Entreprenuership Failure of Oasis Hong Kong Airlines - Research Paper Example

?Entrepressneurship Failure Research Paper Table of Contents Entrepressneurship Failure Research Paper Table of Contents 2 Failure Introduction 3 Description of Business of Oasis Hong Kong Airlines 3 Competitors of Oasis Hong Kong Airlines 4 Mission and Vision of Oasis Hong Kong Airlines 5 Reason for Failure 5 Analysis 9 Conclusion 11 References 12 Failure Introduction Description of Business of Oasis Hong Kong Airlines Oasis Hong Kong Airlines was an airline enterprise of Hong Kong. It offered flight services to the tourists, business persons and travelers. Oasis flights’ routes were situated in major European cities such as Milan, Brussels, Vienna and Brussels (Bloomberg L.P, 2011). Oasis’s business mission was to provide inexpensive flight experience for making flight travel accessible to the regular long distance travelers. Till 2005, Oasis had satisfied the customers because it provided consistent and faithful flight experience. In the past, Oasis was possessed and managed by Singapore Airlines and its maintenance operation was handled by Hong Kong HAECO. Its first flight operation was from Hong Kong to London (MapXL, 2011). It had expanded its routes from London to Europe and North American countries. Besides major European cities, it had expanded its routes to Berlin, Cologne, Oakland and Chicago. It was anticipated that Oasis will further increase its base to the other cities of America. The popularity of Oasis had increased to a large extent that it’s ‘Boeing 747 – 400’ plane was recognized as ‘Queen of the Sky’ (MapXL, 2011). The reason for Oasis’s popularity was its comfortable travelling feature and fair cost structure. Oasis had two kinds of services which are business class passenger service and economy class passenger service. The cost of economy class was at a price of ?75. Its business class travel was also inexpensive at the rate of ?470. Oasis operated by coordination with ‘Hong Kong Civil Aviation Department’ to guarantee that the company entirely abided by the rules, regulations and requirements and provided the passengers a safe journey (MapXL, 2011). For making the aviation business more successful, Oasis organized promotional programs. For its promotional activities, Oasis provided its customers with benefits of selecting from list of 21,000 hotels and apartments with splendid discounts. These hotels were located in attractive sites. For attracting the people to make holidays, Oasis provided travelers to select the pick up cars which could be a shared vehicle, private vehicle or chauffer–driven vehicle. The customer had the free right to choose the kind of tour. It could be a scheduled tour or an unscheduled trip (MapXL, 2011). Competitors of Oasis Hong Kong Airlines Oasis not only provided its customers inexpensive fare but it also provided the opportunity to tailor the travelling experience in business class as well as economy class. In the aviation industry, Oasis had faced extremely rigid competition from other enterprises. In the London route the main competitor of Oasis was Air New Zealand which started its flight from Hong Kong to London route in the year 2006. Besides Air New Zealand, the other strong competitor of Oasis was Cathay Pacific. Cathay Pacific offered high class service to customers and it had most efficient airline hub (Centre for Asia Pacific Aviation, 2007). The other competitors of Oasis Hong Kong Airlines are Hong Kong Dragon Airlines Limited, Air Hong Kong Limited, Metro jet Limited, Hong Kong Express Airways Limited and Hong Kong Airlines Limited (Legislative Council Secretariat, 2008). Mission and Vision of Oasis Hong Kong Airlines The mission of Oasis Hong Kong Airlines was to provide low cost travelling to people. Its vision was to stimulate the people by providing inexpensive flight travelling. It was aimed towards helping people to travel most for tourism, educational and business purposes and broaden the horizon of long distance travel which can help to exchange ideas as well as encourage the economy (Anderson, 2007). Reason for Failure In the year 2008, Oasis had faced losses of approximately ?64 million. The high fuel cost was the main reason for failure of Oasis. The inexpensive feature of Oasis on long route such as Hong Kong to London had proved unsuccessful for Oasis Hong Kong Airlines. The high fuel cost increased the competition of aviation industry (Milmo, 2008). Oasis had started the Hong Kong to