strategic human resource analysis of vietjet air

Our report focuses on the job class of cabin crew and it was based on primary research including an interview with a flight attendant working at Vietjet Air and secondary research includ

HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

Strategic Human Resource Management

STRATEGIC HUMAN RESOURCE ANALYSIS OF VIETJET AIR

Tutor : Mr Le Manh Duc Tutorial : 03

Group :01

Students :

Pham Viet Phuong Anh : 1704000017

Tran Huong Giang : 1704000039 Kieu Ngoc Ha : 1704000040 Pham Thi Hang : 1704000042

Ngo Thi Kieu Trinh : 1704000117

Hanoi, December 04*, 2020

TABLE OF CONTENTS

I EXECUTIVE SUMMARY

HT, ANALYSIS OF THE COMPANY’S STRATEGY

4.4 PERFORMANCE MEASUREMENT SYSTEM

V RECOMMENDATION AND CONCLUSION

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I EXECUTIVE SUMMARY

For more than a century, the airline industry has drastically changed the way humankind lives and works It not only has increased global trade by allowing faster and easier movement of goods and passengers, but also has also provided work to millions of people And Vietjet Air is a low-cost carrier that has truly succeeded in Vietnamese market Before Vietjet Air, flying was a choice known only for the upper class Now, almost any Vietnamese can fly to anywhere they want in Vietnam within their budget

This paper is aimed to conduct an analysis on Vietjet Air’s HR system that supports

business-level strategies Our report focuses on the job class of cabin crew and it was based on primary research including an interview with a flight attendant working at Vietjet Air and secondary research including articles, business newspapers and professional journals Vietjet has a wide network of human resources with nearly 6,000 employees The company always focuses on building a strong human resources team, taking people as the focus in all

development activities “With the aim of expanding its flight network worldwide and

becoming a global airline in the near future, Vietjet strives to provide employees with an unlimited development environment, competitive remuneration and share human values for

the community” The flight staff of Vietjet Air are required to have good multitasking skills

and they are all well-trained before officially flying The pay and reward system attribute of Vietjet Air is represented in the fact that it is the market leader because of its highest payer, skill-based and seniority-based pay, 15% pay at risk rate, several performance contingent pay, welfare The staffing system attribute in Vietjet Air requires employees to have

enough skill, capacity to fulfill company’s requirements; so the recruitment process is strict

and careful to find the candidates fit with the organization After that, employees will be elaborately trained and developed Then, Vietjet also applies several measure methods like

360-degree performance review, peer evaluation, etc to review an employee’s job

performance, achievements and overall contribution to the firm, as well as give employees big-picture feedback on their work Besides, there are some problems in strategic human resources of Vietjet Air’s HR system that they should concern such as flight attendants suffer heavy workload, so they are recommended to carefully concern this issue in order to assure the best quality of human resources.

II INTRODUCTION

VietJet Aviation Joint Stock Company, trading as VietJet Air or Vietjet, is an international low-cost airline from Vietnam It was the first privately owned new-age airline to be established in Vietnam, being granted its initial approval to operate by the Vietnamese Minister of Finance in November 2007 Vietjet Air was first launched on 25th December 2011, it became the second private airline to offer domestic service in Vietnam, as well as the fifth airline overall to offer civil domestic flights VietJet Air is owned by Sovico Holdings, HDBank, other organisational investors, and individual stakeholders The headquarter is located in Kim Ma Street, Ngoc Khanh Ward, Ba Dinh District, Hanoi, Vietnam and the CEO is Mrs Nguyen Thi Phuong Thao Vietjet Air has an initial charter capital of VND 600 billion (equivalent to USD 37.5 million at the time of capital contribution) and total common shares of 541,611,334 shares VietJet Air serves 32 destinations, with a near equal split between domestic and international and its current week schedules include 17 points in Vietnam and 15 abroad with a network that includes eight countries including South Korea to the northeast, Taiwan, and Hong Kong to the east, Myanmar to the west as south into Malaysia and Singapore

