Strategic Analysis of Aurum Air: Performance, Options, and Simulation

This case study provides a comprehensive strategic analysis of Aurum Air, utilizing tools such as PESTEL, Porter's Five Forces, SWOT, Bowman's Clock, and VRIN analysis to evaluate the airline's external environment, internal resources, and competitive advantages. The analysis identifies key trends and drivers in the airline industry, assesses the attractiveness of the market, and critically evaluates Aurum Air's business strategy and performance. Strategic options and modes of entry are explored, and recommendations are made to foster growth and ensure survival in challenging market conditions. The study concludes with a scenario analysis and recommendations based on a thorough understanding of Aurum Air's position in the U.S. airline market, emphasizing the importance of innovation, CSR activities, and strategic marketing to gain a competitive edge.

Running head: AIRLINE SIMULATION
Airline Simulation
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Executive Summary
The paper has carried out a comprehensive analysis of Aurum Air, focusing on external and
internal analysis. With the usage of tools like PESTEL, Porter, SWOT, Bowman’s Clock, VRIN
analysis an overview has been provided to understand the potential risks, threats and the
advantageous points of Auburn Air. The analysis will furthermore help in future investments and
strategic implementation to foster its growth and make it survive under difficult market
scenarios. The conclusion and recommendations are given after a thorough analysis of Aurum’s
case study and U.S airline market as well.

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Table of Contents
Introduction......................................................................................................................................3
Strategic analysis.............................................................................................................................3
Outlook – Trends and Key Drivers in the Airline Industry.............................................................3
PESTEL Analysis............................................................................................................................3
Porter Five Forces............................................................................................................................5
Attractiveness of Industry................................................................................................................6
INTERNAL ANALYSIS.................................................................................................................7
Competitive Advantage – VRIN Analysis..................................................................................7
• Distinctiveness of the Firm............................................................................................................9
• CRITICAL EVALUATION OF BUSINESS STRATEGY AND PERFORMANCE.................9
STRATEGIC OPTIONS AND MODE OF ENTRY.....................................................................10
SWOT Analysis.............................................................................................................................11
Threats-..........................................................................................................................................12
Porter’s Generic Strategies............................................................................................................12
Ansoff Matrix................................................................................................................................14
Business and marketing strategy vs. Performance........................................................................15
Business Strategy- Bowman’s Strategic Clock.........................................................................15
Marketing Strategy – 4 P’s Framework.........................................................................................16

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Sustainability, Acceptability and Feasibility.................................................................................18
Scenario Analysis – End of Quarter 12.........................................................................................19
Conclusions and Recommendations..............................................................................................20

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Introduction
The airline industry is an unpredictable one and annually needs to invest a sumptuous
amount to ensure that it is not losing customers to other rival firms. There are a number of
factors that determine the growth and success rate of the aviation sector thereby promising it
good returns. Industry analysts use a number of tools like VRIN, PESTEL and SWOT to devise
strategies to enhance the growth of aviation sector. An understanding of the entire market is also
crucial before implementing any strategy.
Discussion
Outlook – Trends and Key Drivers in the Airline Industry
As the case study points, one of the key drivers of the sector are the steady growth in air
travelling since the global economic recession that took shape around 2008. Ever since, the
airline companies have striven to reduce operational costs and achieve best resource utilization.
As analysts have pointed, some of the major outlooks that would re-shape the airline industry are
rising number of passengers due to a globalized economy as well as revamping in cargo demand
which will elevate the business to a secured level. The other factors are intensification in the
entry of low-cost carriers which will therefore induce a change in the existing strategies of
Aurum Air. These factors will also consequent the airline companies in venturing into new
routes and new market acquisition. The industry will become more technology oriented in order
to cater to customer expectations (Ciliberto, Murry and Tamer 2016).