Vancouver journey in the year 2006. At that time, Oasis provided its customers an opportunity to enjoy flight at ?65 only. The accumulated loss was almost 1 billion HKD after 18 months of the business operation. The huge losses had led to liquidation of the assets of Oasis (Machan, 2008). The aviation industry is characterized by recurring demand, high price competition, huge capital investment, high fixed cost of salary of employees and regulatory obstruction. These factors restrict the capability of the airline company to reduce the cost. The intense competition from other competitors within same route can possess threat as both companies strive for inexpensive service. In aviation industry, the business can face three types of financial risk which are interest rate, currency revelation and high fuel price (Loudon, 2004). Inadequate finance can lead to failure of enterprises. The management ineffectiveness is the main reason for failure of financial management of any company. It has been seen that inadequate financial management is the root cause of the failure of majority of companies where the marketing management is the casual factor of failure. Table 1: Showing the Major Reasons for Failure of Enterprises Source: (Peacock, 2000). From the above table, it has been found that the financial reason is the number one reason for failure. The key aspects of finance are credit management, stock control, cash flow analysis, liquidity, lack of preliminary capital, management of fixed asset and lack of finance. Table 2: Showing Major Financial Reasons for Failure of Enterprises Source: (Peacock, 2000). The inadequate accounting of finance is ranked number one for major cause of failure of companies. Every company has to adapt with the changing environment and make the financial decision accordingly. Less emphasis on efficient management leads to financial problem to the company. The Oasis Hong Kong Airline had failed due to financial problems (Peacock, 2000). The high fuel cost encompasses an important element for aviation operating cost and thus the finance. The high fuel cost directly affects the short term cash flow of the company. The revenue sensitivity becomes slow due to inexpensive charges of flights. Table 3: Showing the Relation between Fuel Price and Operating Cost of Aircraft Source: (Ryerson & Hansen, 2011). From the above data, it can be seen that there is linear relationship between fuel price and operating cost of plane in every departure. Cash flow of an aviation company and return are adversely correlated with the changes in fuel price. Thus, the high fuel cost had affected the fuel efficiency of Oasis Hong Kong Airlines. Oasis was unable to obtain credit from other financial institutions to recover the losses and perform the fuel–hedging strategy. Thus, the fixed cost of Oasis had increased considerably. Within a year after Oasis started its flight operation from Vancouver to Hong Kong, its budget ran out slowly. The overhead cost of Oasis became higher because of providing inexpensive tickets in spite of high fuel cost. The inexpensive travelling in such a long distance has become the major reason for Oasis failure. Besides Oasis, there are other four aviation companies which had faced the same financial problems and stopped their business operations which are ATA Airlines, Skybus Airlines, Champion Air and Aloha Airgroup (Province, 2008) & (Smith, 2008). The cost of fuel is the major component of airline’s operating cost. It represents almost 43% of the total aviation cost nowadays. Oasis had failed to make strategic decisions accordingly with the rising cost of fuel. Because of the losses, Oasis had certainly lost the faith of potential investors. Thus, it could not manage the fresh capital to recover the losses. The lack of financial decision has taken the company towards liquidation. Analysis It can be seen that lack of managerial decision making skills are the major reasons for failure of Oasis Hong Kong Airlines. There was a need to improve the management efficiency of Oasis Hong Kong Airlines. The following things should have been done: A Good Start up Research: A good start up market research can help in survival of a company. Before entering a business there is a need to consult with experienced professionals for valuable information which can increase the chances of success. It can be found that there are certain companies that are extremely reluctant to prepare for starting a business (Peacock, 2000). Increase Knowledge