A Case Analysis On Arik Air Nigeria Commerce Essay

A Case Analysis On Arik Air Nigeria Commerce EssayThis essay is a case compendium on Arik vent Nigeria and willing therefore seek to identify the major threats and opportunity in the environment, analyse the strength and weakness of the comp all, identify the strategical invest of Arik air, and suggest a strategy to be guideed by the air hose in an effort to sustain its competitive advantage.BACKGROUND Arik Air is Nigerias biggest indigenous commercial-grade flight path offering domestic flights to major cities in Nigeria and with an expanding network of regional and international flight operations to major cities in the world (Eze, 2010). Presently, Arik Air move to 17 Domestic terminal figures in Nigeria and 8 International destinations (Arik air, 2010 Online). Arik Air NigeriaThe companys corporate mission is To be a safe and reliable airline business by selecting and operational impertinently, modern aircraft and by employing the most experienced and efficient staff . (Airkair, 2010 Online)VisionTo make Nigeria proud of its aviation persistence (Arikair, 2010 Online)Strategic IntentAriks strategic intent is to be the preferred airline carrier of choice in West Africa. (Airk Air, 2010 Online)EXTERNAL ANALYSISThe external analysis was conducted using PESTEL Framework and Porters five forces as the grassroots tools (Thompson, 1997 Luffman et al, 1996 Welsh, 2005 Johnson et al, 2009) in an effort to understand the effect of changing environment on Arik Airs operation. The findings establish on pestel framework ( believe Appendix 1) and Posters five forces (See Appendix 2) atomic number 18 as fol bluesAn analysis of the political environment revealed that governments around the world are tightening immigration regulations due to the surge in terrorism the implication of which is a reduction in the phone number of international transitler thus posing a threat to airline including Arik Air. (Stevermen, 2009 Cartar, 2010). barely liberalizatio n and Deregulation efforts are creation made in several regions of the world with Asia setting a target for the full liberalization of its skies by the year 2015. This is projected to boost aviation intentness performance by creating avenue for fair arguing platform between more(prenominal) established airlines and the change stateing competitors like Arik Air(Bailey, 1986 Smith Cox, 2007 Ting, 2008). The rising fuel harm is a matter of economic concern in the world, with Aviation fuel footing estimated at $85 per barrel (IATA, 2010 online) the implication of which is an increase in rivulet make up for airlines and this poses a high threat to Airlines. However, there is optimism that a spherical economic recovery is on the way with the world economy expected to grow 2.7% in 2010 (World Bank, 2010 Online) and the aviation exertion is forecasted to reduce its loss from $5.8 Billion in 2009 to $2.8 Billion in 2010. (Financial Times, 2010). The World travel touristry counc il (2010) projects an increase in the number of holiday travellers in 2010 with further branch expected in 2011. The 2010 world cup is expected to boost travel to Africa in 2010 (Eberl, 2010).Percentage change vs.05-Mar-10 list*$/bcts/gal$/mt1 week ago1 month ago1 year agoJet Fuel determine 243.389.0211.9701.43.4%4.1%80.3%Source IATA (2010 Online) source from Platts * 100 in 2000 (87 cts/gal)Impact on this years fuel bill of the global airline assiduityNew fuel worth average for 2010Impact on 2010 fuel bill$85.5/b+$13 billionEstimated by IATA Source IATA (2010 Online)With heightened security checks and the introduction of the full body gaze at airport, there are concerns over the privacy infringement due to the utilisation of the full body scan. (McDonough, 2010). Arik air is in the traditional full utility airline intentness offering pre-flight, in-flight, and post flight serve to guests and its competitors in the industry include Virgin Atlantic, British Airways, Air Fra nce, Lufthansa, Emirate, Qatar Airline and South African Airways all of which are established airlines with good stake image. An industry analysis revealed as follows (See Appendix 2) there is high competitive rivalry within the industry barrier to forward-looking entrant is high due to the enormous capital required to start an airline buyers overhear a high bargaining agent due to the different options of airlines available to them and suppliers have a medium bargaining power.INTERNAL ANALYSISThe internal analysis was conducted through an evaluation of the resource trading floord view of strategy (resources and competencies) (Mahoney Pandian, 1992 