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PESTEL Analysis
Political factors- Aurum Air can be affected by the political scenario of the country, for instance
terrorist attacks which can influence the number of passenger and their choice of transport.
Consequently, Aurum Air has to shift the price of its tickets in order to sustain in the market,
invest a significant amount in promotional to induce the passengers in boarding Aurum Air
which ultimately falters their economic stability.
Economic Factors- the economic factors shed light on the nature and state of economy within
with the industry is operating and includes factors like interest rates, gross national product, labor
costs, fuel prices which have a massive impact on the economy of the airlines among others.
Fuel Costs- owing to the unpredictable nature, contract based fuel purchase or fuel hedging can
help Airlines from swinging towards a decline in profit rate. It can also increase the competitive
edge of Aurum Air by keeping it prepared to face periods of high fuel cost.
Technological Factors- Internet and online booking has paved the way for an increase in ticket
sales. As far as Airlines is concerned, approximately 75 percent of its sale was sold by online
booking. Airline has amassed profit due to the technological factors that has catered the
customers with convenient booking of air-tickets, flight information. An ease in communication
will help in the growth of air passengers and flight tickets. Airlines can further see a growth in
their sales by a strategic planning and advertising like investing more on promotional activities,
coupons and vouchers
Environmental Factors- The emissions of aircrafts are injurious to the quality of air that living
beings respire in. Aurum Air should therefore adopt to friendlier measures like green flying and
focus more on social responsibilities and CSR activities.

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Legal Factors- There are number of regulatory laws that Aurum Air has to deal with for
instance, the lease for owing planes, on which additional interests can surmount in case if the
planes are borrowed on loans. Leasing creates debts in the long run and eventually can hit the net
earnings and profit margins of Aurum Air. Aurum should check the financial data well before
entering into sumptuous leases and incurring loss.
Social Factors- Aurum Air needs to invest in innovation sector since with the rapid shifts in the
demand pattern of the consumers, they are ready to pay in order to avail competent services.
Aurum Air can invest in advertising strategy and render improved services after a careful
analysis of customer profile and their income pattern. Innovation should not be limited solely to
seating accommodation, entertainment or other such features but also in the sector of planning
new routes to make Aurum Air the most feasible options for passengers and maintain a
competitive edge in the industry. CSR activities will make Aurum Air an appealing choice to the
larger community within the context of which Aurum Air will be operating (Haimes 2015).
Porter Five Forces
Rivalry Among Sellers- Rivalry among sellers is strong as per market analysis for Aurum Air
and market has become saturated with different airlines competing to gain passengers. The rival
competitors are adding up more number of flights and routes in order to stay competitive. The
competition varies according to the type of market and coming up with inventive strategy is
necessary to cope up with the same.
Potential New Entrants- the threat of new entrants is moderate to strong as because of
deregulation there has been the entrance of a number of a number of commuter airlines. This has
stiffened the market competition and spoilt the passengers for choice with best flight tickets and

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services. The scenario is accentuated by high operating costs. As a result the U.S market is
populated by both regional and commuter airlines.
Threat of New Substitutes- Threat of new substitutes is strong in the market especially with the
advancement of technology and cheaper modes of transportation.
Supplier Bargaining Power- Supplier bargaining power is low because of the substantial number
of manufactures sprouting in the U.S market which has furthermore sped up the process of
buying and replacing an old aircraft. In this context, Aurum Air has the liberty to choose from a
variety of manufacturers to get the best quality equipments.
Buyer Bargaining Power- Bargaining power of buyer is high because of an ever-increasing
number of regional carriers, easy availability of flight tickets through online or agent services.
These come equipped with easier cancellation options sometimes with maximum or full refund.
Attractiveness of Industry
In order to systematically analyze the industry attractiveness of Aurum Air, Porter 5-
Forces tool has been used. The airline industry is neutrally attractive, as Aurum has a number of
rival competitors in that had come up with inventive strategies to attract new customers
(Ciliberto, Murry and Tamer 2016). Bargaining power of buyers is high due to which Aurum has
to continuously lower its ticket prices which often times fails to accommodate the rising
operational costs of the aircrafts. Furthermore, Aurum Air needs to expand and invest more in
promotional activities to gain prospective customers in the market. The power of suppliers is
weak as Auburn Air has a number of fixed assets in possession ranging from de-icing equipment
to computers. However, there is a high consumption rate of Aurum Air and therefore there is a
huge scope of expansion for Aurum Air. Aurum should invest in scheduling more number of

