Fly Light and a Noteworthy Strategic Management Plan - Statistics Project Example

Introduction In the international airline industry, Fly Light will consistently outperform its closest competitors. It will be profitable on an annual basis, it will achieve substantial and superior returns, and it will receive multiple industry awards for its service quality. Fly Light will reach this outstanding performance by implementing a two-pronged strategy: differentiation through service excellence and innovation, combined with simultaneous cost leadership in its peer group. A ‘low-cost carrier’ also described as a no-frills or discount airline is one that endeavors to offer lower air fares to the business and other travelers. In order to arrive at affordable cost of flying there will be trade-offs with many of the traditional passenger amenities and services. Originated in the United States the concept spread to Europe in the early 1990s. The original idea on which the name was coined was that the airline company will operate with a lower operating cost structure than that of the competing firms. The term in the course of time is being used to describe any airline that offers lower ticket fare with limited service and the term has no more relevance to the operating costs of the airline company. (Ranjit Nair, 2007) Low-cost flying statistics indicate the number of European low-cost airline routes at 4410; number of airports with budget routes at 335; number of active low-cost airlines operating in Europe at 44. (flycheap.com) This statistics provide the base for the proposed venture. Based on this concept this presentation introduces the salient features of Fly Light a low-cost carrier proposed to be ventured into by LH Group. This section presents the strategic management plan of Fly Light based on Michael Porter’s work on competitive strategy. (Porter, 1985). To start the discussion of the airline’s strategic management plan, we first review the strategic plans, tactical plans and operational plans and link these with the Seven S of the Strategic Management action Strategic Plans Fly Light will implement four strategic plans for the next five years which will have a strong impact on company revenues and profits starting 2009. The first strategic plan is to promote intensive marketing and advertising of the lowest airfare in the industry. The aim is to generate substantial revenues in the first year of operations. These second strategic plan is to build a customer loyalty program by issuing a customer loyalty card which will pamper the needs of its customers. The third strategic plan is to focus on internet-based marketing and opening two major sales branches in order to save on operational costs. The fourth strategic plan is to establish a generous bonus scheme for all employees annually which will reward them if they are able to reach the revenue and profit goals for the year. This scheme will instill group cooperation and team effort among the employees. Tactical Plans Fly Light can implement three tactical plans to offer a firm support to the four strategic plans. First, it can offer the lowest airfare in the industry to snatch a 30% market share from the existing airlines. Second, it can offer a 90% turn-around rate for its plane fleet so as to maximize revenues. Third, the company can offer a 100% punctuality in all of its flights to project reliability and dependability for business and tourist travellers alike. Operational Plans Fly Light can build on quality service, value pricing and excellent customer relations as a means to project daily competitiveness. The company can implement five operational plans. First, the airline staff and crew will be given training in excellent customer service to build customer loyalty. Second, the company will maintain clean and pleasant facilities. The company will maintain a clean fleet with Boeing 737 aircrafts. The third plan is to increase fares as the plane gets filled up which will induce the travelers to book in advance. The fourth plan is to encourage the passengers to board quickly and early. The fifth plan is to fly routes and destinations with the highest customer demand. (Farrar, December 2003). The international airline industry has to contend with overcapacity, commoditization of offerings, cutthroat rivalry exacerbated by the entry of low cost carriers, and intermittent periods of disastrous under-performance (Costa et al., 2002). Several macro-level socio-economic factors consisting of rising oil prices, the SARS crisis, frequent concerns about the eruption of bird flu, the Asian tsunami, and rising terrorism concerns have negatively affected the profitability performance of these international airlines. The global airlines industry recorded a net loss of US $500 million dollars, or 0.1% of revenues, accumulated net losses of US $42 billion dollars between 2001 and 2006 (International Air Transport Association, 2007). The international airline industry recorded a respectable net profit of $5.6bn on revenues of US $ 490 billion dollars which is equivalent to less than 2% margin in 2007. (International Air Transport Association, 2008). Phase 3- Seven S for the Strategic Management Plan Fly Light is carefully positioned as a no-frills and efficient international carrier with moderate levels of innovation and noteworthy levels of service, and has made a strategic decision of giving utmost priority to profitability over size. The internal organizational practices such as the implementation of generous compensation packages, the continuous people development and rigorous service design are the most notable elements of operationalizing and sustaining this positioning and strategic choice. Figure 1 Seven S of the Strategic Management Plan There is a strong pro-cyclical relationship between the air transport growth and the growth of the international economy. This means that as traffic growth generally increases, the world economic growth also increases over