individual assignment
Introduction
Air New Zealand has been the New Zealand national carrier since 1940 and boasts about 105 fleets now. Due to increased competition, Air New Zealand has integrated marketing engineering principles such as multimedia, social media, websites, social share, search engines, print media blogs, and mobile to promote its services.[footnoteRef:1] Industry and competitor environments are important in establishing a company's position. Industry environment refers to factors such as the threat of new entrants, power of suppliers, the threat of substitutes, power of buyers, and intensity of rivalry, which establishes an organization’s competitive response and profit potential. Competitor analysis, on the other hand, studies and interprets competitors' positions and reactions to establish competitors' ability to respond to actions like price change. This analysis focuses on industry and competitor environments affecting Air New Zealand. [1: Ehambaranathan, Eswaranathan, Shagesheela Murugasu, and Kawtar Tani. "Marketing Engineering: The Evaluation of Integrated Marketing Communications towards the Growth of Air New Zealand." International Journal of Innovative Science, Engineering & Technology 6, no. 5 (2019): 227-235.]
Strategic groups
Air New Zealand faces competition from other major airlines, including Qantas, Emirates, and Pacific Blue operating within the same region. As shown by the pie chart extracted from Vowles and Tierney, Qantas and Air New Zealand controls about 70% of the market share, closely followed by Emirates with 9% and Pacific Blue with 7%. The attempt to form a strategic alliance to cartelize the Trans-Tasman route in 2004, where the two airlines, Air New Zealand and Qantas Airways, wanted the intervention of regulators to limit entry into the market, failed.[footnoteRef:2] With Emirates and Pacific Blue being low-cost airlines, they posed grate threat to Air New Zeeland and Qantas because there was a possibility of great price-sensitive customer loss when the incumbent airlines increased the price. [2: Vowles and Tierney, Open Skies Policies, 344-354. ]
Figure 1: Market share in percentage (Haugh and Hazledine, 2010)
Industry Environment Analysis
Both PESTEL and Porter’s Five Forces analysis refer (Appendix) show that Air New Zealand has the potential to grow and develop in the transportation industry. The effects of new entrants into Australia-New Zealand, Emirates, and Pacific Blue have a great impact on the operations of incumbents (Air New Zealand and Qantas). As evidenced by the graph below, two industry factors influenced two visible growths in passage carriage between 1999 and 2004. The first industry factor is the liberalization of air space after the signing of the Single Aviation Market agreement in 1999. Such government policies open avenues for the increased threat of entrants into the market.[footnoteRef:3] Virgin Blue's entry into Australia-New Zealand air space created another change in firm behavior, increasing passage carriage. Both Air New Zealand and Qantas Airways increased capacity on the route due to Virgin Blue entering the market. Due to the competition to limit new entrants, the incumbents increased operations. In a span of 15 months after Virgin Blue entered the market, the passage capacity across the route increased by more than 25%. These reactions show the ability of the incumbents to retaliate against the threat of entrants by utilizing available resources to create low-fare passage flights. The increased operation aimed at preventing Emirates from entering the market. Entry into the Trans-Tasman Markets by Pacific Blue and Emirates stimulated the market that had been stagnant as a result of Air New Zealand offering low-fare flights using Freedom Air, a carrier within a Carrier for Air New Zeeland. Entering the market by Emirates and Pacific Blue stimulated the market with a 49% increase in the number of passengers.[footnoteRef:4] The industry rivalry between the airlines stimulated the growth of the passage flights within the Trans-Tasman market forcing the two incumbent airlines to start flights to other destinations not formerly covered. [3: Haugh, David, and Tim Hazledine. "Oligopoly behaviour in the Trans‐Tasman air travel market: The case of kiwi international." New Zealand Economic Papers 33, no. 1 (1999): 1-25.] [4: Haugh and Hazlwdine, The Case of Kiwi international, 15. ]
Figure 2: Passenger growth rate due to increased competition (Haugh and Hazledine, 2010)
Competitor analysis