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flights and better service to cater to the growing number of customers. The airline market is
filled with well-renowned competitors but with innovation and CSR activities Aurum Air can
cater to the tourists and take ample benefits from the tourist sector that is believed to grow
exponentially with each passing year (Sengupta and Wiggins 2014). Aurum also is a an
advantageous position of devising innovative marketing campaign, compare from other
companies how much investment will be successful in bringing the highest yield and gradually
proceed to deal with new entrants in the market.
INTERNAL ANALYSIS
Competitive Advantage – VRIN Analysis
It is established that certain resources are particularly fundamental in strategically making
providing the business with a competitive edge. These resources can be identified by a VRIN
analysis-VRIN Analysis of the mentioned organization is done to determine if the resources of
the Airline have the ability to be the source of sustainable competitive advantage (Schroeder and
Kotlarsky 2015). In order to be the source of sustainable advantage, the resource must be
Valuable: which means the resources should have greater value in terms of benefits and costs
than the competitor organization.
Rare: This factor finds out whether the resource of the Airline is unique and has high demand
compared to the resources of the competitors.
Inimitable: This factor judges whether the resource is difficult to imitate or not.

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Non substitutable: This factor finds out whether the resources can be substituted or not.
Figure- VRIN Test
Source- Author

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• Distinctiveness of the Firm
In spite of the fact that AURUM AIR Company is a small airline organization, it is earning a
better amount of revenue than other small airline organization. The company has a good number
of fixed assets that includes airplanes, ground equipments, office facilities computers and
maintenance hangers.
The available aircraft of the mentioned company ranges from 19 passenger propjets to 50
passenger fanjets. In spite of the fact that the company still use some of its old equipments, brand
new aircrafts that includes fuel efficiency, nonflammable cabin materials and noise abatement
are also owned by AURUM AIR company. Considering the fact that the company owned a lots
of equipments like larger and more profitable airline organizations, AURUM AIR Airlines has a
large number of choices to choose from if they decide to expand their business.
• CRITICAL EVALUATION OF BUSINESS STRATEGY AND PERFORMANCE
Considering the fact that Aurum Air Airline I a small firm, last year the company had spent
2,500 dollar for promotional purpose and 2,500 dollar for advertising purposes. In spite of the
fact that the amount invested by the mentioned airline is minimal compared to its competitors,
the management of Aurum Air is expected to spent more on promotional purpose only after the
company starts to expands its business. Apart from that, Aurum Air does note have any sales
force due to its small size. However, it is really crucial for the company to invest on sale force
since it ensures the possibility of direct sales in a large volume to tour promoters and
corporations, in addition to increased sales. The performance of Aurum air needs to develop

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since the company is not enjoying good amount of revenue. The Airline is using Beechcraft
1900s and as a result is unable to attract consumer since there are better aircrafts from the
competitor airlines in the market.
STRATEGIC OPTIONS AND MODE OF ENTRY
Considering the fact the AURUM AIR Airlines serves five of the seven different types of
market, and the number of competitor in each of the market is 2, except market D, indicates that
the current service provided by Aurum Air Airline is not able to meet the requirements of the
consumers in these markets. However, the mentioned company has the opportunity to grow in
the five markets if it provides better service, more convenient flight and more convenient price.
This marketing strategy is important for Aurum Air since the risk of the markets getting
saturated with the entrance of more competitors is there.
Apart from serving the mentioned five markets, Aurum air Airline has the opportunity to
serve two new markets namely, foreign market and resort market. The foreign market will
provide the mentioned airline with the opportunity to compete in an international market and
become an international carrier. The route will go from mini-hub to a foreign city. There is a
major probability that the foreign city will have tourist trade as well as diversified industry and
hence Aurum Air needs to have cabin class aircrafts. Considering the fact that the company
currently deals with a large number of Beech crafts which contains only 19 seats, these beech
crafts needs to be replaced by cabin class aircrafts by Aurum Air, since the daily demand of seat
in foreign market is expected to be between 30 to 40 seats per day.
The resort market can be defined as recreational areas that are popular with people
residing in a specific region (Hussain, Al Nasser and Hussain 2015). In spite of the fact that