Strategy for Managers: Final Report

Introduction
In this report, I will produce a systematic analysis of Air India Express (AIE) with reference to the case
study Air India Express: The changing phase for a low-cost international carrier (LCC) (Jayakrishnan,
2019) Air India express is a low-cost airline, owned by Air India. While in the past the organisation
has struggled to build a reputable brand & failed to reach customer expectations, overtime they
have been able to regain the trust of consumers and rebuild the brand in a positive light. New plans
of operations for Air India Express include launching new routes and a future of expansion is also
projected. The case analysis will begin with a detailed investigation of the strategic positioning of Air
India express, using appropriate frameworks to support my discussion. The strategic choices will
then be identified and in the final section, each option will be an assessed on the suitability and
potential of each option, giving my final recommendation of a suitable strategy for Air India Express.

Strategic Position
In the following section, I will carry out an analysis of the macro environment of AIE, using the
PESTLE framework & Porters Five forces model to determine the key opportunities and threats they
are faced with as an organisation.

PESTLE Analysis
Porters Five Forces Model

SWOT Analysis (Key Opportunities and Threats)

Using both the PESTLE framework and Porters five forces model, one significant external factor
highlighted is the high level of competition within the sector and the lack of differentiation within it.
The case identifies other “LCC’s in India such as SpiceJet, Indigo, and Go Air” (Jayakrishnan, 2019)
who are all offering a homogenous service to AIE and according to the case “it is estimated that
close to 65% of the Indian domestic market is held by the Indian LCC’s” (Jayakrishnan, 2019). All
carriers operate within the market with price being their UPS (Unique selling point). It is stated by
(Smith, 1995) that “the strategy of product differentiation should be considered in cases where
products are applicable to several industries and may have horizontal markets of substantial size.”
This lack of differentiation in a highly competitive market gives customers the freedom of switching
between different LCC’s with very little cost of change therefore increasing the threat level of
substitutions and the increases the bargaining power of buyers. This is a huge threat for AIE. A
further threat identified, is the level of economic vulnerability within the industry. Looking at the
PESTLE analysis, it is clear to see that the aviation sector is heavily influenced by external economic
factors such as “oil price fluctuations”. (Jayakrishnan, 2019) The case then further states that “low
aviation turbine fuel (ATF) rates have enabled these airlines to offer penetrative (low or inexpensive)
fares”. (Jayakrishnan, 2019) This suggests that if oil prices were to rise significantly, the direct impact
could be crippling to the operation of AIE as an LCC. This subsequently highlights why the bargaining
power of suppliers is considered a very high threat for AIE as identified in the porters 5 forces model.
According to (Berman, 2020) ‘When suppliers have increased negotiating power, it can affect your
ability to reach your market in numerous ways. It is said that Supplier power has the potential to
influence the price at which the target market will pay for goods, the amount and quality of
commodities available for purchase, and even which businesses will be able to stay in the market’
With AIE being so sensitive to economic fluctuations this is a huge threat identified.

However, one of the key opportunities identified for AIE is the “significant cost barriers to entry”
(Jayakrishnan, 2019) Starting an airline company would require the purchasing of expensive assets
and specialist knowledge and expertise. (e.g. airplanes and pilots). High market barriers to entry
make it difficult for new entrants to enter the market easily, as supported by a study which
concluded that “Econometric results indicated that seven dimensions of industry barriers have a
direct and positive impact on the profitability of incumbents and serve as barriers for new firms to
enter the market.” (Dilek, Top, 2012). With AIE already being a long-term player within the market,
their positioning puts them at a good advantage where new entrants might find it difficult to emerge
successfully and presents a huge opportunity for AIE. The final opportunity identified is the growing
aviation market. As identified in PESTLE as a positive social factor was the “increase of passenger
traffic for both domestic and international routes.” (Jayakrishnan, 2019) this suggests there is a
growing consumer demand, and that more people are starting to use aviation services. This point
was further supported by the case, which states India is “To become the third largest aviation
market by 2020” (Jayakrishnan, 2019)

VRIO analysis

Below is a VRIO analysis of the key internal resources and capabilities of AIE that I have identified
through the case. These factors are controlled by AIE and can improve the effectiveness and
efficiency of Air India express. Based on the analysis of the resources and capabilities of AIE, these
factors will help to uncover the strengths and weaknesses of the organisation.
SWOT Analysis (Strengths and weakness)

Asset efficiency is a huge weakness of AIE that was identified through the VRIO analysis. Looking at
figure 1 which measures the capacity utilisation of AIE in 2016-2017, shows that the PLF was
measured at 79.20%. This highlights that AIE are failing to maximise the use of their assets, which
according to (Unti, 2020) ‘improving efficiency can help a business to reduce costs and improve
competitiveness’. Asset efficiency would be considered a firm resource, being an attribute of the
firm under their control. For this reason it is determined as valuable resource. As it can be utilised by
multiple players within the aviation industry in the same way, it would represent competitive parity
where no competitive advantage is sustained.