Regarding the business environment of Vietjet Air, the micro environment and macro environment both play an important role in the development and strategy of the company The forces close to the company that affects its ability to serve its customers include buyers, suppliers, new entrants, competitors, substitutes Macro environment is represented in the larger societal forces that affect the whole micro environment including the political environment, economic situation, sociocultural factor, technology, legal and environment Looking at the details of the macro environment, firstly Vietjet operates in an extremely regulated and political environment of the ASEAN region In Vietnam, the government supports national carriers and minimal migration Security control is strictly maintained to assure the integrity of airlines Economic conditions are represented in the increasing

urbanization in Vietnam that lead to more travel destinations Government established

aggressive policies to promote regional tourism However, 2020 is a fluctuated year in both Vietnam and every country in the world because of the outbreak of Covid19 pandemic Thus the economic situation is significantly influenced So the airline industry has offered

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huge discounts on ticket prices and promotions to stimulate the domestic market Sociocultural force refers to consumers becoming much more demanding in terms of price, service, quality, etc Technological factors show that advanced technology now provides numerous online booking systems, websites that contain flight schedules, price, feedback, etc, so it is easy for customers to choose a good firm Besides, modern communication facilities reduce the need to travel Legal and regulatory factors are illustrated in the threats of terrorism, drug related crimes via aviation industry Last but not least, to assess the

extemal environment of business we can’t help mentioning environmental forces Aviation

industry is known for the environmental issues related to noise pollution and carbon

emissions Natural disasters (storms) in the travel season negatively influence Vietnam’s

tourism industry and indirectly affect aviation

Regarding the micro environment of the airline industry, the first factor that influences the business environment of a company is the bargaining power of buyers Customers are provided with many alternative choices of airlines so they tend to search for the firms that provide many promotions, discounts, good deals Besides, advanced technology now allows for booking tickets online through several websites, fliers no longer have to be at the mercy of the agents and the intermediaries as well the airlines themselves for their ticketing needs So, it is more convenient and easier to check, compare prices between different firms before booking and choose a lower price Moreover, the switching costs between firms are also low so it is easier for people to change their choices Thus, the power of customers is high Regarding suppliers of Vietjet Air, the power of suppliers is high because there are only 2 two major aircrafts suppliers, which are Boeing and Airbus that covers more than 90% global market And other factors make the bargaining power of suppliers high including: a few fuel corporations, airports are managed and monopolized by the Vietnamese government, as well as the limited well-trained flight academy The threat of new entrants is low due to several barriers to entry such as the high cost of initial investment including fleet cost (cost of buying, leasing aircraft), cost of safety and security measurable, hiring and training flight academy, cost of material (oil price accounts for 50% of airline industry) Besides, barriers of government regulation, competition, labour and fluctuation also make new entrants more challenging to enter The threat of direct rivalries is high because there are many carriers in the airline industry for customers to choose They

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are both providing several good deals, standard quality and competitive services so the competition between firms is high The threat of substitutes is moderate Beside air travel, there are several other means of transportation for passengers to choose such as train, bus, car, etc However, due to many reasons like destination, purposes of trip, price, time, personal economic situation, comparison of substitutes (quality, performance, and other relevant attributes), etc; the airlines cannot be replaced, and airlines still have their stand in the domestic market Thus, threats of substitutes are moderate

Ill ANALYSIS OF THE COMPANY’S STRATEGY

3.1 Strategic analysis 3.1.1 Low-cost aviation segment

With its low-cost product positioning, Vietjet has successfully attracted a group of new and young customers Also, their target customers are middle-income, familiar with modern technology and internet applications on smartphones social, especially online payments At the same time, Vietjet expanded its flight network throughout Southeast Asia and Northeast Asia They cover over 70 destinations in 14 countries including China, South Korea, Japan, Hong Kong, Macau, Taiwan, Indonesia, Malaysia, Myanmar, Thailand, India, Cambodia and Singapore

