involvement in the communities, welcome feedback and work towards progress
based on this, appoint government personnel that closely work with the communities and resolve
any issues presented. It is also important to stress that getting vaccinated is beneficial to the public
as it helps protect the individual and those surrounding him/her from the spread of the virus.
Communicating Distribution Imbalance
A complete transparency is important when it comes to imbalance in the distribution of the vaccine.
Governments can stay ahead by being open about any inequity and sharing and communicating any
findings of this to the public. This can be published daily on the given government’s website or the
main healthcare provider, such as NHS in the UK, and it can then be acknowledged and worked upon
to achieve resolution of these inequities by government and community representatives together.
This is to assure that mutual trusting relationship is built and maintained.
Commitment and open communication are crucial to resolving the problems discussed, negating any
hesitancy and gaining the public’s trust in the vaccination process. Governments must be completely
transparent and convey clear and relatable messages to communities in order to turn the mistrust
into recognition of the COVID-19 vaccines. Strategies for increasing vaccination percentages and
gaining the trust of the public must be built upon the recognition that reaching a decision to get
vaccinated is an element of a complex ecological design that takes into account what happens in the
community and in the organisations together with the personal principles and manner of conduct.
There is a necessity for different strategies at all levels in a country to convince people to trust the
COVID-19 vaccination process, negate any issues and especially the reluctance and hesitancy
amongst the communities, and eventually increase the percentage of vaccinated people.
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