Figure 1:
 (Jayakrishnan, 2019)

The VRIO analysis also helped to identify several strengths of AIE, the first being the technology they
have access to. The case states “Air India Express shifted to a new reservation system powered by
Radixx International”. This improved technology system allows for overall better control of the
business and is therefore considered valuable. The system is being used by very few LCC’s in the
industry which gives AIE a timely rarity concluding a temporary competitive advantage. The final
strength identified of AIE is their brand reputation. Again, this was considered valuable and rare as
the strong brand image is a result of longevity in the industry. While it is not inimitable, it would take
another brand a long time to get to where AIE currently is. Figure 2 shows the relationship between
brand image and sales.

Figure 2:
 (Malikul, 2012)

SWOT Analysis

key strengths and weaknesses have been identified using numerous frameworks. These will then be
used to evaluate the strategic choices available to AIE
Strategic Choices

The TOWS Matrix

Using the TOWS matrix, various strategic options for AIE have been identified that can help to
maximise on their strengths while making use of opportunities, as well as reducing threats and
removing weaknesses.

Strategic Option 1 (S2/O1): One of the biggest opportunities for AIE, identified using the PESTLE
framework and Porters Five forces model, is the continued growing market size. Given, that one of
the most significant strengths of AIE, is a strong brand reputation, AIE can use this strength to exploit
the market and take advantage of the opportunity through the aggressive promotion of existing
products within an existing (and growing) market. This would involve adopting a market penetration
approach where AIE could potentially introduce loyalty schemes or offer discounts on flights to
attract more customers. AIE have operated in the Indian aviation market for a long time which has
allowed them to build a well-known presence in the industry. The introduction of loyalty programs
can help to motivate existing passengers to continue to fly with AIE and encourage new consumers
entering the market to also choose AIE over competitors. ‘The main attraction of a loyalty scheme is
to reward returning customers and encourage loyalty though targets and benefits. According to
research into loyalty schemes in the airline industry, this was a successful technique used by
southwest airlines in the 1970’s’ (O’malley, 1998) This idea is further supported by research into
loyalty schemes which states “Consumers are motivated to participate in such schemes because,
fundamentally, most people like to get something for nothing” (O’Malley, 1998) this supports the
idea that consumers will gravitate towards this option. While this approach could be considered as a
market penetration approach, it also includes an element of diversification from other LCC’s in the
market which could potentially help to retain existing customers of AIE and obtain new ones from
other LCC’s, in turn helping AIE to gain a larger market share and dominate the market of LCC’s in
India.

Strategic Option 2 (S2/T2): The second option identified for AIE is to follow a product development
approach towards growth. As previously discussed, a key strength of AIE is their brand reputation
built through longevity in the market. While this is a positive factor of the internal environment of
AIE, the analysis of their external environment found that competition within the market is one of
the biggest threats to face AIE. Using a product development strategy could potentially involve the
introduction of luxury package holidays into their services which is something that Is not currently
being offered by another LCC in the Indian aviation market. According to a study into package
holidays, they had found that “Consumer’s value package holidays because of their perceived lower
price, lower risk, and higher convenience compared to items purchased separately”
(Rewtrakunphaiboon, Oppewal, 2008) this suggests that AIE can therefore still offer luxury packages
as an LCC, if the perceived value is cheaper than it would be separately. This approach to product
development focuses on offering new products/services within an existing market which in the case
of AIE, is dominated with substitutes and competition. The introduction of package holidays would
be an extremely beneficial way for AIE to eliminate the threat of competition and serve as a
differentiation strategy.

Strategic Option 3 (W1/T2 and T3):