3.1.2 Vehicles

Vietjet has applied some modes of entry in its expanding strategy such as joint ventures and strategic alliance Since 2013, Vietjet has taken the joint venture in Thailand Since 2015, Vietjet has partnered with Lotteria (a South Korean fast food giant) Hence, the two companies have gained more added value to customers Next, Vietjet has become partnered with Japan Airlines and Qatar Airway which signed in 2017, allowed to expand their networks and improve services Also, The carrier also cooperates in various areas including a frequent flier partnership, aircraft operations and maintenance, and ground handling services and training

3.1.3 Differentiation

At the end of 2011, VietJet Air also joined the game named “Save more, fly more” The

fact that when following the low price strategy, in order to work more efficiently , Vietjet has to optimize their costs Vietjet uses 2 types of airplane which are A320 & A321 along with benefits of increased maximum seating capacities, optimised cabin space and increased exit limits Besides, the difference that VietJet Air brings to its clients are creating a young, dynamic and inspired brand image During the recent marketing activities, VietJet Air has remarkable pictures: girls in Hawaii costumes dance during the

flight, hire actresses wearing bikinis In spite of the criticism, VietJet Air’s brand

awareness is higher in consumer's minds In the first quarter of 2019, Vietjet has opened 4

international routes, 2 domestic routes, increasing 111 routes in total Also, Vietjet’s

aircraft have operated in Dubai and Doha airports Besides, Vietjet continues to update the latest travel trends, so that customers will be paid at reasonable prices The new-age carrier

has also implemented a program called "Protect the planet - Fly with Vietjet”, which involves a series of meaningful activities, such as “Let's clean up the ocean”, “Take action against plastic waste”, and many more initiatives in order to create a green planet for all of

humanity and protect the environment Because Vietjet follows the low cost strategy, Vietjet makes use of large scale contracts with Airbus and Boeing to reduce the overall costs associated with the acquisition, maintenance and operation of its aircraft Therefore, VietJet benefits from training, technical and financial support and commitment from both of them

3.2 Missions and goal GOAL:

e Become a multinational airline with a wide flight network in Vietnam and around

e Exploiting all domestic and international routes

e Try to make the airline transportation form become a popular vehicle in Vietnam and all around the world

3.3 The generic strategy (Cost leadership strategy) 3.3.1 Cost structure

In Vietnam, Vietjet Air has been one of the most successful airlines in the industry This success is mostly due to the competitive advantage By pursuing a low-cost carrier strategy, the company is able to sustain a distinct advantage over its rivals So, Vietjet is able to do mostly by building the cost structure As a low-cost carrier, cost control is always an important goal to create competitive advantages against other competitors in the industry Major expenses for Vietjet are fuel, aircraft rental, flight operation, ground handling, maintenance and technical expenses, taking a large proportion of its cost

structure

Fuel costs are a significant expense for an airline In the airline industry, the average

proportion of fuel expenses in total operating expenses is about 40% In 2019, Vietjet’s fuel

costs reached VND 15 trillion, up 13.4% compared with the same period last year, whereas the number of operating hours increased more by 23%, thanks to the decrease of Jet A-1 price of nearly 9% compared to last year Beside Jet A-1 price, import duties and environmental protection tax also attribute significantly to the total costs of fuel bills Operating costs excluding fuel costs mainly include operating and technical expenses (maintenance, airspace, salaries and allowances for pilots and flight attendants .), ground operation costs (take-off and landing fees .), aircraft rental and amortization expenses related to maintenance reserves In 2019, operating expenses excluding fuel expenses were recorded at VND 21,652 billion, an increase of 37% compared to 2018, mainly attributed to the operation of additional 14 aircrafts Gncluding wet lease and dry lease), and an increase

of 16.3% of flights from 118.9 to 138.9 thousand flights Vietjet’s unit cost per available

seat kilometers excluding fuel expense (CASK exfuel) remained unchanged as in 2017, 8

standing at 2.38 cents resulting from further implementation of operational cost

management measures

3.3.2 Value chain

Vietjet’s business and development strategy covers almost the entire value chain of the

aviation industry Aligning business activities with a sustainable value chain is the main goal and mission of the development strategy that Vietjet is pursuing Vietjet is focusing on completing the business model, linking international and domestic flight networks with closed value chains to diversify, better serve and meet the requirements of all customers Vietjet also concentrates necessary resources to the mission and plans required by the new development stage

