BUSM3192 Strategic Management HKMA Final Exam Advice 1. The final exam consists of two parts. 2. The exam will be marked out of 50 marks and is worth 50% of your final mark 3. The exam is a closed book exam Part A is based on a pre-sighted case. Students answer one from a choice of two questions. 1. The question will be marked out of 20 marks 2. The case deals issues surrounding the strategic implications of Tiger Airlines entry into the Australian domestic aviation market. It consists of media articles from the business section of the Age. 3. The articles are the start point for your answer. Prior to the exam, it is recommended that students prepare by applying the case method 4. While additional reading is not a requirement, students may find it useful to read other media reports. There are numerous other (more recent ) articles available on business media websites, including 5. To assist in developing an understanding the Australian domestic aviation market and likely responses of competitor, students my also find it useful in to visit the following websites, and read the about us, corporate information or media releases sections a. b. c. 6. You should be prepared to apply theory to the case could relate to the External environment, Industry Environment, Corporate Strategy, Business Level Strategy, Competitive Dynamics or aspects of Strategy Implementation that could arise from the case. 7. YOU WILL NOT BE ASKED A QUESTION ON INTERNATIONAL STRATEGY. 8. The questions will be broad in nature, but will require specific knowledge of the models discussed in the course 9. A copy of the case will be included in the exam. PRESIGHTED CASE FOR PART A Rejoice! Tiger declares war SO NOW it’s official: Melbourne will be the epicentre of what looms as the biggest airline price war since the earthquake of 1990, when the original Compass Airlines entered the fray, only to be squeezed out a year later. The decision by Tiger Airways to base itself at Tullamarine airport means its first domestic routes will be from Melbourne and its network will fan out from there. The fact that Tullamarine got the gig speaks highly of the way the airport management not only understands the airline business but is prepared to hold back on fees to airline customers to generate new business, when some of its compatriots interstate are going hammer and tongs to raise charges, which ultimately find their way into higher air fares. The airport’s acting chief executive, Kirby Clark, said last week: “We continue to provide stable low international and domestic airline charges – the lowest of any airport in Australia.” However, it should also be pointed out that Tullamarine is the only airport in Australia that has a low-cost competitor in its own city, Avalon, which hosts part of Jetstar’s Victorian operation. As the low-cost airline industry evolves, this is a dynamic that virtually guarantees Melbourne will have the lowest air fares in the country for the foreseeable future. It is believed that Tulla fended off challenges from both Sydney and Adelaide to host Tiger’s HQ. It’s no coincidence they lost as they are the two highest-charging airports in the country, as far as the airlines are concerned. Just how big is the looming confrontation likely to be? Well, Qantas has already taken the extraordinary step of forecasting lower profits as a result and is foreshadowing an increase in its domestic airline seats of as much as 20 per cent to combat the new threat. A 6 per cent jump in the number of seats flying around Australia is considered hefty in any given year, provided there’s solid demand and there are no hiccups in the economy. To more than triple that jump in a year would mean Australia would be awash with new airline seats, and there’s only one way to fill them: rock-bottom fares. Nine new planes will go to Jetstar alone, as reported here, enough for upwards of 30 new return services a day. All that looks, at first glance, like a massive overkill, since Tiger will start flying in Australia with just five 180-seat Airbus A320s. But Tiger is saying it has the resources to deploy more than 20 jets in Australia, and that is starting to get serious as far as its competitors are concerned. Tiger, of course, is owned by Singapore Airlines, which was recently denied permission to fly between Australia and the US. Some in the industry are bemused by Australia’s “arcane” aviation regulations that, on one hand, continue to protect Qantas from increased competition but, on the other hand, allow anyone to come in and start a domestic airline, with few restrictions on foreign ownership. Whatever the merits of the argument, consumers are going to be the big winners. And don’t cry too much for the Qantas group and Virgin; they are making record domestic profits. They will just have to share some of it. The next part of the puzzle will be to work out where Tiger will fly. The selection of Melbourne as its home base, however, virtually guarantees regular services from Melbourne to Perth and from Melbourne to Darwin, either non-stop or via Cairns. That would enable Tiger to “join the dots” with its Singapore-based operation, which flies daily to Perth and four times a week to Darwin. Tiger’s costs will be rock-bottom, forcing the