The third option identified through the TOWS analysis of AIE was improving the quality of service
and improving brand value through product development. This could be achieved through numerous
different approaches, including the utilisation of new aircrafts (of varied sizes), and renovations of
old planes. As previously identified in the VRIO analysis, a huge weakness of AIE was their inability to
fully utilise their assets to achieve the highest level of value from them, resulting in a passenger load
factor that needed improvement. The addition of new aircrafts and the refurbishment of old ones
could potentially enhance the experience of customers which could even see customers using the
service specifically for this reason, this idea is further supported with the following statement “The
involvement of customers in new product development is considered as a successful strategy and
tactic to improve new product success.” (Brockhoff, 2003). This strategy could help ensure existing
customers continue to use AIE and may also encourage customers from competitors to switch to
AIE, as high levels of competition were a further external threat identified. This strategy will also
allow for greater flexibility where the airline faces high levels of seasonality and cyclicity, which was
also identified as an external threat posed to AIE. The high level of seasonality and cyclicity typically
means the level of competition around these times will be extremely high amongst the LCC’s. Having
new aircrafts would give AIE an advantage of being able to withstand more demand as they would
have a larger fleet, of varied plane sizes which gives flexibility of using different aircrafts based on
demand, therefore achieving a better utilisation of assets, and helping to increase the passenger
load factor while providing an element of diversification to competition, as a result reducing the
level of threat and helping to eliminate their weaknesses.

Strategic option 4 (W3/03)

The final option developed for AIE capitalises on the opportunity of international expansion while
eliminating one of their biggest weaknesses which is the lack of diversification from other LCC’s. This
option presents the biggest risk and involves offering a new product in a new market. AIE can follow
a vertical diversification strategy by creating their own meal production service. “Vertical integration
is a way of increasing a firms value added margins for a particular chain of processing from ultra-raw
materials to ultimate consumers” (Harrigan, 1985) Rather than outsourcing this will allow AIE to gain
more control of the supply chain. With the opportunity of entering new markets, AIE could focus on
creating traditional dishes specific to new markets it decided to enter. Not only could this potentially
attract new customers within the new markets, but it can also help to build the brand and reinforce
a strong brand image.

Strategy in Action

SAFE Analysis

5: highest score, 1: lowest score

Suitability: Through the SAFE matrix, I have identified both options 1 as the highest scoring option
for suitability in comparison to the other strategic options presented. Looking at SWOT factors-
option 1 does an excellent job at taking advantage of the opportunity of a growing market and uses
the strengths of a strong brand image which is a key strength of AIE, to support the successful
implementation of this suggestion. Options 2-4 were all given a suitability rating of 4 because while
all options are suitable, they do not compliment the key SWOT factors as well as option 1.

Acceptability: Looking at acceptability and rating each option, it’s important to consider the level of
risk involved for the business and key stakeholders in the business. For this reason option 4 was
rated a score of 1 due to the level of risk associated with a differentiation strategy. Entering a new
unknown market with a new product presents a high level of uncertainty which demonstrates why it
option 4 received an acceptability rating of 1. Option 3 was also rated low, again due to the level of
risk involved with the choice. While it is expected to generate a good response, this option could
involve more investment than the level of return received, outweighing the risks to benefit of this
option. Options 1 & 2 received the highest ratings in this section due to their ease of application to
the business and the low level of risk associated if the option does not generate the expected return.
Option 1 carriers very little risk and can be easily scrapped without much disruption to AIE, which is
why it was rated a 5.

Feasibility: Here the financial abilities and human resources of AIE must be considered when
assessing all the options. Much like the acceptability of option 1, the feasibility is also ranked highly
in comparison to the other options. As mentioned, this option is easy to implement, and is also
extremely cheap for the organisation to implement. This option requires minimal people and skills to
implement and doesn’t really interfere with the structure or operation of AIE, as some of the other
options do. An example of this is option 4. Option 4 looks at diversification and entering a
completely new market with a new product. Of course this would require extensive research and
development, years of planning and a lot of capital to implement which Is why it was rated with a
feasibility score of 1. This was a similar consideration of option 3 which would take less planning and
structural change of the organisation than option 4, however would be just as expensive for the
organisation. For this reason option 3 scored a slightly higher score of 2.

Total: The best option, that is recommended for AIE is option 1 with an overall SAFE score of 15. This
option offers a low cost and easily to implement choice to AIE that can help to take advantage of the
opportunity of a growing market while maximising on their strength of having a strong brand image.
This option satisfies other key opportunities identified through the SWOT, such as high barriers to
entry. With new players finding it difficult to enter the market, its up to AIE to make use of their
brand reputation gained through longevity in the market and attract customers from competitors.
The introduction of a loyalty scheme can help to attract potential customers, retain existing ones
and if successful will help AIE to further strengthen their brand while differentiating from other
LCC’s.

Conclusion

Throughout the report of AIE, the case study was analysed firstly looking at the strategic positioning
of the organisation. Using the PESTLE framework and Porters 5 forces an analysis of the key strengths
and weaknesses of the organisation were identified which then helped influence a list of strategic
options available to AIE. Each option was explored and the suitability of each was discussed. Using
TOWS these options were narrowed down to give the most suitable, acceptable, feasible option to
AIE.
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