Chapter 2 – Literature Review
2.1 Ratio Analysis
In any contemporary operating organisation, progress that the company is making is recorded as basis for, among a host of other essential things, decision-making and as a benchmark for measuring the firm’s performance for the period under scrutiny. A financial situation analysis is one such yardstick that documents current and future financial situation in an attempt to determine a financial strategy to help achieve organizational goals. As formally defined by Riahi-Belkaoui in 1998, financial analysis ‘is an information processing system used to provide relevant information for decision making’ (p. 1). The main sources of information for such analyses are published financial statements of the concerned company. Various accounts from published financial statements are evaluated in relation to each other to form performance indicators, which are then compared to ‘established’ standards. These performance indicators are better known as ratios, and constitute the main tools of conventional financial analysis.
Basically,(2004) mentioned that by calculating a relatively small number of ratios, it is often possible to build up a reasonably good picture of the position and performance of a business. In consideration to Oasis Airline, ratios help to highlight the financial strengths and weaknesses of a business, but they can not, by themselves, explain why certain strengths or weaknesses exist, or why certain changes occurred. Just by details investigation will find the reasons. Ratios can be grouped into certain categories; each of them identifies a particular aspect of financial performance or, position. There are five broad categories which define as follows: (1) Profitability; (2) Liquidity; (3) Financial Leverage; and (4) Asset Management (1999).
2.2 Industry analysis
Airline industry is a complicated business, starting an airline company is not easy, it involves major capital requirements for aircraft, compliance of government regulations, restrictions and state policy, competitive reaction from other tourist transport and requiring high level of expertise to operate and manage. What is the airline industry problem that they have to face? Airline is facing the rapid increase of globalization, rising fuel prices, heavy repair and maintenances cost, raising labor costs, increasing competition and requirements for higher service levels and greater flexibility, budget airlines especially.
2.3 Definition of Competitive Advantages
Competitive advantages is show a company sustains profits that exceed the average for its industry, how well that retain more customers than its competition, the firm can over its competitors and an ability to generate greater value for the firm and its shareholders.
Michael Porter’s (1980, 1985) framework and typology:
1. Cost leadership
2. Differentiation
2.4 Critical Path Method (CPM)
This method was developed by E.l du Pont de Nemours and company in 1956 to aids them in the scheduling of some management works like routine plant overhaul, maintenance, and construction work. Actually, this method is crucial to airline businesses since their work usually fall under repetitive operations of which the management has experience on data involving time and costs among others, and relatively small variance in their performance time, and CPM reasonably assumed that the completion time for each activity involved in a work project is known. Moreover, the CPM incorporates no statistical analysis in its determination estimates.
2.5 For External Assessment
Opportunities
1.
Expansion to becoming a major carrier
2.
Improving quantity of core customers
3.
Possible partnership with other low cost air transport organisations
4.
Marketing and business development through e-commerce, internet
Online booking are so popular recently, Oasis Hong Kong is easy to make their brand name become more and more famous. Besides, they need to introduce the B2B and B2C Business. In initially, Oasis Hong Kong has promoted the low cost fares for the ticket to the school graduation/rest, and providing them with the various kinds of support they need to become self assured on years of 2006 summer. However, Electronic commerce emphasizes the generation and exploitation of new business opportunities.
Technological Advancement, Rapidly Growth of E-commerce Market, Online Advertisement and online booking can Generate Revenue are the other three opportunities that we should pay attention. E-commerce is often thought to doing business and using simply, fast and low costs refer to buying or selling using on the Internet. People would immediately think of consumer purchase. For the Online booking, Oasis Hong Kong can via their own celebrity to attract different types of commercial companies to advertise on their website. Moreover, rapidly growth of E-commerce Market is the suitable time to attract more new clients, especially the youngest to use their services.
Threats
1.
Potential strengths of the new entrants in the low cost air transport industry
2.
Unstable market places the company in danger of filing Chapter 11 claims
3.
Increasing competition in e-commerce
4.