about Business and Management: There is strong relation between management and business knowledge with failure rate. There is need of high managerial skills at the time of bad condition and it can be achieved through advanced education or training to the managers and employees. An awareness campaign before commencing can help the managers to take fair decisions in bad financial situation. At the time of facing the losses, Oasis should have changed its marketing strategy of providing inexpensive travelling or found out alternative measures to hedge the high fuel price. The management had failed to take proper decisions at that time (Peacock, 2000). Superior Financial and Accounting System: A good financial and accounting system can provide information to the company. It is helpful for guiding decision because accounting is connected with the budget system. It has been seen that Oasis had failed to maintain its budget because of high fuel price. Thus, the company should have provided priority to the liquidity management and appropriate advice should be given to the high authorities regarding finance and allocation of resources. The financial strategy must vary with the stage of growth and condition of economy. At Oasis, the finance department had a significant role because it had failed to regain the trust of investors (Peacock, 2000). Conclusion The root causes of failure of enterprises are the managerial incompetence and lack of decision making capability. Oasis Hong Kong Aviation had not made proper movement at the time of financial crisis. The solution of Oasis’s problem was rigid to solve, but a good management can help to minimize the losses and survive in the business. Thus, a good marketing research should be done before entering into the business and the management team must be proficient enough to take radiant movement while a company is facing losses. References Anderson, C., (2007). Family on a Mission. Orient Aviation. Retrieved Online on June 16, 2011 from http://www.orientaviation.com/storage/PDF/OAMag_V15N01/OAMag_V15N01_P22_Oasis.pdf Bloomberg L.P, (2011). Oasis Hong Kong Airlines Limited. Research. Retrieved Online on June 16, 2011 from http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=23768573 Centre for Asia Pacific Aviation, (2007). Oasis Hong Kong: The Asian Low Cost, Long Haul Pioneer. Peanuts Online. Retrieved Online on June 16, 2011 from http://peanuts.aero/low_cost_airline_news/airlineProfile/view/207/Oasis+Hong+Kong Legislative Council Secretariat, (2008). Air services in Hong Kong. Research and Library Services Division. Retrieved Online on June 16, 2011 from http://www.legco.gov.hk/yr07-08/english/sec/library/0708in16-e.pdf Loudon, G. F., (2004). Financial Risk Exposures in the Airline Industry. Australian Journal of Management, Vol. 29, No. 2. Retrieved Online on June 16, 2011 from http://www.agsm.edu.au/eajm/0412/pdf/loudon.pdf MapXL, (2011). Oasis Hong Kong Airlines. Low Cost Airlines. Retrieved Online on June 16, 2011 from http://www.mapsofworld.com/referrals/airlines/low-cost-airlines/oasis-hong-kong-airlines.html Milmo, D., (2008). Oasis Hong Kong Airlines Goes Into Liquidation. Guardian News and Media Limited. Retrieved Online on June 16, 2011 from http://www.guardian.co.uk/business/2008/apr/09/theairlineindustry.hongkong Machan, T., (2008). Oasis Hong Kong Airlines Goes Into Liquidation. Telegraph Media Group Limited. Retrieved Online on June 16, 2011 from http://www.telegraph.co.uk/travel/1307946/Oasis-Hong-Kong-Airlines-goes-into-liquidation.html Peacock, R., (2000). Failure And Assistance of Small Firms. Understanding Small Business. Retrieved Online on June 16, 2011 from http://www.sbeducation.info/downloads/sbfail.pdf Province, V., (2008). Oasis Budget Runs Dry. CanWest MediaWorks Publications Inc. Retrieved Online on June 16, 2011 from http://www.canada.com/story_print.html?id=4fbce6da-0331-42e4-9033-0df97e521a5d&sponsor= Ryerson, M. S. & Hansen, M., (2011). Capturing the Impact of Fuel Price on Jet Aircraft Operating Costs. University of California. Retrieved Online on June 16, 2011 from http://berkeley.academia.edu/MeganSmirti/Papers/145055/Capturing_the_Impact_of_Fuel_Price_on_Jet_Aircraft_Operating_Costs_with_Engineering_and_Econometric_Models Smith, C. S., (2008). High Fuel Costs Blamed for Oasis's Collapse. Telegraph Media Group Limited. Retrieved Online on June 16, 2011 from http://www.telegraph.co.uk/travel/travelnews/1308262/High-fuel-costs-blamed-for-Oasiss-collapse.html Read More