Air New Zealand was aware of the threat posed by entry into the market by Pacific Blue and Emirates airlines. The action was taken by Air New Zealand in 1996 and 2002 upon realization of Kiwi International and Pacific Blue's intentions to enter the market, respectively demonstrating awareness of the threat the entrants would cause in the market. In 1996, Air New Zealand and Qantas Airways collaborated and forced Kiwi International from the market within 15 months of entry. Air New Zealand had the adequate motivation to reduce the entrants' impact on the market share. Air New Zealand 1996 introduced low-cost airlines (Freedom Air) to counter the entrance of Kiwi International.[footnoteRef:5] In 2002, the airline also had capabilities to increase the number of destination and low-cost airlines to counter the threat posed by Pacific Blue entrance. Air New Zealand survived the two occasions because they did not assume the impact the entrant would cause. Another reason Air New Zealand survived is that it offers differentiated products. Even competitors such as Emirates that have the capabilities and resources to compete have little impact on the market share controlled by Air New Zealand. Air New Zealand has adopted a "Pacific Feel" as the basis for brand differentiation that entails a lack of formality and friendliness, a New Zealand brand symbol.[footnoteRef:6] However, Emirates has had a strong marketing strategy accompanied by low-cost services to counter the incumbent effect of Air New Zealand, such as sponsorship of yachting campaigns. Air New Zealand has established an organizational culture with visible elements such as language and dress code, which speak to the Maori customers in New Zealand. Competitors lack the capabilities to react to such visible elements. [5: Haugh, David, and Tim Hazledine. "Oligopoly behaviour in the Trans‐Tasman air travel market: The case of kiwi international." New Zealand Economic Papers 33, no. 1 (1999): 1-25.] [6: Sayers, Janet. "The recent re-branding of Air New Zealand: What does it say about a New Zealand ‘style of labor’?" ORGANIZATION, IDENTITY, LOCALITY III (2007): 52-60.]
Conclusion
Air New Zealand has adopted a competitive strategy to limit new entrants even with market liberalization. Cultural visible elements, pricing, resource capabilities, and integration of marketing principles have helped Air New Zealand grow amidst high competition.
Reference
Ehambaranathan, Eswaranathan, Shagesheela Murugasu, and Kawtar Tani. "Marketing Engineering: The Evaluation of Integrated Marketing Communications towards the Growth of Air New Zealand." International Journal of Innovative Science, Engineering & Technology 6, no. 5 (2019): 227-235.
Haugh, David, and Tim Hazledine. "Oligopoly behaviour in the Trans‐Tasman air travel market: The case of kiwi international." New Zealand Economic Papers 33, no. 1 (1999): 1-25.
Hazledine, Tim. "Pricing, competition and policy in Australasian air travel markets." Journal of Transport Economics and Policy (JTEP) 44, no. 1 (2010): 37-58.
Sayers, Janet. "The recent re-branding of Air New Zealand: What does it say about a New Zealand ‘style of labor’?" ORGANIZATION, IDENTITY, LOCALITY III (2007): 52-60.
Vowles, Timothy M., and Sean Tierney. "The geographic impact of ‘open skies’ policies on Trans‐Tasman air passenger service." Asia Pacific Viewpoint 48, no. 3 (2007): 344-354.
Appendix
Qantas Airways, Pacific Blue, and Emirates are the major strategic groups competing with Air New Zealand. Strategic groups are the relevant firms in the industry competing with Air New Zealand. These strategic groups form competitors as they offer the same services and target the same customers. It is evident that Air New Zealand reacts to the threat of entrance and observes the AMC framework of competitor analysis. A is awareness of competitor presence, M is the motivation to respond to competitor presence, and C is capabilities or resources to counter the presence of the competitor. This framework is evidenced in Air New Zealand's reaction to Emirates, Kiwi International, and Pacific Blue's entry into the market. Awareness resulted in the introduction of low-cost carriers, predatory pricing, and agitation for policy change to cartelize the Trans-Tasman route. The speed at which \Air New Zealand reacted to Kiwi International's entry into the market pushed the firm out of the market within 13 months.
Industry Environment analysis
A general environment refers to the various factors that affect an organization’s scope of operation and performance, which is beyond its control. Such factors create opportunities as well as drawbacks for a firm. Tapping opportunities can be realized through creating strong strategies. Factors in the general environment affect what happens in the industry environment. On the other hand, the industry environment refers to the scope set by a group of firms producing the same products for similar customers using similar resources. Doing a PESTEL analysis for Air New Zealand can help understand the Political, Economic, Social, Technological, Environmental & Legal (PESTEL) factors that affect the organization to develop realistic strategies to react and adapt to the general environment.