time. The international airlines industry has registered rapid growth in the European and Asian Pacific air routes. (Oum and Yu, 1998) A common metric of airline costs is cents per available seat kilometer, where flag carriers tend to have costs of US 9–14 cents, and budget carriers US 4.5–7.5 cents (Binggeli and Pompeo,2002 ) The seven S of the strategic management plan encompass shared values, staff, skills, style, system, structure and strategy. These elements make up a solid strategic management system. The shared values pertain to the mutually held beliefs, mindsets, and assumptions that shape how Fly Light behaves. This is also known as its corporate culture. It is the sharing of values that foster trust and respect within the organization. The values are the identity by which a company is known throughout its business areas, what the organization stands for and what it believes in, it central beliefs and attitudes. These cornerstone values must be explicitly stated as both corporate objectives and individual values. (See Figure 1: Seven S of the Strategic Management Plan). Structure Structure describes the hierarchy of authority and accountability within Fly Light. This airline has a lean structure with each manager and staff member taking on full responsibility for addressing the customer’s needs. It is an organizational structure that is built around the creation of, and capitalization of customer affinity. This structure enables the employees to know their customers and value their loyal patronage in an integrated way. The airline employees to take ownership of the problems referred to them by their customers by updating the customer profile and by solving the customer’s concerns quickly. Strategy Strategy consists of the regular and consistent plans that Fly Light formulates to reach previously identified profit and revenue goals. It also means a group of decisions and actions aimed at gaining a distinct competitive advantage over one’s competitors. The various strategies of differentiation and cost leadership have demanded different and incompatible investments and organizational models. (Heracleous and Pangarkar, 2009). A strategy of differentiation emphasizes several high quality offerings, and significant investments in innovation, staff development and branding, leading to higher costs than average. Fly Light achieves a differentiation strategy. This airline has a significantly higher efficiency compared to its corresponding peer group. Strategic alignment can be represented as consisting of four important factors. First, there is a need to evaluate the environmental conditions. Secondly, the strategy of the company should also be appropriate for the prevailing environmental conditions. Thirdly, the core competencies underpin the strategy. The organizational level covering elements such as processes, culture, and functional strategies are able to deliver the required core competencies. The elements of Fly Light relating to the company pillars are located at the level of organization. This is the basic and key level of strategic alignment, which delivers the core competencies of the organization. Fly Light’s core competence is the ability to achieve a differentiated offering with exceptional levels of efficiency knows as the cost-effective service excellence. This capability is attained after diligent staff training at the hiring level. Systems Fly Light’s systems such as the daily operation of business, including its core processes and its support systems are very efficient. The systems as a whole support the profitability and efficiency objective of the organization. Fly Light makes use of advanced information technology to enhance customer service as well as increasing operational efficiency. Fly Light’s web site is one of the most efficient and user-friendly where customers can freely check their schedules, purchase their tickets, check into a flight and find out about their choice of their meal for their next flight. Given that agents’ commissions are 7.5% of total of operating costs and reservations and ticketing costs an additional 5.4%, (Doganis, 2006), then the effective use of information technology (IT) can significantly decrease costs and enhance service levels. Moreover, cost cutting is a perennial concern with particular special emphasis on cutting non-fuel costs by 20% within one year, and outsourcing IT functions to computer outsourcing companies. The sustained drive for efficiency as well as quality has enabled Fly Light to increase the spread of the profit margins. Fly Light’s strategic alliances between airlines can have a wide range of impacts on industry performance. It will point to benefits associated with structural economies in the form of economies of scale, vertical integration, and scale. One positive effect of such consolidation is that schedules could be worked out well so that the alliance airlines will not have flights leaving at the same time. Moreover, the alliance participants are able to combine certain facilities particularly airline stations, catering services and maintenance bases. Each participating airline can definitely extend its effective network to the regions and points served by the other airlines. The bottomline reason for Fly Light to enter such alliances is to reap the triple benefits of convergence, competitiveness and complimentarity. The alliance will also improve the overall market presence of the airline in underserved markets. This network extension effect has two aspects. First, the quality and quantity of connecting services shoots up due to the improved schedule coordination and the passengers’ perception that an inter-alliance connection will lead to lower risk levels of in terms of lost baggage or a missed flight. Second, if the alliance will combine frequent flier programs, the customers will be able to use frequent flier benefits to travel to new and different places. By offering improved connecting services, the alliance