Attack by substitutes, Time consuming & costly infringement, and Internet fraud complaints
In opposites, we need to focus on the threats and try to make some improvements. Firstly, the most we worry about is there is strong competition in the current market. There are so many competitors as like Dragon Air, Cathay Pacific Airways, and budget airline including Jetstar, United Airlines and so on, although each airline has their potential customer. They need to face the strong competition and try to via the improvements to attract more clients. Besides, elements include substitutes, and the competitor, and so on. Payment in the Internet, it caused the problem on the tax, the revenue of internet sales may decrease, and especially it will affect the buyer. Attack by substitutes in a threat, Time consuming & costly infringement, and Internet fraud complaint are the other threats that we should pay more efforts to deal with. Many of the budget airlines work on a first come, they sell all the low fares first and don’t release any more closer to the date of departure. Therefore, the cheap fares advertised by budget airlines. At the same time, customers always complain which they can never get the fares online. For the attack by substitutes, Oasis Hong Kong should strength it’s characterized to keep their clients. They need to make an investigation on the complaint and give the feedbacks to their clients. Furthermore, in the whole process of trading, buyer usually don’t have any kind of receipts.
Originally, almost all of airlines are having a market share, has than one more fares supplier in Hong Kong; therefore we cannot fulfill all the demand. People can select to buy budget fares or not, i.e. more airline company with promotional offers seasonal specials.
2.6 Internal Assessment
Strengths
1
Strong language, culture and kinship
2
Strong reputation
3
Customer oriented
4
Strong community involvement
5
High technology
6
Strong in brand name
7
Unlimited innovation
8
High sales amount
9
Full skilled labor
10
Larger in local market share with long-haul
11
Online Advertisements can Generate Revenue
12
Rapidly Growth of E-commerce Market
Based on the previous presentation of the external and internal assessment, Oasis Hong Kong is indeed on its way on becoming the dominant player in the industry. However, the road it has to travel is paved with obstacles and hurdles that will essentially test the company’s resolve. This is highlighted in the previous presentation analysis above. The company, regardless of its potential to be great, has some weaknesses that may cause their demise if not dealt with accordingly. This is compounded by the imminent threats to its operations as seen in the microenvironment of Oasis Hong Kong. However, the opportunities and strengths that the company have may well even out these perceived negativities as they outnumber them.
Seeing that the company’s strength is built on their reputation, it seems that Oasis Hong Kong does implement a strategy that complements their environment. In the same manner, the previous presentation has given the impression that the internal environment of the organisation is able to contribute to this success. Thus, a balance in managing both internal and external environment may have been the redeeming feature of Oasis Hong Kong in the low-cost air transport industry.
Weaknesses
1
Relatively high price and high operation cost
2
Investment cost in high technology
3
Weak bargaining power of labor union
4
Financial stability
5
Internet fraud complaints
6
Strong competition in current market
7
Government impose tax on internet sales
8
Time consuming And costly infringement claims
Fares change all the time, with promotional offers for the opening of new routes, seasonal specials and so forth. Enterprises must make sure don’t miss any bargains, an example Oasis Hong Kong can sign up their customer on e-mail with any promotions from all the websites.
2.7 For Strategic Choices
They are currently selling their travel tickets through their website, which can be accessed at www.oasishongkong.com. Although not in par with the websites of old-timers like Cathay Pacific Airways that is also Hong Kong-based, it seems to function pretty well and has all the basic information for its users. One outstanding characteristic of the website is that compared to other sites in the same line of business, it is remarkably uncluttered. Since the start of its operation, many have expressed skepticism in its success, as it has been proven that the economies of scale are not effortlessly shifted to the long haul model. If there is anything so far that Oasis Hong Kong has done right, it is the creation of a fair bit of coverage about its service and has reportedly endeavored to reach out to their market by permitting agents to register on the firm’s site to vend tickets. In October of 2006, they launched an online promotion (‘Be The First To Fly’) giving away more than 100 free flights between London and Hong Kong, as part of its first marketing initiative in the UK market[1].
Just this month, Oasis signed an agreement with Galileo GDS (a global travel distribution system), which allowed Oasis’ fares and inventory to be added to the Galileo GDS. As a consequence of the agreement, the carrier is supplied with a platform that permits the airline to examine online and offline total travel distribution. Also, Oasis will now be able to sell its tickets more effectively through Galileo’s wide-ranging exposure to agent locations. Consequently, Galileo-connected travel agents will have new opportunities to increase sales with new Oasis content available directly on their desktops[2]. Further, Oasis has outsourced contact centre services last year which will provide the carrier’s customers and travel agents with sales, general enquiries and customer service assistance, handling all inbound calls between 08:00 and 20:00 each day, seven days a week. They also have partnered with various hotels, car rental agencies, apartments and villas for the accommodation of their passengers, which was effectively incorporated in their website as one of the many conveniences of travelling with Oasis Hong Kong.
