Air New Zealand Company Analysis

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Table of Contents

Introduction
Mission statement
Vision statement
Analysis of the company’s operating environment using PESTEL model
Conclusion
References

Introduction

Air New Zealand started as TEAL (Tasman Empire Airways Limited) in 1940, and its major operations involved Short Empire flying boats on trans-Tasman routes. After the World War New Zealand and Australian governments procured 50% equity of TEAL. The airline then decided to change its operations by dropping flying boat operations in favor of propeller airliners and by 1960 TEAL developed into Air New Zealand because e the New Zealand government acquire Australia’s 50% ownership in the company.

The airline is now and New Zealand’s national air carrier and its headquarters are in Auckland, New Zealand. “ It has scheduled passenger flights to 27 domestic destinations and 26 international destinations in 14 countries across, North America Asia, Europe and Oceania, and is at present the only airline to fly around the world” Cranston, 2006).

It was also rated the eighth best airline in the world in the year last year. “The airline owns a long-haul fleet consisting of Boeing 747, Boeing 767, Boeing 777 and Airbus A320 aircraft on international routes and regularly uses fleet of Airbus A320 and Boeing 737 airliners for short-haul operations” (Books,2010). The airline also has subordinate regional airlines such as: Air New Zealand’s regional y, Air Nelson, Eagle Airways, Mount Cook Airline, for domestic flights.

Since the airline elected Ralph Norris as its Managing Director in 2002, Air NZ has launched a different strategic course. The carrier has undergone various structural alterations in the market: it is now using a new strategy to meet customer’s demands and also in setting up its flights and routes while and shoving away the traditional inflexible services.

The company is growing from a full service carrier to a value based airline by reducing its flight costs per person in order to increase the number of customers and therefore increase its revenues. “t intends to offset reduced revenues (per customer) by lower operating costs mainly through simplification of product bundles and services” (Bradley,2007).

Mission statement

The company’s mission is to “position itself as a long-term sustainable business providing value to its customers, employees and shareholders” Barnhart,ET,al2004):by maximizing the airline’s return on capital employed, adding diversity to the carrier’s sources of revenues and taking full advantage of the airline’s competencies in the market. The airline has not fully published its missions but all of the above is a summary of its objectives.

The airline as said earlier operates far and wide and therefore it gets it revenues from transporting its customers to places such as: “Asia/Pacific region, Europe, and North America; and It also extends it services by participating in the Star Alliance, a global marketing and code-sharing network that includes carriers such as Lufthansa and United Airlines” (Alley, 2008).

It is also the only airline in New Zealand that provides direct flights to Sidney so as to attract Australians going for holidays in the cook’s islands and hence adding to its revenue sources.

Vision statement

The airline recognizes that flying planes is no longer enough and therefore it has decided to concentrate more on stand out in flying people, it values, the customers, takes care of their needs and therefore the carrier is also ready to do anything for them.

Analysis of the company’s operating environment using PESTEL model

External Environment

Economic

During the recession, the profitability of the company decreased by four million dollars per annum. This forced the company to quickly bring in new operation strategies to address this issue.

By bringing in the new strategies, the company hoped to increase its profitability by remaining strong, competitive and a sustainable company in the next years to come. “Air New Zealand now possesses strong financial position, coordinated operational activities in line with financial cost cuts and strong market share that projects a famous brand name” (Fenner, 2010).

The airline has a new strategy of streamlining its operations to individual lines so to increase efficiency; therefore enabling it to remain competitive, strong and also maintain a sustainable business. The airline has also increased its interest in aviation engineering and maintenance by 39% at a cost of US $8million. “ It also has an internationally competitive market-oriented economy, strong focus on international trade, stable political environment, educated workforce, and is corruption free” (Hill, C. et al.2007).

The airline’s biggest competitor is Qantas (Australia): and its fleet comprises of; “4 x Airbus A380-800, 6 x Boeing 747-400ER, 22 x Boeing 747-400, 27 x Boeing 767-300ER, 41 x Boeing 737-800, 21 x Boeing 737-400, 11 x Boeing 717-200, 10 x Airbus A330-300, 6 x Airbus A330-200, 21 x Bombardier Dash 8 (200/Q300), 17 x Bombardier Dash 8 (Q400”(Johnson,2009).