With the official approval of the AMO Aircraft Maintenance Organization( assigned on March 12, 2013 by the Civil Aviation Administration of Vietnam) VietJetAir can be completely proactive in aircraft maintenance and maintenance to save time and money to bring passengers flights, safe, ontime and happy with the cheapest price Vietjet air focuses on implementing 3 main groups of international routes including short-range destinations, mid-range destinations and destinations in Europe or Australia Beside the domestic flight network, Vietjet Air is currently expanding and operating international routes including Bangkok, Singapore, Seoul, Siem Riep, Hence, Vietjet is going to become an international airline step by step The airline has improved service quality to increase foreign currency revenue from ticket sales, increase ancillary revenue from additional services and make the most of its advantage in spending

Learning curve model: Vietjet Air also uses this model to gain competitive advantages Vietjet Air has increased the number of flights and routes (118,923 flights with 105 routes including 39 domestic routes and 66 international routes), covering destinations in Vietnam and international This has helped Vietjet Air increase the cumulative volume of production When the accumulated output is large enough, it leads to reduce costs, creating a competitive advantage in prices for businesses Based on its cost advantages, Vietjet Air continuously promotes discount promotions, offering competitive prices compared to other

low-cost airlines, thereby attracting a large number of customers and advancing to expand market share

IV ANALYSIS OF THE COMPANY’S HR SYSTEM

4.1 PAY/ REWARD SYSTEM ATTRIBUTE

4.1.1 Pay level

VietJet Air is the market leader because it is the highest payer compared to its competitors such as Vietnam Airline, Bamboo Alrways Staff was recruited at a generous pay rate, leading domestic and foreign experts in the aviation industry were invited to work for the company, and aircraft chartering contracts were signed Specifically, the salary of a

VietJet’s cabin crew includes 3 components: Basic salary, Flying hours & flight route and

Layover allowance (here we discuss about pay level of a fresh cabin crew)

Basic salary: 4,000,000 vnd (This is a fixed monthly income that cabin crews will always

make even if they’ve become sick or unable to fly for some reason (illness, accident, etc)

This portion of the salary starts at the lowest pay grade for cabin crew because everyone starts working in the economy cabin After their probationary 6 months have been completed, they get a slight increase and it keeps increasing as they get promoted up the chain of command from economy to business to first class and then onto senior supervisory roles within the aircraft.)

Flying hours & flight route: about 80,000vnd/ hour (not over 100 block hours/ month) and 80,000vnd/ route (frequently change) (Flying hours are calculated from the moment the

‘chocks’ are removed from behind the wheels in order to taxi onto the runway for take off, to the moment the aircraft parks in its destination airport and the ‘chocks’ are put back into

place They don't get paid for the time spent pre-flight in the briefing room, for boarding, pre-take off duties, or anything like that, nor do they get paid for the time spent or work they do during disembarkation and anytime thereafter (airport, travel to hotel) This is a rate that also increases as you climb the ranks.)

