- Analysis and Discuss the Attractiveness of SAS Group’s Environment (Industry)?
The airlines business is the sort of industry that needs tremendous expenditures, but the degree of competitiveness is such that airlines sometimes spend together for years and wait even for a break. From the outset, the industry is expenditure intensive, which often needs constant replenishment during the operating activities. Power prices, solving safety issues, keeping well-paid appealing celebrities on the payroll with multiple styles of facilities, planning enticing advertising strategies, welcoming potential passengers with lots of promotions, getting respectable office and personnel, etc. Some of the recurrent costs needed to succeed by an airline business. The airline business is a difficult one. The market is thus lucrative as well, but with the form of expenditure needed to carry out the market, it is very challenging for new entrants to threaten incumbent competitors, as is the case for many other industries such as banking, IT services, etc. Market reform in the EU has opened the field to new competitors, but the changes that followed have strongly defined the high degree of competitiveness that prevails in the business.
With over 60 years of experience in the industry, the Scandinavian Airline Systems (SAS) group is a proven player in the field. SAS Party is now one of the Star Alliance’s core members. The Star Alliance, founded in 1997, is an attempt by a number of leading players in the aviation sector to integrate the respective roles of the airlines in such a way that rival firms may not end up operating for cross-cutting purposes.
The airline industry is a high-risk market, too. In fact, after the SARS virus attack and 9/11 attacks, airline businesses must be doubly vigilant in coping with security problems, installing protection features, hiring new employees, etc. In addition, the advent of low-cost airlines has made the industry attractive thus squeezing profit margins. A big development within the global airline industry has been for businesses to pursue strategic partnerships with other airlines and to gain from synergies in operations as a consequence of declining profit margins and the increasing awareness of the need to consolidate their positions. A clear example of such a realisation is the Star Alliance.
The rising rivalry has actually proven to be a blessing for travellers. The amount of options for the passenger has actually risen with airline businesses making all out attempts to woo the consumer. This also contributed to greater focus on enhancing the customer’s quality of services delivered. Any of the standards for airline firms include offering quality on board facilities, flawless luggage handling, adhering to the timetable, i.e. punctuality, showing appealing faces during passenger handling, etc. The fact that SAS has been named the most punctual scheduled airline in Europe over the past six months illustrates SAS’ focus on keeping the journey enjoyable for its passengers. Indeed such steps are a requirement not just for sustaining a respectable degree of profitability, but also for the industry’s sustainability. After only around 18 months after its launch or that of another low-cost US carrier, Skybus Airlines, the closing of airlines such as Hong Kong’s ‘Oasis’ within less than a year after its start-up is an indicator of the industry’s cut-throat rivalry. It is worth noting here that the recessionary cycle that began with the sub-prime mortgage crisis in the US is also rendering the existence of the airline industry tough. Any of the names which have been experiencing the pinch are ATA, Aloha, American, Southwest, Delta etc. Any airlines are now resorting to mergers and acquisitions to succeed in the market. Merger of the carriers Delta Airlines and Northwest,
- Identify, Analyse and Discuss SAS’s Group Unique Resources and Competences, their Profitability and How They Can be Further Developed.
SAS group’s unique resources and competencies include;
- A Well-Established Brand Identity: Brand equity plays an important role in convincing people to go for the product and services actually. In the service sector, when number of alternatives increase, this is particularly crucial for attracting new customers and retaining the existing ones.
- Strong Competitive Position: SAS group has been able to maintain a substantial advantage as compared to some of its competitors owing to its consistent emphasis on quality and value addition to its services.
- Good Networking: SAS group connects to a number of destinations around the world. In Scandinavia the airline is shouldering a special kind responsibility of connecting the distance location in Denmark, Norway and Sweden with the main cities like Copenhagen, Oslo and Stockholm. Being a Full Service Provider (FSP), SAS connects Europe with Asia, Americas etc.