other two to lift their games. The newcomer could be flying as early as August, once Australian regulators approve its air operator’s certificate. Any time after that will be a great time to take a holiday! Tigerland A bruising corporate battle will be waged when Tiger Airways enters the Australian market. Who will survive the air war is unknown – but the public will win. By Mathew Murphy and Helen Westerman. BASIL Fawlty once famously said “Don’t mention the war.” It would appear in the lowcost airfare war about to occur in Australia’s domestic market, it is all the major players want to discuss. Tiger Airways’ announcement yesterday that it would base its Australian headquarters in Melbourne and begin domestic services by the end of the year has already led to much mud slinging and a rush of ” airfares” by one competitor – and all before a Tiger aircraft has taken off from Tullamarine. The war is one that is going to be fought in the low-cost domestic market by Tiger, Qantas’ budget carrier Jetstar and Virgin Blue. For once the public will not be casualties of this cost-cutting battle: they will be the beneficiaries. Jetstar fired the first salvo this week, pre-empting the Tiger announcement by offering 30,000 domestic airfares, plus taxes. Within three hours the tickets had been snapped up. Yesterday it announced a further 100,000 tickets for , plus taxes, for destinations including Honolulu, Bangkok and New Zealand with the purchase of a full-fare ticket. Jetstar chief executive Alan Joyce is pulling no punches.” The battle is on … if Tiger thinks that they can come into this market and have an easy ride they are going to be fighting against the low-fares leader in Jetstar and we will defend our territory,” he says. Tiger’s chief executive Tony Davis is no shrinking violent either and is quick to stamp out his territory saying Tiger is here for the long haul and will be here “when all the others have disappeared”.” I am not going to poke fun at the competition too much because they do a pretty good job at that themselves. I am sure we can do better than take a friend for … in fact I guarantee we will do better than that. We will offer genuinely low fares on a sustained basis and on a regular basis,” he says. But for all the chest beating and tough talk, the question remains: who will be left standing as the airlines try to blow each other out of the market with ridiculously low fares? While Tiger is the new kid on the block, it comes from strong parentage. The airline, modelled on the UK’s highly successful low-cost European carrier Ryanair, has operated internationally since its first flight in September 2004, with Singapore Airlines owning a 49 per cent stake. Its other backers are equally impressive. The Singapore Government’s investment agency Temasek Holdings has an 11 per cent stake, the Ryan family of Ryanair fame holds 16 per cent and Indigo Partners, which is associated with the former chief executive of America West Airlines, Bill Franke, owns 24 per cent. Temasek also holds an 11 per cent stake in the Qantascontrolled Jetstar Asia airline. Tiger’s backers are not afraid to write it a blank cheque to secure a foothold into the Australian market, with Singapore Airlines having tried and failed many times. Gaining a foothold in the Australian market is highly strategic to Singapore Airlines. Last June, it again failed to persuade the Federal Government to allow it to compete against Qantas in the highly lucrative route from Australia to Los Angeles. It also tried to buy Ansett when the airline ran into trouble but was outbid by Air New Zealand. More recently it again called for the Federal Government to open up routes in the face of the potential sale of Qantas. It has finally achieved another entry point. Joyce is keen to highlight Tiger’s international business, which has operated at a loss over the past two years to the tune of million. However, asked how long Tiger could sustain operating at a loss, particularly with its Australian venture going forward, Davis is upbeat.” There is no airline I know of, unless they are supported by their parent company, that starts from scratch as part of a greenfield operation and makes money in its first year,” he says. “When we chose to come to Melbourne it was not about what happens in the first 12 months or two years, it is about the long-term sustainable major corporation being headquartered here. We are certainly not in the not-for-profit business we are in the profit-making business.” As part of obtaining its Air Operators Certificate from the Civil Aviation Safety Authority, which is the last hurdle before it is cleared for take-off, Tiger must pass a financial fitness requirement. That licence is expected to be awarded within months. Tiger’s backers aside, what makes the airline believe it can succeed in a market that has claimed so many casualties in the past? Australian skies are littered with the ghosts of past airlines. The first and most dramatic attempt to break the two-airline stranglehold – then in the hands of Qantas and Ansett - was Compass Airlines, founded by Bryan Grey in the early 1990s. It collapsed not once but twice, it’s first incarnation lasting a year and then just seven months the second time around. Then