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Layover allowance: 16,000vnd/ hour based on flying hours of a month and get at the end of the month for cabin crew’s meal allowances while they are on a layover (about

1,600,000vnd)

4.1.2 Pay at risk & Performance-Contingent Pay

We estimate that 15% of cabin crews’ salary is considered as pay at risk, because the airline industry is a service based industry providing aircraft services for passengers and goods Its success is mainly affected by the quality of the staff involved in Especially, if VietJet wants to develop services which attract and keep customers who are satisfied, loyal, they have to deliver a high quality service to passengers determined by their right employees to gain a competitive advantage

Moreover, the pay at risk is dependent on the weather and health In recent months, the appearance of covid 19 pandamic has made a negative impact to the global economy, especially the aviation industry Although Vietnam is one of the countries which has controlled the pandemic effectively, the airline industry is still threatened Besides, the International Air Transport Association (IATA) released an updated global passenger forecast showing that the recovery in traffic has been slower than had been expected Global passenger traffic (revenue passenger kilometers or RPKs) will not return to pre- COVID-19 levels until 2024, a year later than previously projected and the recovery in short haul travel is still expected to happen faster than for long haul travel According to

Mrs Ho Ngoc Yen Phuong-The VietJet Air’s vice president said that they will arrange

their cabin crews to have temporary suspension and reduce about 10% of their salary Thus, flight attendants have turned to left-handed jobs to supplement their lost income as airlines remain grounded due to the Covid-19 pandemic (Ngan Duong, 2020)

4.1.3 Performance contingent pay:

There are some main contingent pay of a VietJet Air’s cabin crew:

e Position/ Type of aircraft: Business or cabin manager will get a higher base salary and flying pay

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e Commissions: 10% on all duty-free and catering sales

Some other airlines may consider “Speaking other languages (LOD)’ and “Transportation allowance” as performance contingent pay According to Ms Huyen (VietJet Air’s cabin

crew), however, in terms of LOD, they do not pay more for that because they will assign at least one native cabin crew, if not, cabin crew have to use body language in case customers are non-English-speaker Also, there is no transportation cost, cabin crews have to gather at the company (In Hanoi, they gather at Kim Ma street), if someone comes late or due to any reason, they have to pay for yourself)

4.1.4 Internal vs External Job Pricing

In general, VietJet ensures an equal basic salary which is 4,000,000vnd compared to other domestic airlines in Vietnam Also, in the company, cabin crews and pilots are paid higher than office staffs (look at the table below) because they are direct people delivering the products and services to customers and the ones ensuring the core value of the company which are “Safety, Happiness, Affordability and Punctuality”

Mức lương bình quân của người lao động Vietnam Airlines

Flexibility is increased by encouraging the performance of multiple tasks It enables job rotation, and filling of temporary vacancies due, for instance, to absenteeism It therefore contributes to a leaner workforce Being a flight attendant requires good multitasking skills, and it can be a challenge for people who are not accustomed to doing several things at once They must at the same time enforce the safety rules of the craft, maintain discipline among passengers, serve as a waiter or waitress, answer call buttons, and more A flight attendant is the person who keeps the passengers of an aircraft happy and calm, assisting them when they need help, and ensuring their safety and comfort

Like wait staff at restaurants, flight attendants often have a section of the aircraft that they are asked to cover Cabin crews may ask for help, and they should work well with the rest of the team, but they must also be able to handle their responsibilities on their own and without direct supervision Flight attendants need to be able to handle preparing and serving meals and beverages to the passengers on the flight They should be physically strong enough to help passengers properly stow their carry-ons; they may need sales skills to sell on-flight services, and they should be friendly enough to please customers, but still be able to deal with a customer who becomes irate or otherwise unruly Flight attendants must also often have first aid skills, and the cool head that allows them to use those skills under pressure Thus, Ms Huyen said it is not easy to discuss payment in terms of skill- based If cabin crews perform well, they will have more opportunities to enlarge their career path

4.1.6 Seniority-Based pay

From the day they start training, a large part of their career would be determined by

seniority Many factors affect their seniority, but it’s generally based on how long they’ve

been working for an airline Seniority determines their flights, vacations, and privileges, such as they can be placed in special lists that allow them to fly for free as a standby It is not easy to calculate exactly how much they get from Seniority, but we can define through some main benefits

Benefits of Seniority

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