- Alliance with Reputed Carriers: SAS is having strategic alliance with a number of reputed international carriers. This provides the company with a strategic edge in handling the international traffic and serving even those routes where the company’s own fleet doesn’t have a presence. The Star Alliance was formed in 1997 as the first global airline alliance with a customer base spread to different regions of the world. With more than 16,500 daily flights to 912 destinations in 159 countries, such an alliance was meant for a smoother travel experience for the customer.
- Being Viewed as a National Symbol: In the Scandinavian region SAS is considered a national symbol. This implies the importance being attached to the carrier and also helps in organising a number of facilities from different government agencies.
- Diversity of Services Being Offered by the SAS Group: SAS not only offers air travel services but the group also offers functional services like SAS Ground Service, SAS Technical Service and SAS Cargo. This provides the company a leverage in taking benefits of the economies of scale and offsetting the losses from one set of operations to another.
- Well Organised Structure Holding a Number of Subsidiary Companies: SAS group has been able to function in a professional manner. The top management constantly keeps track of the functioning and requirements of the daughter companies.
Owing to the recessionary trend and stiff competition in the aviation sector SAS too has not been able to maintain the growth story of previous years. But it needs to be emphasised here that despite a dip in the number of passengers by 5.4% in the third quarter of 2008, the company was able to register operating revenue figures of MSEK 16,365 which is about 0.4% higher than the previous quarter. The stock markets are in for a downward journey all over the world, led by the Wall Street. This has also led to a dip in the market cap of the company.
- Suggest and Discuss an Appropriate Competitive Strategy for the SAS Group and How this Strategy Can be Defended.
Globalization and liberalisation have already been de facto requirements for every economy. This includes a policy that not only helps improve the company’s future, but also helps consumers to make an informed decision. The market tends to enter saturation, with more low-cost carriers dotting the skies. In order to take the rivalry head on, brand identity, consistency, value addition combined with successful marketing strategies play vital roles. It was noticed that in the airline industry, frequent flyer point systems still play a part. An airline with a good brand identity and promotions (even though their costs are quite on the higher side) will typically be enough to draw a consumer. The airline therefore has to formulate plans in such a way that the carrier is respected by frequent fliers and existing customers.
Therefore for efficient consumer experience management, industry segmentation should be carried out. The most successful segmentation approach may need to include a variety of variables dependent on consumer demographics, desires, habits, values and attitudes, depending on the business scenario. Moss (2007) points out the determinants of an effective customer relationship management for an airliner as;
- Identifying business challenges related to customers throughout the company
- Painting accurate images of client types throughout the business, even if the clients are screamers, be honest.
- Assessing the culture of the company… Is it product-focused or customer-focused?
- Evaluating different business units within the company and determining whether the business model functions as a product-focused portfolio or as a client-focused portfolio.
- Walking a mile in the shoes of clients to get an honest assessment of the differences between their expectations and what is being delivered.
- Creating the qualifications for candidates for executive sponsorship
- Obtaining agreement across the organisation on the CRM definition and goals
- Identification of desired short and long-term advantages
- Determining how the company and individual product portfolios are affected positively by a solid CRM strategy.
- Identifying the good, the bad and the ugly processes of business
- Evaluating enterprise-wide data sources, identifying any integration gaps and duplications of data repositories.
- Determining the operational, analytical, data collaboration and distribution CRM priorities
SAS appears to be taking good care of its customers with a variety of measures including an attractive frequent flier program, which includes the Star Alliance partners as well. The company can do still better with measures like;
- Strengthening its Frequent Flyer Programs: This is one of the tried and tested program which helps in providing some loyalty bargains to the customers who prefer to make use of the airliner most often. Almost all of the full service airliners and many of the low service airliners have launched such programs and such programs have indeed proved to be attractive for the loyal customers, who get good bargains with more air-travels
- RFID Baggage Tags: Radio Frequency Identification (RFID) baggage tag is the new application of technology for identifying, tracking and tracing the baggage of any passenger, after it reaches the airport at check-in. Though the baggage loss cases are few and far in between for SAS, but even a small percentage of lost baggage results in huge financial and man-hour loss for the airlines. In addition, the delay in tracing the baggage also results in frustrating the customer.