followed Impulse, which began its life as a small regional family business until it took on the big players. It held on for 12 months in the face of vigorous competition but folded in 2001, with chief Gerry McGowan selling the fleet to Qantas. It was later reborn as Qantas’ cut-price airline, Jetstar. The latest market casualty was OzJet, an ill-conceived attempt by race-car entrepreneur Paul Stoddart to woo business travellers, which lasted only five months before being quietly reborn as a charter and regional airline. In the midst of this was the folding of Ansett and the entry of Richard Branson’s Virgin Blue. Critics say past efforts have generally floundered because they have lacked deeppocketed backers and could not cope with the onslaught of heavily discounted airfares. But executive chairman of the Centre for Asia Pacific Aviation, Peter Harbison, believes Tiger has the backing and the smarts to be able to sustain levels of unprofitability, at least for the first year.” Tiger is sufficiently sophisticated and low-cost airline that it can operate without losing a whole lot,” he says. “This is not the sort of dumb approach that Impulse was, or the two Compasses were, they were really ill-considered, not very well supported and funded. These guys are the real deal.” Harbison says Tiger will emulate the lean and mean Ryanair (which is known for its norefunds policy) to keep costs down and remain competitive. But Australians value friendliness almost as highly. Tiger would do well to note this.” In this Australian market, to be honest, that’s where to some extent Jetstar has lost out. They just didn’t get that message across,” Harbison says.” They tried to at first but people don’t see it as a nice, friendly airline whereas I think Virgin Blue is still seen that way and I think Tiger will try to emulate that.” Can Australia sustain a third carrier? Harbison believes it can. With both Virgin and Qantas flying their planes close to capacity, coveted budget seats are becoming harder and harder to find, meaning there is pentup demand in the market, he says. Fuel prices have stabilised from a year ago and local economies in NSW and Victoria have improved, while interest rates have not increased.” We are probably at the sweetest ever spot for the airline business in this region, which means one of two things: either we are going to go down, or stay at this level. But we ain’t going to get better than this,” he says. Just off a plane yesterday when contacted by The Age, former Impulse Airlines chief Gerry McGowan, now executive chairman of a publicly listed renewable energy company CBD Energy, was unaware of the launch. But he immediately wished them well.” It’s going to be a very competitive marketplace. Virgin have had time to get established, but a company like Tiger, you would have to give them a great change of success,” he says.” I’ve always thought there was room for three airlines in the market but it depends on their financial backing and how long they can stick at it for.” SIR ROD Eddington, the former chief executive of Cathay Pacific, Ansett and British Airways, and now head of the Victorian Major Events company, says Tiger’s decision will invigorate the domestic airline market. Sir Rod, who worked with Davis at British Airways, said the airline had discovered a good opportunity in Australia.” Tiger’s going for a juicy piece of meat,” he says. “This will lead to more competition and energy in the domestic airline market.” BBY’s aviation analyst Fabian Babich says Tiger will be able to set itself apart through its service, something Impulse and Compass were unable to do.” They do appear to offer something different from what is currently on offer and we don’t believe they can enter the market without damaging Qantas and Virgin Blue to some point,” he says. “What happens as a result we are seeing now with Jetstar’s discounted offers. It was willing to throw million out the window in discounted fares the other day. Expect more of that. Tiger’s support base means it will be able to sustain a lot of pain.” With Jetstar being supported by Qantas, Singapore Airlines and the Singaporean Government firmly behind Tiger, and Virgin Blue being backed by Toll Holdings and billionaire entrepreneur Richard Branson – who is set to blink first? Babich says, if pressed, Tiger will be the first to bail out despite the deep pockets of its backers. All have said they are in for the long run and won’t be crashing out soon. Both Jetstar and Tiger have committed to offering single-digit fares plus taxes, while Virgin Blue says it has done fares in the past and two-for-one fares and welcomes the competition. The benefit of that competition will be felt directly by consumers who can sit back, watch, and reap the spoils. Next to consumers, the State Government has much to gain from Tiger’s decision, which is why Premier Steve Bracks could not wipe the smile from his face at yesterday’s announcement. A promise by the airline to create at least 1000 direct and indirect jobs for the state, as well as housing an airline expected to carry 2 million passengers in its first year, will deliver obvious windfalls for Victoria.” We expect about 70 per cent of Victoria’s tourism growth will come from international