As evidences to the effectiveness of their low-cost strategy, Hong Kong has experienced an 8.1% visitor increase last year, and a couple of airline operators (Air Asia and Jetstar) have introduced low cost long haul routes of their own, also last year[3]. Oasis Hong Kong Airlines claims to be committed to delivering nothing but the best of service, and as the passengers are the most fitting judge of their performance, the management asserts to looking forward to hearing from their customers regarding their flight experience with the carrier. And while they do not guarantee to reply to all feedback forms, they declare to welcome comments and offers assurance that they will be forwarded to the relevant department(s). From their original fleet of two Boeing 747-400s, the finalization of an agreement with All Nippon Airways Co., Ltd. to purchase three additional Boeing 747-400s, increased their fleet to five aircrafts. This was carried out just earlier this month as part of its planned fleet expansion in preparation for the launch of the airline’s new Vancouver route in the second half of 2007.
2.8 For Evaluation analysis
As the airline is currently operating on one route only (Hong Kong International Airport to London Gatwick Airport), they have plans of expanding to other routes this year and the years to follow. Number one in their list of priorities is to be able to fly their growing number of loyal passengers to Vancouver International Airport, but negotiations to give license to fly to said airport is still on-going, subject to government approval. It is widely speculated that next in their priority list is the Oakland International Airport, and other airports that also route budget carrier hubs, like easyJet and Westjet. Oasis is also currently in the process of negotiations with Southwest Airlines and JetBlue Airways for potential partnership arrangements. The application for route licenses is currently going headstrong, as part of the carrier’s marketing strategy to fly to leading aviation hubs around the globe. The main targets for expansion as of the moment are Cologne/Bonn, Berlin and Milan in Europe and Oakland (San Francisco) and Chicago in USA. Other aviation hubs in leading tourist-garners will follow after the said routes have been given licences, to further increase market scope for the company, in their intention to provide low-cost flying to more people.
Also, like all other businesses in the same line of industry, Oasis has plans to participate in oil hedging to safeguard against potential fuel price increases. This is not only to maintain the low-cost fares being offered to passengers but also to be able to sustain business profitability. As Oasis has plans to break even during the first 12 to 18 months of operations, the said strategy will aid a good deal in its realization. Although the increase of tourism activity in Hong Kong is seen as a positive sign which will likely to continue in the following years, it is hardly comparable to the marked increase of the same activity in neighboring Asian countries. In fact, it is said by analysts that what the Hong Kong tourism industry is experiencing is just the tip of the iceberg.
Chapter 3 – Methodology
3.1 Introduction /Purpose
In this part, we will rank and analyze the Oasis Hong Kong ability to create and maintain an environment in which budget airlines can compete.
We assume Oasis Hong Kong operate in a wealth creation environment that enhances or hinders their ability to compete their business, based on analysis made by our own research project, the methodology is divides the national environment into 2 main factors:
1. PEST analysis
2. 5-Forces Analysis
Research Question:
Are there any business opportunities available for airlines to invest the low-cost airlines?
3.2 Data & Information required
Proposition
There is a still business opportunity available for airlines to invest the low-cost airlines. The phenomenal success of budget airlines like easyJet, Virgin Atlantic Airways Ltd and Ryanair has revolutionized the travel industry. Between them, other budget airlines now can carry staggering passengers a year to destinations all over Europe. Why Oasis Hong Kong can’t? In this part, we outlines what the various budget airlines have to offer and recommends which destinations are any adverse effects to the company will occur if nothing to be done on the fact.
3.2.1. PEST analysis
Political Conditions – political influences include government stability, taxation policy, foreign trade regulations and social welfare policies.
Hong Kong is an attractive market for overseas eyewear makers and the newest trends. The opening of Oasis Hong Kong and the growth of long-haul market economy is supporting the demand for transportation services in Hong Kong. Oasis Hong Kong does not worry that the legislation could severely set back their most effective marketing. Hence, it has started flight to London from Hong Kong and thinks it can manage to avoid turbulence by keeping costs down and efficiency high.