partners are able to establish a strong presence in emerging markets where neither partner had been previously competitive. Style Style covers the operational and cultural aspects of the organization. Managers are well-apprised of the profit and revenue targets for a given year. The attainment of such transaction targets will lead to a system of promotions and rewards among the managers and staff. Hence, due to this distinctive corporate style, the managers and staff try their best to embark on an aggressive marketing campaign to get more customers and retain the existing ones. Station managers and frontline staff are aware that they should be careful in balancing passenger satisfaction with cost-effectiveness in all of their operational decisions. The importance of efficiency in the company culture is further reinforced by the airline’s physical spaces. Efficiency is seen as part of the corporate culture. The airline has an extensive customer feedback mechanism which helps the staff address its customers’ high expectations for service efficiency. Every customer letter, be it a complaint or compliment, stimulates the staff to do better in their responsibilities next time. Staff The airline managers and staff are highly aware of the need for profit and cost-effectiveness. This derives from the company culture: Fly Light is a no-frills, efficient and profitable airline. It is due to this policy of pursuing profitability, rather than size, that Fly Light maintains a high level of market capitalization. The airline maintains a well-trained and well-honed cabin and ground crew. The airline prides itself in excellent service encounters for customers from the staff such as friendliness, on board service, timeliness, reasonable pricing, helpfulness, pleasantness, seating comfort, cleanliness and technological and safety standards. Fly Light has a rewards system that pays bonuses according to the profitability of the company. Everyone enjoys the same percentage. Cabin crew members undergo important refresher courses, and on the average attend four days of these courses in a year. Interesting courses cover transactional analysis which is actually a counseling-type course, leadership courses, and European languages. The company is moving from a system of directing which courses cabin crew should attend, to one where the staff members assume serious responsibility for their own professional development. Even before staff development starts, the company ensures that the company only hires the right staff. For example, entry qualifications for cabin crew applicants are both academic and physical attributes. The recruitment process is very extensive consisting of several rounds of interviews. Skills Skills refer to the special competencies of the personnel or of the organization as a whole. The airline’s strong capability is seen in its careful maintenance of its capital assets. Fly Light’s airline capital assets are always in excellent condition and maintenance. The company has a very service-oriented and highly skilled aircraft engineers and technicians. Technical difficulties are immediately assessed and repaired to keep all the aircraft in top condition. Its capital assets cover ground property equipment, ramp equipment, maintenance and engineering equipment, furniture fixtures and office equipment, buildings and other assorted ground equipment. The cabin and ground crew are linked by close teamwork and cooperation on the job site. Due to the complementary and harmonious relations among the employees, the incidence of lost baggage and misplaced baggages is very low. The service personnel are very polite and sensitive to the needs of the customers. Efficient and punctual service is an always norm within the company. Conclusion Fly Light implements a noteworthy strategic management plan based on the Seven S Strategic Management Model. The strategic management plan focuses on its competitive advantage in offering the lowest airfares, excellent customer service, and complimentary ancillary linkages with travel-related companies and superb cargo services. The plan also takes into account the fact that the current recession has shifted existing consumer sentiment in favor of discounted airfares thus, enhancing the competitive advantage of Fly Light over other airlines. The company’s specific strategic plans are very focused in achieving the ambitious revenue and profit goals which has been outlined at the start of the year. The capital investments in a purchasing of a modern plane fleet and supporting services complement the thrust towards business viability and consequently, profitability. Correspondingly, the company’s tactical plans and the operational plans are also directed to achieve the over-all goals of the company. References Binggeli, U., Pompeo, L. (2002). Hyped hopes for Europe’s low-cost airlines. McKinsey Quarterly 4, 86–97. Costa, P., Harned, D., Lundquist, J. (2002). Rethinking the aviation industry. McKinsey Quarterly, 89–100. Special edition: Risk and resilience. Doganis, R. (2006). The Airline Business. London: Routledge. Heracleous, L., Wirtz, J. and Pangarkar, N. (2009). Flying High in a Competitive Industry: Cost-effective Service Excellence at Singapore Airlines. McGraw-Hill, Singapore International Air Transport Association. (2007). Annual Report. IATA, Geneva. International Air Transport Association. (2008). Annual Report. IATA, Geneva. Oum, Tae Hoon and Chunyan Yu. (1998). Winning Airlines: Productivity and Cost Competitiveness of the World's Major Airlines. London: Springer. Porter, M.E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press. Online Sources Nationmaster ‘Low Cost Carrier’ Encyclopedia available online at http://www.nationmaster.com/encyclopedia/Low_cost-carrier Accessed on 1st November 2008 Ranjit Nair (2007) ‘Low Cost Airline Industry’ available online at http://www.managementparadise.com/forums/archive/index.php/t-14734.htmlAccessed on 1st November 2008 Read More