markets by 2016, with Asia accounting for 40 per cent of all international arrivals,” Bracks says.” This is front and centre of what we want to achieve.” The Premier refused to reveal what financial incentives were paid to woo Tiger to Melbourne. Davis says he has no doubt that Tiger will thrive in Australia from its new home base in Melbourne. But Jetstar’s Joyce couldn’t resist a final dig, describing Tiger’s “fantastic model” as a direct copy of his highly successful cut-price version.” I think Tiger is an interesting organisation, they seem to be copying everything that Jetstar is doing. Basing its head office in Melbourne, having the same distribution as we are, they have gone to assigned seating like we did – I think the only kind of cat that they are is a copycat.” IN THE AIR Number of planes for domestic travel Jetstar – 28. Virgin Blue – 53. Tiger – 5, but will look to increase to 20. Domestic flights per week. Jetstar – 213 a week. Virgin Blue – 2020 departures a week or averaging 288 a day. Tiger – Won’t reveal its schedule. Routes Jetstar – Melbourne to Hobart, the Gold Coast, Launceston, Newcastle, Sunshine Coast, Cairns, Hamilton Island, Darwin, Townsville, Ballina. Avalon to Sydney, Brisbane, Adelaide, Perth. Virgin Blue – Melbourne to Adelaide, Ballina, Brisbane, Broome, Cairns, Canberra, Coffs Harbour, Darwin, Fraser Coast, Gold Coast, Hamilton Island, Hobart, Launceston, Mackay, Newcastle, Perth, Rockhampton, Sunshine Coast, Sydney, Townsville, Whitsundays. Tiger – Haven’t announced their routes yet but believed to be Melbourne to Sydney, Brisbane, Canberra and Adelaide. Passengers a year Jetstar – 8 million. Virgin Blue – 15.6 million. Tiger – expects 2 million in the first year. Staff Jetstar – 1600 staff nationally, 700 of those in Victoria. Virgin Blue – almost 4000 nationally. Tiger – expects to employ about 1000 staff. Estimated financial result for 2006-07 Jetstar – .3 million. Virgin Blue – 9.2 million. Tiger – N/A. Part B 1. Students will answer three (3) from a choice of six (6) questions, each worth 10 marks. (Total 30 marks) 2. Sample questions are attached. 3. You should not assume that any of the sample questions will be (or will not be) in the final exam. 4. It is not sufficient just to list key points from the lectures. You need to answer the questions. 5. explain, discuss and use examples. 6. student should use there own examples, rather than those from the text book. P art B Example Questions 1. Discuss, using examples, the resources view of the firm 2. Discuss, using examples, the industrial organisation view of the Firm 3. Discuss, using examples, the following two forces in the industry environment :power of suppliers and power of buyers 4. Describe, using examples, the impact of barriers to entry on firms in the industry environment 5. Discuss, using examples, the characteristics of core competencies 6. Discuss the factors that influence the likelihood of attack and response in the model of Competitive Dynamics. Use examples to support your answer 7. Identify and discuss the key characteristics and assumptions of an diversification strategy 8. Identify and discuss the key characteristics of a related diversification strategy. 9. What is agency theory? How does an agency relationship affect control in a business? 10. Resources, Incentives and Managerial Motives act as catalysts for diversification. Discuss, using examples, two of these. 11. Identify the five main corporate governance mechanisms. Discuss, using examples, two of these mechanisms as they relate to strategy implementation. 12. Compare and contrast two of the multi-divisional structure options for diversified companies. 13. Identify the three factors that affect Managerial Discretion. Discuss the role two of these factors play. 14. How do top management teams contribute to the strategic performance of an organisation? How does heterogeneity or homogeneity potentially impact on this performance? 15. There are two approaches to corporate venturing. Discuss these using examples to illustrate your answer. 16. Describe, using examples, how innovation impacts on competitive advantage.
http://www.theage.com.au
http://www.tigerairways.com.au/
http://www.virginblue.com.au/
http://www.qantas.com.au/
Note the use in the sample questions of words and phrases such as identify and
Examples are used to demonstrate your understanding of theory. As such,
1. Guideline
Please refer to the attach file <Case Study_Final Exam>
2. Clear and precise theory
As this is an pre-sighted case study for final exam preparation, clear and precise theory apply is needed. Time is limited in the exam.
Please refer to file <Case Study_Final Exam> point 6 (belows) which is mentioned what the theories must apply in this case study.
<Point 6>
You should be prepared to apply theory to the case. Clearly there are questions that
could relate to the External environment, Industry Environment, Corporate
Strategy, Business Level Strategy, Competitive Dynamics or aspects of Strategy
Implementation that could arise from the case.
3. Recommended website
Please refer to file <Case Study_Final Exam> which are mentioned the websites we must visit.
Credit:ivythesis.typepad.com
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