The political situation of Hong Kong is very stable now or even in the knowing future, all of these are provide by its stable and high visibility law. As the policy they adapted to the worldwide are in peace and free for development and easy to follow the market trend in major.
Social cultural – In a research conducted by AC Nielsen in mid January 2005, 25 per cent out of 1,016 consumers felt that their personal financial situation will improve in the next 12 months. Consumer spending has been grown to 11 per cent in the second quarter of 2004. The average spending on holiday travel will be HK,320. Subsequent to the Tsunami incident in South Asia on the past Boxing Day, the travel desires on Hong Kong people seemed to have softened with less than a third indicated plans to travel aboard, but 73 per cent of those claimed to be shifting to visit the Mainland China.
Technological - Today, e-business has become an integral part of operations in the airline industry, with ultimate objectives of not only achieving cost saving but also generating additional revenue. Beyond to enhance their current product line, their further investment should be focus on improving and incorporating appropriate new technology. Two years ago, Oasis Hong Kong implemented and ambitious to become Asia’s leading e-business airline and the company is determined to provide greater ease and convenience for its customers and business partners—enhancing efficiency and economic benefits, as well as creating new opportunities for further business growth.
The airline expects its e-business projects to significantly increase revenue, with 25-30 per cent of tickets being sold online by 2005. E-business is also expected to help cut operational costs by more than HK0 million a year by 2003, with substantial savings coming from the airline’s own online purchasing and reduced inventory.
5-Forces Analysis – Airline industry conducts more research and development (R&D) than any other industry because air transportation is dependent to considerable degree on the quality and performance of equipment produced for the airlines and airways operators, therefore R&D is a major long-term determine of national economic growth. Basically, the most dominant strategic management paradigm in recent years is known as the strategies model (Fredrickson 1991). Porter (1998) claims that the intensity of competition in an industry is neither a matter of coincidence or bad luck. Rather, competition in any business industry is rooted in its underlying economic structure and goes well beyond the behaviour of current competitors. With this, Porter’s 5-Forces Model is useful for understanding the context of the industry, in which the firm operates (‘Porter’s Five Forces’ 2006).
Distinctive Competencies of enterprise- Evaluation of the distinctive competencies of an enterprise is really vital to their development. This evaluation serves as basis of strategies to be used in business procedures. Thus, it is vital for the company to carefully assess the important features of this factor.
3.3 Approach
For this research design, the researcher gathered data, collated published studies from different local and foreign universities and articles from journals; and make an analysis of the collected documentary and verbal material. Afterwards, the researcher summarised all the information, make a conclusion based on the results of evaluation and provide insightful recommendations on the dealing with the business practices of Oasis Hong Kong. These gathered data and collated studies form and comprise the discussions of that this study is base on. This complements with the other data that the researcher gathered through the company news and reports. The information that is summarised and the conclusion that gained form these sources helps the researcher to have an idea of the magnitude of the sufficiency and criticality of business practice of Oasis Hong Kong.
3.4 Data Organization and Analysis
As stated, this study utilised secondary data. Secondary data include raw data and published summaries, as well as both quantitative and qualitative data. Saunders et al (2003) deduced that secondary data fall into three main subgroups—documentary data, survey-based data, and those compiled from different sources. On the other hand, the study used news and company reports to gather primary data. Basically, these are called documentary secondary data.
Documentary secondary data, accordingly, are the ones often used in research projects that also use primary data collection data methods, although such data can also be used on their own or be combined with other secondary data. This type includes: written documents (notices, correspondence, minutes of meetings, reports to shareholders, diaries, transcripts of speeches, administrative and public records, as well as articles from books, journals, magazines and newspapers) that can be important raw data sources on their own right, a storage medium for compiled data, provide qualitative data, and can be used, as well, to generate statistical measures (e.g., data on absenteeism derived from company records); and, non-written documents (like tape and video recordings, pictures, drawings, films and television programmes, digital versatile disks and CD-ROMs) that can be analysed both quantitatively and qualitatively, as well be used to help triangulate findings based on other data such as written documents and primary data collected through observations, interviews and questionnaires (Saunders et al, 2003, pp. 190-191).
From the gathered past studies related to status of Oasis Hong Kong buisiness practice, this study employed an analysis since this study involves gathering information by examining records and documents.
In addition, the documentary data discussed in this paper are often used in research projects. Research based almost exclusively on secondary data is termed archival research and, although this term has historical connotations, it can refer to recent as well as historical documents i.e. review of related literature (Bryman, 1989).