It is amongst the biggest airlines in the world, Qantas generally has a higher fleet coverage and net work coverage than Air New Zealand but it is not as profitable as the latter. Air New Zealand has a higher profitability, it’s more cost efficient, and has a much strategic company management than its major competitor. The company also considers increasing its network coverage but also it is careful not to introduce new routes that will create losses for the carrier (Miller et al, 2009).

Political

Air New Zealand was facing eminent bankruptcy in2001: the government rescued the airline by re-nationalizing it and therefore acquired 76.5% stake in the company. The government launched a rescue plan worth NZ$885 million and also took over leadership of the airline.

The airline has since performed well even with the highly competitive aviation engineering and maintenance industry. Australia has recently gained high aviation engineering capacity therefore increasing the airline’s competitive advantage being the monopoly hence the good performance.

Technological

In the last decade, technology in the aviation industry has advanced in a wide scale, new aviation technologies have been created; new aircrafts and new airport infrastructure have been established. Any organization willing to succeed has to always respond to changes: Air New Zealand has acquired new Boeing 777 aircrafts to increase efficiency and achieve more growth, by opening up more destinations.

There has also been an increased market for the airline’s services hence it is planning to add 17aircrafts to its fleet and replace 17of the old ones with new technology aircraft so as to meet its customer’s needs. “Air New Zealand was the first airline in the world to receive the Boeing 787-9 which has exceptional fuel efficiency and will offer the economics of large jet transports to the middle market, using 22 percent less fuel than any other jet of its size” (Hill, C. et al.2007).

Environmental

Air new Zealand management is striving to cope with the increased fuel costs without increasing travelling costs and also taking into consideration environmental factors. The impact carbon pollution from the aircraft fuels has impacted the environment immensely, and the costs of jet fuel has increased too hence the airline has to find a way of reducing both. Due to this the company has made commitment to construct a clean environment.

It has taken up more express routes which have cut the amount of carbon emissions from the jet fuel by 15 per cent, the airline also has an environmental trust The Air New Zealand Environment Trust; their customers can donate to the trust to support environmental projects in new Zealand and one of the most renowned projects by the airline is the Mangarara station in Hakes bay (Lowe, 1981).

Legal

Air New Zealand has tried twice to merge with Qantas but it has been denied the permission by the airports authorities act citing issues to do with protection of the airports users and consumers. Due to this the company is in consultations with the government so as to look into ways of reviewing the Airports Authority Act in order to ensure that all airport users and consumers are adequately protected by the Act hence the merger would successfully be implemented (Johnson, 2009).

Social

New Zealand society is very social and loves taking part in fun activities: The airline ha s enabled this by sponsoring various social events and competitions so as to provide an opportunity for people to interact and have fun.

It has also provided many flights to various destinations so as to ensure that people can travel anytime they want and to anywhere without delays. Air New Zealand is the sponsor of: of the Air New Zealand Cup domestic rugby club competition (2009), the Air New Zealand Wine Awards and the Air New Zealand Fashion Export Awar (Fairfax New Zealand, 2009).

Internal Environment

The internal environment of a business is its competitive advantage or core competency over the other businesses in the same industry. Core competency can be defined as the as the extraordinary set of knowledge that helps a company in obtaining a competitive advantage over their competitors.

This helps a company in creating and providing value to its customers. The internal environment of Air New Zealand can be best analyzed through the SWOT analysis, value chain analysis and the Porter’s Five Forces Model. SWOT is a comprehensive approach of analyzing a company’s strengths, weaknesses, opportunities and threats: It involves brand names, patents, reputation, cost advantages, and networks among others.

For example “after the entry of Qantas into the domestic flight market and with the greater quality and level of service that Qantas was offering in 2003 Air New Zealand announced a new low-cost strategy by removing business class and in-flight meals for domestic flight” ( Miller, et,al,2009).