Johnson et al, 2009) as nearly as competitive advantage value chain and VRIO (Johnson et al, 2009 Thompson, 1997 Luffman et al, 1996) to identify the strengths and weakness of the company. (See Appendix)UNIQUE RESOURCE(S) AND CORE COMPETENCIES (See appendix 3 for the list of tangible and intangible resources of the company)Arik Ai rs unique resource is its chairman who is an elder statesman in Nigeria with an easy access to finance eon its event competencies are its excellent client relations skill and reliability COMPETITIVE ADVANTAGEArik air derives its competitive advantage from a unique merge of low price and quality benefit. This is based on its vast research and unique understanding of the West African market need for quality portion at affordable prices and the support it receives from the Nigerian government and some other West African countries through concession and subsidies which thus reduces its operational cost and affords it a get off price than competitors (William, 2010 Russell, 2008 Abioye Ezeobi, 2008).THE VALUE CHAIN (See appendix 4)An evaluation of Arik Airs value chain activity revels as followsThe Inbound logistics which involve the delivery of fuel for the aircraft, in-flight meals, modify of the aircraft in preparation for a flight is outsourced (procurement) through an effect ive human resource commission practice in an effort to reduce amount of peck employed by the airline and reduce fixed operational costs. Arik with its strong finance base utilises an integrated ICT technology (Infrastructure/technology) to manage and support its operation by enabling online bookings, ticket purchase and flight check-in in an effort to reduce operational cost of employment. To ensure safety/reliability, a strict attention of its fleets is outsourced and an effective human resource management policy is put in place (training and reward) to foster employee commitment and performance (Arik, 2010 Online Banfield Kay, 2008).Outbound logistics with regard to customers luggage is interrelated and monitored with a technological coding and is outsourced to Sachol to ensure the safety of customers property and to sustain Arik Airs reliability (Airkair, 2010 Online, Sachol, 2010 Online) while an extensive marketing is implemented through the media to promote sales.This en ables Arik air to touch its competitive advantage through a systemic integration of technology (speedy services and reduced operational cost), human resource management (ensures quality delivery of services by employees) and a firm infrastructure to support its primary activities thus enabling the airline to deliver quality services at reduced prices in comparison to competitors.VRIOThe VRIO examines the sustainability of a firms competitive advantage (Johnson et al, 2008) Arik Air offers its low priced fares with excellent in-flight services unparallel to none offered by any Nigerian airline (Eze, 2010) which implies that its services are valuable and rear. However this can be imitated by other airline thus Arik air enjoys a short-lived competitive advantage (Khanna, 2010) In the airline industry the critical success factors are a good nock image good quality service good customer relations cost effectiveness Reliability safety. (Svein Vidar, 2004 Bijan Kenneth, 2005). Judging b y the critical success factors in the airline industry, Arik Airs performance is precedent in the industry since the airlines services are affordable, safety is given high priority, it offers good customer service, and is reliable. However, theres need to develop the Arik brand beyond West Africa. dweeb ANALYSIS (Kotler et al, 2009)See Appendix 4Arik airs strengths are its highly proficient workforce with excellent ethical conduct and customer relations (Some of the top hat in the industry), the easy access to finance or funding, the airlines fleets of aircraft (mostly new), speed in service delivery and low operational cost while the weaknesses are the brand image (still unrecognised outside west Africa), flights offering to alone 8 international destination (Williams, 2010). In consideration of Ariks strengths and weaknesses, the external environment provides opportunities as well as threats for Arik air. The identified opportunities are an increase in earnings due to a projec ted increase in the numbers of global travellers (World travel tourism council, 2010) expanding the network of flight destination due to the expected liberalisation of skies in Asia and the African continent (Bailey, 1986 Smith Cox, 2007 Ting, 2008) However, the threats in the environment include the coseismal global fuel price, increased terrorism