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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University of Westminster
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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