Air New Zealand also has other low cost strategies such as: low fares, high quality services, government support and also there are a monopoly supplier of spare parts maintenance services and also terminal access. It also has many opportunities favoring its operations: for example it mostly focuses on business passengers, who will pay high fares, and they attract them by providing; bigger seats prioritized parking, faster check in, access to lounges and other benefits.

The airline is also a monopoly in many routes, has 50 Boeing fights, is a recognized brand name, has new technologies, and is available in most airports in New Zealand. However it has a poor customer’s service, its fares are far less than those of its competitors, and the government is establishing new laws regarding monopolies; all these are weaknesses and threats for the carrier and hence threatening its competitive advantage (Cranston, 2006).

The value chain analysis

The value chain analysis focuses on logistics, marketing, sales, and services of a particular company in comparison to its major competitors; for Air New Zealand there are two Qantas and Pacific Blue. The airlines have two types of logistics inbound and outbound: inbound; it has 27 domestic destinations hence achieving a very high competitive advantage over its competitors who both have a maximum of about 5 destinations.

It has 50 flights per day five times those of its competitors, ANZ has its own facility in NZ whereas its two competitors do not hence they use the airline’s facility. For outbound logistics they are all the same, the three have hotel reservations and car rentals available in their ports.

In marketing and sales ANZ has more to offer to its customers because it has many special offers, it gives redeemable points to frequent flyers, pays more for lost luggage, has a direct customer care number, and advertises the airline a lot as well as the country as a whole to attract tourists (Fine, 2009).

Porter’s Five Forces Model

The last tool of analysis is the Porter’s Five Forces Model: it involves the bargaining powers of buyers, and suppliers’ threat of new entrants, threat of substitute products, and competitive rivalry. A company or an industry can be developed only when they understand customer needs and wants. When customers feel satisfied, they will come back with customer loyalty. This reduces the threat of entry as new entrants would find it difficult to obtain significant market share.

ANZ is a monopoly supplier of most of its needs hence having a high competitive advantage over the other two, it also has a market supremacy than the over Qantas and pacific blue, its major competitor is Qantas but also mostly customers chose ANZ.The major route difference between the two airlines is that Qantas has direct flights to South America and Africa and hence has a better competitive advantage in those routes (Butchers, 2001).

Air New Zealand is however still facing some major threats due to competition from other airlines. As the global economy recovers, other airline companies that were initially fairing poorly have started an aggressive marketing strategy in order to capture back its customers some of whom use Air New Zealand, as a result the company has embarked on various available opportunities in order to retain its competitive edge in the volatile market.

In addition, the airline has political support from the government which increased its percentage acquisition by 83 per cent enabling it to expand its operations easy as compared to other individual owned companies. On the other hand the company should consider changing some of its traditional forms of management and operations.

The management should be free from interference from the government, thus making the company transparent and efficient in its operations thus maintaining its successful business. The airline is facing a significant threat from the competitiveness of other rival airline companies especially the European airline companies and lately from emerging markets like Asia. Due to this the company management sought to lower its ticket prices while still maintain its profitability hence attracting more customers than its rivals.

Due to the nature of the aviation industry, there are various forces that tend to dictate the way the industry operates these include; competition, environmental impacts, technology the economy among others. How an aviation company deals with all these different dynamics will determine if it’s successful or not. Air New Zealand has successfully tackled all these dynamics as indicated above hence, has being able to maintain its market niche, offer lower ticket fares while at the same time being profitable( Campbell, 2005).

The airline should however increase its network coverage by buying more aircraft and employing staff to serve its customers. The airline should also improve its customers service departments because for any organization to succeed the person who is consulted by the customer first matters very much.

The employees have to be friendly, trained and knowledgeable about the company’s services to enable them to give appropriate information to customers. This will help in attracting more customers and also maintaining the frequent users of the airline. The airline also needs to increase it’s revenues by increasing charges to customers by therefore improving its services or else find another strategy to entice customers since their fares are far below their competitors therefore creating a risk (Books, 2010).