3.5 Difficulties and Limitation of the research
This dissertation looks at some of the variables that affect particularly those under the control because the data should be corrected in the same period, much, found more related books. From this foundation, it continues with a summary of techniques used in the design, as like how to write a research paper. Moreover, knowledge problems and tackle difficulties in time limited. The research should be preceded in the form of more detailed studies.
Chapter 4 – Findings
Data classified on the basis of intervals of time constitute vital information in the control of business activity, since this is the most effective method of showing the changes that are taking place in a business, an industry or in total economic activity. Closely related to the problem of measuring changes in business activity is the making of forecast of future activity. The management of operation requires a continual making of decisions regarding the future and the basis for such forecasts is the record of the past performance.
When observations of this kind are arranged in a time sequence and separated by (or represent) more or less regular intervals of time (months, years, decades, etc.), the progression of values is known as a time series. The concept of trend in economic time series rests in large part upon the secular growth of population, capital and resources. On the other hand, this work attempts to determine and analyse the business operation of Oasis Hong Kong in accordance to their strategies in the Airline market.
These days, everyone talks about the virtues of interactive marketing and building long-term relationships with customers by relying on websites, call centres, and bricks-and-clicks integration. We all know there is a compelling case for treating different customers differently and focusing on “share of customer” as a metric of success. To some of us now, it seems that this new world of competition was created entirely from the development of a newly available Internet technology, or that it was simply imagined out of the thin air of entrepreneurial drive and business guru creativity.
With this regard this part of the chapter, will be divided into several categories: (i) intensity強烈of competitive rivalry, (ii) new entrants’ status, (iii) evaluation of the bargaining power of customers, (iv) evaluation of the bargaining power of suppliers, (v) evaluation of the threat of substitute products, and (vi) summary.
4.1. To analyze and assess whether the intensity強烈of competitive rivalry競爭;對抗is not keen
a. power of buyers
b. power of suppliers
c. threat of new entrants
d. threat of substitute products
e. industrial growth
f. industry overcapacity
g. exit barriers
h. diversity of competitors
i. informational complexity and asymmetry
j. brand equity
k. fixed cost allocation per value added
l. Overall assessment
4.2. To analyze and assess whether the threat of new entrants is not strong
a. the existence of barriers to entry
b. economies of scale
c. proprietary product differences
d. brand equity
e. switching costs
f. capital requirements
g. access to distribution
h. absolute cost advantages
i. learning curve advantages
j. expected retaliation
k. government policies
l. Overall assessment
4.3. To analyze and assess whether the bargaining power of customers is weak
a. buyer concentration to firm concentration ratio
b. bargaining leverage
c. buyer volume
d. buyer switching costs relative to firm switching costs
e. buyer information availability
f. ability to backward integrate
g. availability of existing substitute products
h. buyer price sensitivity
i. price of total purchase
j. Overall assessment
4.4 To analyze and assess whether the bargaining power of suppliers is weak
a. supplier switching costs relative to firm switching costs
b. degree of differentiation of inputs
c. presence of substitute inputs
d. supplier concentration to firm concentration ratio
e. threat of forward integration by suppliers relative to the threat of backward integration by firms
f. cost of inputs relative to selling price of the product
g. importance of volume to supplier
h. Overall assessment
4.5. To analyze and assess whether the threat of substitute products is weak
a. buyer propensity to substitute
b. relative price performance of substitutes
c. buyer switching costs
d. perceived level of product differentiation
e. Overall assessment
4.6. Summary
Chapter 5 – Discussion/Analysis
5.1. To verify whether the intensity of competitive rivalry is not keen
5.2. To verify whether the threat of new entrants is not strong
5.3. To verify whether the bargaining power of customers is weak
5.4. To verify whether the bargaining power of suppliers is weak
5.5. To verify whether the threat of substitute products is weak
Chapter 6. Conclusion (Referring to the section 1.4, 1.10, 3, 4 and 5.)
6.1 Summary of Objectives to have achieved
6.2 Implication of the findings and the fact (referring to the section 1.4, 4 .1- 4.2 and 5.2)
6.2.1. Consequence or effects to the company if nothing will be done on the fact
6.4. Future expectation
6.3 Limitation of the study
What are they????
Epilogue
Appendices
Bibliography
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