scares, continued government subsidy for competitors airlines which reduces the open market competition and the expected nuclear fusion reactions in the airline industry which might event in the dominance of a few big airline. Arik Airs plans to increase its market share in Nigeria and West Africa and equally targets an expansion its operation crosswise Europe, North America and Asia but Arik Air is faced with immense industry competition on international destinations from the established airline (Virgin, Bristish Airways, Emirate) and The threats global economic corner which has slowed the expected growth of the airline. The compe titive strategy adopted by Arik is the Hybrid strategy (see appendix 4). This strategy allows the airline to maintain its low cost base thus enabling it to compete on low price relative to competitors with sustainable differentiation. However, the low price might impede the airline ability to admit the maximum returns possible. (Johnson et al, 2009) STRATEGIC OPTIONSArik air is experiencing a decline in its projected market growth ca single-valued functiond by the increase competition in airline industries the various strategic options available to Arik Air are evaluated simultaneously below with the aid of TOWS and Ansoff Matrix (Khanna, 2010 Johnson et al, 2009). (See Appendix 5 Tables 3 4)Strategy 1 Strength-Opportunity/ marketplace outgrowthArik Airs key strengths of easy access to finance and excellent customer service practices can be explored based on the identified opportunity in the macro environment (politics) stemming from the planned liberalisation of skies in Asia an d Africa (Bailey, 1986 Smith Cox, 2007 Ting, 2008). The strategy option this provides Arik Air is Market Development. The Airline can increase its fleets of aircraft by buy additional aircrafts, employing and training additional workforce, and increasing the route options of the airlines to more destinations in Asia and AfricaStrategy 2Strength-Weakness/ Market PenetrationMarket penetration is another strategic option available to Arik air. By utilising this strategy, Arik air can utilise its strong financial capability to bankroll an extensive marketing exploit to improve the brand image of the airline. This will create awareness for the Arik brand thus, enabling the airline to gain a greater market share in its present markets. However, the heightened competition in the industry poses a genuine threat to this strategy. Strategy 3Strength- brat/DiversificationThe on-going merger in the industry which may result in a few dominant airlines is a threat to Arik air. Arik with its eas y access to finance can adopt a related diversification into the budget airline industry (horizontal integration) with the option of getting Virgin Nigeria (low cost low frills airline) (Attitude travel, 2010 Online) This will enable Arik air to optimally minimize the threat posed by merger of the more established operators by beaming its risk and making it a formidable competitor. Strategy 4Weakness -Opportunity/Product DevelopmentThe weak brand identity of Arik Air outside West Africa is one of the airlines weaknesses. Arik can overcome this weakness by ensuring that the flight experience of its customers remains memorable with an excellence in customer service at all time. The company can equally offer new products such as travel miles accumulation/flyers club membership for its customers as a Product Development Strategy. Strategy 5Weakness -threat/ConsolidationThe proposed merger in the airline industry which might result in a few dominant airlines is a major threat to a gro wing airline like Arik airs weak brand identity Arik can adopt any option of consolidation (Johnson et a, 2009) to defend its market share by merging with some established airline like Qatar Air or Emirate in order to ensure the sustainability of the business. The problem however is the possible loss of Ariks brand identity sue to such consolidation (Johnson et al, 2009) SELECTED STRATEGY After a thoroughgoing(a) evaluation of the strategic options available to Arik air, the most viable option for the airline to adopt is a related diversification of the companys operations into the no-frills airline industry (a form of concentric diversification) (Mintzberg et al, 2003 Johnson et al, 2009). As suggested by Johnson et al (2009), related diversification allows a company to expand by utilising its existing infrastructure, resources, competencies and strengths in a new trade of similar dexterity or intricacies. Therefore by this strategy, Arik air can capitalise on its strong financia l strength in acquiring Virgin