The airline also needs to drop services that are not vitally important for business such as catering, and ground handling services among others and instead outsource them form other companies who specialize in that.

This will enable it to concentrate on more important matters like reduction of jet fuel: the costs of fuel can be reduced by buying more efficient aircraft that utilize less fuel hence lowering its operating costs. The reduced intake of fuel will also reduce carbon emissions hence keeping the environment clean and therefore also wining the trust of customers. The airline can also increase the number of environmental projects that it is involved into gain more credit in environment responsibility ( Barnhart et al, 2003).

Conclusion

The airline also needs to hire experts who will advise it on how to maintain its competitive advantage and keep it profitable because with the new government laws the airlines advantage is at risk. The airline also needs to create more incentives to attract customers and maintain them without incurring extra costs.

The above changes can be financed by selling company shares to willing investors .The above changes should be implemented within the next five years because until then the airline still holds it position after which it will be at risk if it does not implement the changes. The airline is a good investment opportunity for willing investors as of now but any one intending to launch an airline in new Zealand will have a very difficult task of penetrating the market (Air New Zealand,1989).

Nevertheless, Air New Zealand is still facing some major threats due to competition from other airlines. As the global economy recovers, other airline companies that were initially faring poorly have started an aggressive marketing strategy in order to capture back its customers some of whom use Air New Zealand, as a result the company has embarked on various available opportunities in order to retain its competitive edge in the volatile market.

On the other hand the company should consider changing some of its traditional forms of management and operations. The management should be free from interference from the government, thus making the company transparent and efficient in its operations thus maintaining its successful business. ( Barnhart & Cohn 2004).

References

Air New Zealand. (1989). Air New Zealand: Club Pacific. Honolulu, HI: Club Pacific Administration Office.

Alley, R. (2008). New Zealand in World Affairs IV 1990-2005. Victoria, BC: Victoria University Press.

Barnhart, C., Belobaba, P. and Odoni, A. R. (2003). Applications of Operations Research in the Air Transport Industry. Transportation Science, 37(4): pp. 368-391.

Barnhart, C. and Cohn, A. (2004). Airline Schedule Planning: Accomplishments and Opportunities. MSOM, 6(1): pp. 3-22.

Books, LLC. (2010). Air New Zealand: Air New Zealand, Freedom Air, Ansett Australia, Air New Zealand Flight 901, History of Air New Zealand. Auckland: General Books.

Bradley, G. (2007). Air NZ hires world’s first in-flight concierges. New Zealand Herald. Web.

Butchers, R. (2001). Optimized Crew Scheduling at Air New Zealand. Interfaces, Vol. 31, No. 1, pp. 30-56.

Campbell, D. & Craig, T. (2005). Organisations and the business environment. Oxford: Butterworth-Heinemann.

Cranston, M. (April 2006). Air New Zealand DC-8 Digest. Simviation Historic Jetliners Group. Web.

Fairfax New Zealand. (2009). Air NZ slips in world rankings. Fairfax New Zealand. Web.

Fenner, R. (2010). Virgin Blue, Air New Zealand Tie-Up Blocked by Regulator. Bloomberg. Web.

Fine, G. (2009). The SWOT Analysis: Using Your Strength to Overcome Weaknesses, Using Opportunities to Overcome Threats. North Charleston, SC: Booksurge Llc.

Hill, C. et al. (2007). Strategic Management: An Integrated Approach. Melbourne: John Wiley.

Johnson, C. (2009). Integrated Airline Fleet and Crew Robust Planning. Transportation Science, 43(1): pp. 2-16.

Lowe, D. (1981). Air New Zealand: the international aircraft from flying-boats to the 747. Oroville, CA: Lodestar Press.

Miller, F., Vandome, A. & McBrewster, J. (2009). Air New Zealand: Air New Zealand, History of Air New Zealand, Air New Zealand Destinations, Air New Zealand Flight 901, Air New Zealand Cup, Wellington International Airport, McDonnell Douglas DC-10. Virginal-Samme: Alpha script Publishing.

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