PESTEL Analysis
The availability of strong political structures promotes the growth and development of Air New Zealand. A stable government, in conjunction with good trade relations of New Zealand with other countries, creates a good environment for growth and attracts investors who can help the organization through the availability of numerous resources. Desirable tax policies support organization growth and development since they can easily expand into the international market. Competition regulation ensures a fair industry while protecting local growth. Air New Zealand can take advantage of the trade blocks and treaties signed by its country of origin with other countries regarding borders to expand its market share.
Economic
Economic factors: inflation rate, interest rate, consumer spending, and unemployment trends can affect business growth. A moderate inflation rate is favorable for Air New Zealand, promoting consumer confidence and spending trends. Low and moderate interest rates encourage taking loans; consequently, high consumer purchasing power and consumption rates create penetration opportunities for firms like Air New Zealand.
Social
Social factors in the general environment include demographics, education, family size, structure, and health consciousness. A high youth population and moderate to high middle-class population is essential for business growth as it helps create a large customer base. These groups help Air New Zealand to have brand ambassadors and promote consumer loyalty. Availability of high education is key as Air New Zealand can readily get skilled and talented personnel, knowledgeable consumers who have brand awareness and stand for quality. Family size helps understand consumer patterns, whereas heath consciousness has recently been a very important factor. Many people have shifted their focus to decisions that promote their wellness. Hence, Air New Zealand can take advantage of this, incorporate health aspects in their products, and take Corporate Social Responsibility initiatives.
Technological
Air New Zealand's country of origin has a strong technological infrastructure that influences the organization to embrace technology in its operations for efficiency and affectivity purposes. Additionally, technological infrastructure attracts direct and foreign investment, giving Air New Zealand a competitive advantage. Air New Zealand enjoys a competitive advantage through high internet penetration amongst the population. It can reach consumers widely via the internet and use social media for connectivity and gathering feedback and consumer data. Lastly, investing in research and development helps the industry gain new insights into doing business.
Environmental
Environmental factors include sustainability and recycling to protect the planet. Therefore, an organization's decision regarding its operation concerning the environment affects its success in the market globally. Consumers nowadays are aware of recycling products rather than disposing them off. Air New Zealand has established recycling sites at the centers where its products are disposed. Moreover, as per the country's regulations on waste management and control, the organization has launched a process for managing its waste in an environment-friendly way. Air New Zealand embraces the green lifestyle by engaging in Corporate Social Responsibility (CSR) activities. Air New Zealand also embraces the country's renewable energy investments by using solar energy and hydro poles in its business operations.
Legal
Air New Zealand considers health and safety laws and considers the safety and health of its employees. In addition, it considers employment and anti-discrimination laws due to the presence of a diverse population domestically and internationally.
Porters’ Five Forces Analysis
The threat of new entrants
Air New Zealand faces the threat of having new entrants venturing into the transportation industry, bringing new innovative ways of doing business, which would pressure the organization to lower its prices, reduce costs, and provide new customer value propositions. Air New Zealand must overcome this challenge to remain a top competitor. Air New Zealand should innovate its products and services. Additionally, the organization should build its economy of scale, allowing it to raise and lower its prices appropriately without affecting its profitability.
Bargaining Power of Suppliers
Powerful suppliers in the transportation industry can exploit firms in the industry. Higher supplier bargaining power means low profits for the organizations in operation. Air New Zealand should build an efficient supply chain by incorporating multiple suppliers to curb such a force.
Bargaining power of buyers
Buyers affect the firm's profitability in the end because they want to buy the best offerings in the market at low prices. Having a smaller powerful customer base gives them higher bargaining power and low profits for the firm. Air New Zealand should keep coming up with new products to reach a wide base of customers and lower their bargaining power while ensuring their loyalty.
Threats of Substitute Products or Services
Availability of new products or services that satisfies similar customer needs in diverse ways reduces industry profitability. Air New Zealand, therefore should strive to understand its customers’ needs as well as the services they need
Rivalry among the existing competitors
Intense rivalry in an industry reduces prices lowering the profitability in the end. The transportation industry where Air New Zealand operates is very competitive, affecting overall profitability in the end. To tackle this, Air New Zealand should build a sustainable product and service differentiation, scale its economy to compete better, and collaborate with competitors to increase market size.