Nigeria (a no frill airline in Nigeria) (Attitude travel, 2010) or may purchase additional aircrafts to its fleets to cater exclusively for the no frills service operations while still utilising some of the companys existing technological infrastructure to cater for online bookings and check-ins (without incurring additional cost of employment). This is because there is evident potential synergy between the new business (a no-frills flight operation) and the core one, based on a common facility, asset, channel, skill, even opportunity. (Mintzberg et al, 2003124)CONCLUSION To conclude, the introduction/inclusion of the no-frills airline options will afford Arik air no increased workforce requirement (due to the low service requirement of no-frill operations thus resulting in reduced operational cost) spread its market risk enable greater efficiency, and will give commuters a greater variety to choose from among the Arik brand thus increasing the potenti al customer base of the airline. The adoption of diversification strategy by Arik air is a sustainable option for the airline due to the fact that there is presently only one no-frills airline in West Africa (Virgin Nigeria) (Attitude travel, 2010) which Arik air has the option of acquiring in order to build its business and booster its market share. However should the option of acquiring Virgin Nigeria not be chosen, Ariks reliability and brand identity in West Africa is sufficient to sustain the success of the diversification movement thus ensuring Arik airs market growth.APPENDIXES(Appendix 1)PESTEL Analysis PoliticalGovernment subsidies for flag carriersFlag carriers benefit from subsidies and cash injection from the government, relaxed accessed to loans, reduction in airport service and landing fees, subsidies on fuel and fiscal privileges. (The international chambers of commerce, 1995)Employment regulationsCountries differing employment regulations and trade union laws which Scholars have identified to a considerable touch the operational activities of organisations. (Harris et al, 2003 Deirdre, 2005) immigrationThe increasing global terrorism threats is resulting in governments around the world tightening immigration regulations which in turn might result in a reduction in the number of traveller around the world (Stevermen, 2009 Cartar, 2010) DeregulationThe deregulation of the aviation industry will provide an avenue for amend market conditions that will promote growth in the industry and remove the barriers to entry for new airlines thus allowing for effective market competition. (Bailey, 1986 Smith Cox, 2007)Liberalization of skiesAsia hopes to achieve a full liberalization of its airspace by 2015 and has put up a round map to achieve that. (Ting, 2008) EconomicUnstable Fuel price The rising fuel price is estimated to result in a $13billion increase in 2010 oil bill with fuel prices put at $85/barrel. See appendix 1 (IATA, 2010 Online)Global ec onomy recovery The World Bank projects that a global economy recovery is on the way with a 2.7% growth expected in 2010 (World Bank, 2010 online) the aviation industry is projected to make a loss of $2.8billion in 2010 down from $5.8 billion made in 2009 (Financial Times, 2010)Mergers in the industry The airline industry is undergoing transformation as airlines are announcing merger plans (Leung, 2010 Clark, 2010)SocialThe World travel tourism council (2010) projects an increase in the number of holiday travellers in 2010 with further growth expected in 2011. Furthermore the 2010 world cup is expected to boost travel to Africa in 2010 (Eberl, 2010). There are concerns over the introduction of the full body scan at airport over the privacy infringement (McDonough, 2010). Technology Terrorism threats, has prompted an increase in security screening in many airports with the introduction of the Full body scan (McDonough, 2010). New Air Traffic Control (ATC) technologies have been devel oped for commercial airlines one of which is ADS-B. (Karp, 2010)Environmental In an effort for airlines to go green the International Air Transport Association (IATA) plans to cut CO2 emission by 1.5Million tonnes in 2010. (IATA, 2010 Online)LegalThe international air transport association (IATA) is to sign a data sharing agreement with the EU, US and ICAO (IATA, 2010 online). Furthermore, there are restrictions on mergers and acquisitions in the airline industry.