Air New Zealand Company’s External Analysis

For the last ten years, Air New Zealand, which was incorporated in 1940, has provided both international and domestic flights serving over 51 destinations. In addition to offering transport services, the company offers engineering and ground handling services. In the past years, it has undergone various operational and strategic changes in both its management and in the running of its day to day activities. These new changes have affected both the internal and external running of the company. In 2002, the company appointed Ralph Norris as its new managing director or CEO, whereby under his mandate, the company has been working on its current strategic direction. As the world market, culture and environment change, the company have been forced to adapt to these new changes in order to remain relevant in the aviation business environment. Thus the company has turned away from the traditional, inflexible mode of operation and aligned its services and operations to the needs of the customers and the external environment.

There are various external environmental factors that influence the running of the company, which include political, economic, social and technological, which when analyzing them are referred to as PEST analysis. Apart from that, there is also a SWOT analysis. However, only two factors analyze the external environment of the company, that is, opportunities and threats (Campbell & Craig 2005). The company market analysis has indicated that the airline has a very solid market in its international routes as compared to its domestic routes. The international market rose from 2.7 % to 83.5% in 2008. This is due to the fact that the company offers lower-priced tickets in some high traffic international routes, for instance, Atlantic/ pacific routes hence being able to attract the majority of the passengers who travel on that route. While the domestic market fell by 13.7 per cent, the drop in the local market could be attributed to strong competition from domestic transport providers who in time can offer cheaper and comfortable means of transport though not as fast as air transport. Though there has been a steady increase in the international market, the recent economic meltdown affected the growth to a very large extent as the majority of the international travellers seized international travels while at the same time the cost of business was very high; thus, the import and export sector also declined thus affecting the cargo sector of the company. However, as the economy slowly recovered, the market demand also gradually increased by 3.9 % per annum, though this has not replicated to the domestic flight market segment. (Miller et al., 2009).

The political aspect of New Zealand and Australia has also played a major role in the operations of the airline. The airline is owned by the government; therefore, they have a direct hand in the way the company is run, who runs its and other significant operations. Due to this factor, the government in office in a particular period will at most times bring along a new strategy in running the company, which more often than not is quite different from the predecessors. Hence, even though the company had its own strategies and goals to achieve within a given time frame, it will have to incorporate the policies of the government in its strategies. Additionally, there has been strong competition in its engineering sector from Asia. Thus, the government had to formulate policies that enabled the cost of engineering in the aviation industry to come down. For instance, it has partnered with Australia in the engineering sector to maintain its relevance in the business.

There has also been an economic influence in the company, especially during and after the economic downfall in the last three years. During the recession, the profitability of the company decreased by four million dollars per annum. This forced the company to bring in new operation strategies to address this issue quickly. By bringing in the new strategies, the company hoped to increase its profitability by remaining a strong, competitive and sustainable company in the next years to come. Thus they restricted the company’s mode of operations whereby all business segments of the company were changed to individual business units that were autonomous from each other, though, under the management of the senior company executives. Thus by having individual business units, the company has been able to offer specialized services to its customers while at the same time the company employees have specialized in their line of work, thus, being more efficient and, in turn, increase in company earnings, especially in the engineering and aviation maintenance units. ( Lowe,1981).

Technology has been another factor to consider. In the last decade, technology in the aviation industry has advanced on a wide scale. New aviation technologies have been created, as well as new aircraft and new airport infrastructure. The company has been forced to match up with these new technologies. Hence it acquired the new and modern aircraft, more specific the Boeing 777 and 787, which are very modern and efficient planes than the predecessors. Due to the technology embraced by these new planes, they have the capacity to get to further destinations faster but using less fuel, thus saving the company a lot of expenses while at the same time increasing its market demand by opening up more than 30 destinations.

The impact of carbon pollution from aircraft fuels has impacted the environment immensely. As a result, the cost of jet fuel surcharges has increased in order to decrease the rate of air travel and, in turn, the amount of carbon pollution emitted by the planes. Due to this and the company’s commitment to a clean environment, it has taken up more express routes, which has cut the number of carbon emissions from jet fuel by 15 per cent. (Air New Zealand, 1989).

The company has also faced some legal hurdles in some of its operations. For instance, it wanted to establish a direct route to and from Australia with the possibility of merging its operations with Australia. However, due to some policies and regulations set up by the government, the idea faced some setbacks. Due to this, the company, in consultations with the government, has looked into ways of reviewing the Airports Authority Act in order to ensure that all airport users and consumers are adequately protected by the Act; hence the merger would successfully be implemented (Fine 2009).

The company also has other opportunities in its operations by launching a loyalty scheme to its customers. Under this scheme, customers accumulate some points every time they fly with the company’s, which are redeemable at some point for a certain price. By so doing, the passengers stay loyal to the company hence retaining its market. In addition, the company’s loyalty scheme is one of the easiest and flexible schemes to redeem as compared to other airlines globally hence one of the most preferred loyalty schemes in the aviation industry. In addition, the government gave the company more than $ 200 million for expansion as it sought to increase its stake in the company by more than 80 per cent.

The airline is facing a significant threat from the competitiveness of other rival airline companies, especially the European airline companies and lately from emerging markets like Asia. Due to this, the company management sought to lower its ticket prices while still maintaining its profitability hence attracting more customers than its rivals. Due to the nature of the aviation industry, there are various forces that tend to dictate the way the industry operates. These include; competition, environmental impacts, technology the economy, among others. How an aviation company deals with all these different dynamics will determine if it’s successful or not. Air New Zealand has successfully tackled all these dynamics as indicated above; hence, it has been able to maintain its market niche, offers lower ticket fares while at the same time being profitable (Hill et al., 2007).

In conclusion, Air New Zealand is still facing some major threats due to competition from other airlines. As the global economy recovers, other airline companies that were initially fairing poorly have started an aggressive marketing strategy in order to capture back its customers, some of whom use Air New Zealand. As a result, the company has embarked on various available opportunities in order to retain its competitive edge in the volatile market. In addition, the airline has political support from the government, which increased its percentage acquisition by 83 per cent enabling it to expand its operations easy as compared to other individual owned companies. On the other hand, the company should consider changing some of its traditional forms of management and operations. The management should be free from interference from the government, thus making the company transparent and efficient in its operations, thus maintaining its successful business.

References

Air New Zealand. (1989). Air New Zealand: Club Pacific. Honolulu, HI: Club Pacific Administration Office.

Campbell, D. & Craig, T. (2005). Organisations and the business environment. Oxford: Butterworth-Heinemann.

Fine, G. (2009). The SWOT Analysis: Using Your Strength to Overcome Weaknesses, Using Opportunities to Overcome Threats. North Charleston, SC: Booksurge Llc.

Hill, C. et al. (2007). Strategic Management: An Integrated Approach. Melbourne: John Wiley.

Lowe, D. (1981). Air New Zealand: the international aircraft from flying-boats to the 747. Oroville, CA: Lodestar Press.

Miller, F., Vandome, A. & McBrewster, J. (2009). Air New Zealand: Air New Zealand, History of Air New Zealand, Air New Zealand Destinations, Air New Zealand Flight 901, Air New Zealand Cup, Wellington International Airport, McDonnell Douglas DC-10. Virginal-Samme: Alpha script Publishing.

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