- Travel Planning: SAS can help the customers in planning their travel schedule, tie-up with other concerned agencies in order to put the customers at ease during their holiday or business trips. This includes local sightseeing, pick up and drop facilities, arranging guides, hotel planning etc.
4. Suggest and Discuss an Appropriate Growth/Survival Strategy for the SAS Group
SAS is indeed facing quite a few challenging circumstances as far as survival and appropriate growth in these turbulent times are concerned. Industry analysts have expressed the opinion in the recent past that SAS could survive if some bigger companies acquire it, but for that the governments of Sweden, Norway and Denmark are to agree on the finer points. But till that happens the company has to survive in such a manner that its customers as well as its employees feel motivated enough to lend a helping hand to the company.
Taking good care of the customers forms the key to a success story in the airlines industry. Therefore customer relationship management (CRM) part need to be taken good care of by the company. With influential writers like Kotler (1992) stating that companies “must” move from a short-term transaction orientated goal to a long-term relationship-building goal, customer relationship management has already entered into the “rhetoric” of management.
Taking a look at the airlines industry in general and SAS in particular porters’ five forces diagram can be drawn, as follows;
Porters Five Forces for SAS
It is therefore quite clear that the bargaining power of customers can make the maximum difference in terms of SAS growth and survival, in addition to the threat of competitive rivalry. Therefore in order to increase and improve customer engagement and communication, SAS is also required to invest in Customer Relationship Management (CRM) systems and technologies for long-term survival. Effective customer messages must have the following elements:
- Differentiation: A brand promise that differentiates the products and services of the company from its competitors must be conveyed by the message. An emotional component must be included in this promise for the client to understand.
- Excitement and Activation: Communication must be able to convey a compelling message that overcomes consumer inertia, perceived risk and barriers to “switching cost”.
- Connect: To serve as the basis for an enduring customer relationship, it must create, re-establish or strengthen an emotional connection with target customers.
- Identify the Various Economic Perspectives Behind the Above Elements of Strategic Management and Discuss them. For Example, How Economic Perspectives Differ in their Assumptions About Actors, Rationality, the Creation of Economic Value and Organisations, and How Organisations Develop Can Be Discussed.
In general, the strategic management process begins by taking stock of the strengths and weaknesses of the company, together with opportunities in emerging markets and threats from alternatives products and competitors. Subsequently, the market dynamics are taken into account to synchronise the plans with the requirements. Strategic management planning, in general, is carried out by the top management, with strategic inputs from different departments. Porter’s value chain (1985) provides an important tool for developing and sustaining competitive advantage for a company. It underlines the need for creating and retaining value for the organisation and all its stakeholders. The key elements of strategic management include;
- Managing the Expectations and Purposes of Stakeholders: For an airline the main stakeholders happen to be the travel agents, the shareholders, the suppliers, the employees, the government, the customers etc. At times it appears that on some of the issues the interests of two of more stakeholders comes in confrontation with each other. For example, while the shareholder would like the profits to be re-invested into the company’s business, so that the company sees rapid growth and the share prices goes up; the travel agent would like the carrier to distribute the profits as much as possible with the partners. It is at such juncture that the airlines is supposed to make strategic moves in order to come upto to the expectations of the stakeholders. The airline is supposed to adopt a balanced approach depending upon the prevailing market conditions.
- Managing the Resources: Financial resources, Physical resources and Human resources are the one’s which often help an organisation to chart out the course of journey. While banks, financial institutions, shareholders, partners prove helpful for financial resources the workforce proves to be an important resource for the company as well. Therefore, the carrier will have to see not only the economic interest of managing these resources, but the behavioural aspect as well. In addition there are a number of intangible resources like goodwill, brand equity or reputation, which require to be preserved and upgraded with more investments.
- Selecting and Prioritising the Strategic Options: Often a company is supposed to come out with a number of alternative courses of action with futuristic projections of their implications. Prioritising such options plays a key role in the strategic management.