(Appendix 2)Porters 5 Forces Threat of Entry There is relatively low threat of entry to the industry based on the high capital requirement of starting an airline. Furthermore the airline industry is presently making a loss (IATA, 2010) which makes it unattractive to many investors thus reducing the numbers of possible entrant.Threat of substituteSubstitutes to airline are Trains, Automobiles and Ship. The threat posed by these is relative to the intended destination, time and cost analysis by the customers (Givoni, 2009). F or National and Regional travels, these substitutes pose an increased threat to the airline industry due to the cheaper prices they offer with particular reference to travel by automobiles and/or trains. However, this threat is low on transatlantic travels.Bargaining Power of SuppliersScholars have argued that the present global market condition is tending towards buyers market (Kotler et al, 2009). This is also made evident by aircraft manufacturers seeking the greater participation of airlines in the visualize of their aircrafts customising. However due to high switching cost in the airline industry, the bargaining power of the supplier is medium. (Kotler et al, 2009)Bargaining Power of BuyerConsumers have a high degree of options to choose from and this allows them a great bargaining power. (Kotler et al, 2010)Competitive RivalryThe airline industry is highly competitive and there is prevalent merger going on in the industry in an effort to cut cost and improve efficiency. (Leun g, 2010 Clark, 2010) and there is a high exist barrier anatomy 3Porters five forcesSource Johnson et al (2009 31) adapted from Porter (1984)(Appendix 3)Table 1Arik Airs ResourcesTangible ResourcesIntangible Resources Fleets of Aircraft (Physical resources) Buildings (Physical resources) Capital, Shareholders, Bankers (Financial resources) Highly skilled Employees (Human resource) Brand node database Business systemSource adapted from Slack et al, 2009The aircraft fleets are as follows (Arik Air, 2010 Online)Two (2) Airbus A340-542, manufacture date 2008-2009 with a Seat capacity of 237Three (3) Boeing 737-800NG, be date 2009 has a stern capacity of 148Six (6) Boeing 737-700NG, frame date 2007-2008, has a seat capacity of 131-149Three (3) Boeing 737-700, Manufacture date 2001, has seat capacity of 124Two (2) Boeing 737-300, Manufacture date 1989, has seat capacity of 126Four (4) Bombardier CRJ-900, Manufacture date 2005-2007, seat capacity of 74Two (2) Bombardier Dash 8 Q400, Ma nufacture date 2009, has seat capacity of 72Three (3) Bombardier Dash 8 Q300, Manufacture 2001-2002, with seat capacity of 50Four (4) Fokker 50, Manufacture date 1990, seat capacity of 51Two (2) Hawker HS 125-800XP, Manufacture date 2004, seat capacity of 8.(Appendix 4)Table 2SWOTInternal OriginStrengths highly skilled workforce with excellent ethical conduct and customer relations the easy access to finance or funding, the airlines fleets of aircraft (mostly new), -speed in service delivery and -low operational costWeakness the brand image (still widely unrecognised outside west Africa) -Limited flight offering to 17 local and only 8 international destinationExternal OriginOpportunities-increase in the numbers of global travellers expanding the network of flight destination due to the expected liberalisation of skies in Asia and the African continentThreats-unstable global fuel price, -increased terrorism scares, government subsidy for competitors -dominance of a few big players d ue to merger.Source Adapted from Kotler et al (2009101)Fig 4Source marketing teacher (2010 Online) adapted from Bowman (1995)(Appendix 5)Table 3TOWS analysis of Arik Air Nigeria.SWStrategy that use strength to overcome weaknessStrategy 2-Market PenetrationOpportunity -Increase in the numbers of global travellers expanding the network of flight destination due to the expected liberalisation of skies in Asia and the African continentThreatsunstable global fuel price, -increased terrorism scares, government subsidy for competitors -dominance of a few big players due to merger.Strengths-Easy access to finance-excellent customer services-low operational cost Highly skilled workforceSOStrategy that use strength to maximize opportunityStrategy 1 Market DevelopmentSTStrategy that use strength to minimize threats.Strategy 3- Related Diversification (Horizontal Integration)Weakness-weak brand identity-Few flight destination offeringWOStrategy that minimize weakness by taking advantage of op portunityStrategy 4- Product DevelopmentWTStrategy that minimize and avoid threatStrategy 5ConsolidationTable 4Ansoff Matrix Existing ProductNew ProductExisting Market-Market Penetration-Consolidation-Product DevelopmentNew Market-Market Development-DiversificationSource Johnson et al (2009174)REFERENCESAbioye, O. 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