Introduction
The Australian airline industry is very competitive and the entry of a new low-cost carrier, the Tiger Airways has changed the industry environment and has pushed a number of airlines to employ different strategies. The competition became more intense as Tiger Airways, positioned as a low cost, low fare, no frills airline enter the picture.
Tiger Airways
Tiger Airways is a low-cost carrier that is owned by Tiger Aviation Group which is composed of Singapore Airlines Limited with 49 percent share, Indigo Partners LLC with 24 percent share, Irelandia Investment Limited (Ryan Family) with 16 percent share and Temasek Holdings Pte Ltd with 11 percent share.
Proven Business Model
The success of Tiger Airways is due to its close adherence to the proven low cost carrier business model patterned from RyanAir. This model allows the airline to offer consistent low fares to passengers by adopting innovative features such as online-booking through the internet to reduce distribution costs, operating a single aircraft type to reduce maintenance and operational costs, focusing on short haul flights for faster turnaround and providing minimum frills.
Tiger Airways focuses on primary high cost airports and emphasizes on existing cost conscious but time insensitive business and leisure markets, accepting competition from incumbent carriers. To be competitive, labor cost, food and ticket sales commission are kept to a minimum.
Target Markets
There are different target markets that Tiger Airways intends to attract. First is the up market leisure traveler and then the cost-conscious business travelers and domestic travelers.
Branding and Product Services
Tiger Airways creates both tangible and psychological brand values that are highlighted in the company’s advertisements and website. Tiger Airways sells on the basis of reliability, punctuality, and service.
Pricing
Air travelers are now given greater choice in terms of choosing which airline to travel with, and at what price. The lowest price possible has been set by Tiger Airways and judging from the overwhelming demand, it is apparent that the market is full of price/budget conscious travelers. This has forced the pricing structure of the full service carriers to adapt to the new competitive environment.
Industry and Competition
In 2007, the Australian Airline Industry was shaken by Tiger Airways’ announcement of its plan to set up a headquarter in Melbourne. In mid-2007, Tiger Airways began flights from Singapore to Perth and Darwin. This announcement was met with different from different incumbents such as Jetstar and Virgin Blue.
Low cost carriers such as Tiger Airways pose a threat to traditional full service airlines, since full service carriers cannot compete on price and, when given a choice, most consumers will opt for low price over other amenities. Some of the routes flown by Tiger Airways are also flown by the established airlines. This can lead to a severe price war. Because of the intense competition, big airlines create their own low-cost carriers that will compete with Tiger Airways.
Strategic Development
Strategy is an area of management that is concerned with the general direction and long-term policy of the business as distinct from short-term tactics and day to day operations. The strategy of business is defined as the long term objectives and the general means by which the business intends to achieve them (Karami 2007). Andrews (1986) defines strategy as a pattern of decisions which represent the unity, coherence and internal consistency of a company’s decisions that position a company in its environment and give the firm its identity, its power to mobilize its strengths, and its likelihood of success in the market place. There are different strategy development methods that are identified by different authors. The strategy development framework that will be used in this paper is the one devised by Johnson and Scholes (1993). According to these authors, a company can approach strategy development in a number of ways:
· Natural Selection View – the organizations are under great environmental pressure and have constantly to adapt to the changes in their environment.
· Planning View – strategy comes about through highly systematized forms of planning.
· Logical Incremental View – an evolutionary step-by-step approach to strategy; it is an adaptive approach but one which is more controlled by the company.
· Cultural View – an approach to strategy based on the experiences, assumptions and beliefs of management over time and which may eventually permeate a whole organization.
· Political View – strategy emerges after a variety of internal battles, in which managers, individuals and groups bargain and trade their interests and information.
· Visionary View – strategy is dominated by one individual, or sometimes a small group, who have a particular vision where the organization can and should be.
· Command View – strategy developed through the direction of an individual or group, but not necessarily through formal planning.
The company has a logical incremental view and command view. The airline industry is highly competitive and there are great environmental and customer pressures of every airline. The company tries to adapt to the changes in the external environment in a step-by-step approach.
Initially, Tiger Airways was positioned in Singapore as an alternative to large airlines. Over the years, with its aggressive strategies and campaigns, the airline became not only an alternative, but an airline of choice.
Tiger Airways is one of the largest and most successful low-cost carriers in Asia Pacific. According to Michael Porter (1980; 1985), in order for a firm to maintain a sustainable competitive advantage, it must follow one of the three generic strategies. These strategies are:
1. Low-Cost – involves the sacrifice of some quality, fashion and even product innovation in order to keep costs low – the lowest in the industry (cited in Proctor 2000, p. 175).
2. Differentiation – focuses on the factors ignored by the low-cost strategy such as product variety, quality and service (cited in Proctor 2000, p. 176).
3. Focus – requires a firm to concentrate on a particular market segment rather than the overall market (Reid et al 1993).
The firm exemplifies most of the characteristics of a cost focus strategy. In order to keep the costs down, the airline maintains a no frills strategy. No frills is a direct approach to low cost which removes all frills and extras from a product or service. The goal is to generate a cost advantage that is sustainable for one of two reasons. First, competitors cannot easily stop offering services that their customers expect. Second, competitors’ operations and facilities have been designed for such services and cannot easily be changed (Proctor 2000).
Porter’s Five Forces
Internal Rivalry within the Industry (High)
In the airline industry where the market is highly saturated, the rivalry between existing airlines is one of the strongest forces. Tiger Airways as a new entrant poses as a threat to established low-cost carriers such as Jetstar and Virgin Blue. The competition in the budget sector is very high as all airlines has the same ‘no frills’ philosophy. Price is the major differentiating factor in the low-cost carrier market, an area where Tiger Airways lead.
Buyers’ Bargaining Power (Medium)
In the low-cost carrier market, airlines are competing for the same market segment. The bargaining power of the consumers is increasing as the supply exceeds the demands. The consumers are price sensitive. One of the challenges that Tiger Airways must face is the lack of customer loyalty in the low-cost carrier arena where passengers easily switch to airlines that offer lower fares. Buyers have no loyalty in low cost airlines such as Tiger Airways as the trip is purchased according to price.
Bargaining Power of Suppliers (Low)
Suppliers offer fuel, labor, airport and security services – all with changing prices. Changes in the prices of supplier’s products and services affect the rates of Tiger Airways’ fares. Tiger Airways has no influence of fuel price. Tiger Airways chooses suppliers that have low bargaining power.
Threats of New Entrants (Low)
Barriers to entry make it more difficult for new entrants to enter the low-cost carrier market. Infrastructure constraints pose as a formidable entry barrier. Because of the intense price war, a new entrant will find it almost impossible to offer rates that are lower than Tiger Airways’. The airline industry is highly capital intensive. New entrants are challenged by expensive aircrafts, high cost of operation and war for talents. New entrants also find it very hard to look for suitable airport as airport slots are reserved for established airlines.
References
Johnson, G and Scholes, K 1993, Exploring Corporate Strategy Text and Cases, Prentice Hall, London.
Karami, A 2007, Strategy Formulation in Entrepreneurial Firms, Ashgate Publishing, Ltd., UK.
Proctor, T 2000, Strategic Marketing: An Introduction, Routledge, London.
Credit:ivythesis.typepad.com
0 comments:
Post a Comment