- Preparing the Organisation for the Implementation of Strategies: Once a course of action has been finalised for implementation from amongst a number of alternatives, then comes the strategy to prepare the organisation and its stakeholders for the implementation process.
- Implementing Change: It is said that change is always resisted, but a lot depends upon how the company prepares all stakeholders for the impending change. For example, in these times of recession, many a companies have averted serious worker unrest by negotiating some salary cuts, leaves for the employees etc. Such smooth transition helps the company in successfully making way for the next step.
PESTEL is another tool to assess the conditions prevailing around the company which tend to impact its business prospects.
A number of variables affect any business, a sector or the overall business environment. For instance, the company’s HR policies, technology used, industrial dispute law, etc all determine the business environment. The industry has been using PESTEL analysis to analyse the macro environment. PESTEL covers political forces, economic forces, socio-cultural forces, technological forces, economic and legal aspects that influence the business environment. For the civil aerospace market and the aircraft construction industry in general, PEST factors include;
- Political: Today the world is indeed divided into many political arenas on the basis of issues like fundamentalism, terrorism, oil exploration, nuclear power etc. The airline industry is the kind of industry where governments of respective nations are in any case involved with the regulations, deals and negotiations etc. Therefore, the political equations definitely affect the aviation sector in the country. For example, EU nations will prefer European airlines while U.S. and its allies will prefer to go for Delta, American airlines etc.
- Economic: The economic policies being pursued by the government also determines the aviation sector. For example, if the country has an open economic policy, pursuing the globalisation and liberalization policies, that indicates more and frequent business air travels, which in turn bodes well for the aviation market. This implies an increased paying capacity of the business traveller in lieu of a comfortable journey. This will in turn encourage the airline companies to go for better facilities, more advanced aircrafts with newer features.
- Socio-Cultural: The general society has a large influence on any company, and the airline industry is no exception. For example, the airline companies operating in the gulf and Middle East region operate to full capacity during the Hajj pilgrimage season. Similarly, if the per capita income of the citizens happens to be good enough, that implies more paying capacity of the people, which in turn encourages the airline companies to go for frequent trips and full capacity utilisation. This affects the aviation industry in a positive manner.
- Technological: Impact of technology can be seen in almost all walks of life today. 21st century in particular is dominated by the technology. Aviation sector and the companies in this field being in a technology intensive business are very much affected by the advancements in technology.
- Legal: The legal framework in dealing with customers, unions, suppliers and other companies affect the business environment. For companies like SAS who have had to resort in tough negotiations with unions in the recent past this aspect makes the business environment all the more competitive.
- Environment: Now a days concerns about green technologies, corporate social responsibility etc. have become integral components of companies. The expenditure on this count certainly affects the profitability of a company.
- Johnson, Gary; Scholes, Kevan and Whittington, Richard (2008). Exploring Corporate Strategy. 8th edition, Publisher: Prentice Hall
- Kotler, P. (1992), “It’s time for total marketing”, Business Week Advance Executive Brief, 2.
- Moss, Amy (2007). ‘Saving the Relationship’. Ascend, Issue-1, 2007. Available online at http://www.sabreairlinesolutions.com/ascend/issues/ascend_2007_issue1.pdf (Jan 3, 2009)
- Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press, New York.
- SAS (2009). Available online at http://www.sasgroup.net/SASGroup/default.asp (Jan 3, 2009)
- Star Alliance (2009). ‘The Way the Earth Connects’. Available online at http://www.staralliance.com/en/travellers/index.html (Jan 3, 2009)
- The Economist (2008). Airline mergers-Trouble in the air. Available online at http://www.economist.com/business/displaystory.cfm?story_id=11058463 (Jan 3, 2009)
- Thaindian News (2008). 30,000 passengers hit by Hong Kong airline closure. Available online at http://www.thaindian.com/newsportal/world-news/30000-passengers-hit-by-hong-kong-airline-closure_10036305.html (Jan 1, 2009)
-  http://www.staralliance.com/en/travellers/index.html
-  http://www.sasgroup.net/SASGROUP_IR/CMSForeignContent/3q08eng.pdf