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Bài viết này nhằm phân tích chiến lược của VietJet Air (VJC), hãng hàng không giá rẻ hàng đầu Việt Nam (LCC), và trình bày các phân tích quan trọng về môi trường vĩ mô của ngành hàng không bằng cách áp dụng khuôn khổ PESTEL và phân tích năm lực lượng cạnh tranh của Porter. Phân tích chiến lược sâu hơn bằng cách sử dụng Strategy Canvas và kết thúc bằng cách áp dụng ma trận tác động không chắc chắn và ma trận kịch bản tương lai để xác định các vấn đề chiến lược trong tương lai. Báo cáo đã chỉ ra rằng sự cạnh tranh giữa những đối thủ cạnh tranh hiện tại và quyền lực của các nhà cung cấp là khốc liệt hơn so với các lực lượng khác. VJC đã thành công với Chiến lược Đại dương xanh về giá cả thấp trong ngành hàng không, dịch vụ thân thiện và dễ dàng đi lại. Đồng thời, bài viết đã xác định rằng giá nhiên liệu và ngành du lịch là hai yếu tố không chắc chắn quan trọng và thảo luận về bốn kịch bản trong tương lai để nêu ra và giải quyết các vấn đề chiến lược.
ABSTRACT NBS 9126: STRATEGIC MANAGEMENT This paper aims to analyse the strategy of VietJet Air (VJC), the Vietnamese's leading low-cost carrier (LCC), and exhibits the critical analysis of the aviation industry's macro-environment by applying PESTEL framework and Porter's Five- STRATEGIC ANALYSIS Forces analysis Further strategic analysis using Strategy Canvas andREPORT concluding by adopting impact-uncertainty matrix and future OF scenarios matrixAIR to identify future VIETJET strategic problems The findings point out that the rivalry among current players and suppliers' power is more intense than other forces VJC was successful with the Blue Ocean Strategy in low-cost prices, friendly services, and ease of travel The paper identifies that fuel prices and the tourism industry are two critical uncertainties and discusses four future scenarios to raise and solve the strategic issues Date submitted: April 06, 2021 Word count: 3220 Introduction VietJet is the first Vietnamese private own airline, which began operating in 2011, after several delayed attempts from 2008 The carrier became occupied the largest market share in the domestic market with 43% after ten years and upgrades to 80 young average age airplanes It operates services across Asia and has 149 routes, including 54 domestic routes and 95 international routes (2021), reaching 100 million domestic and international passengers (2020) Macro-environment analysis Analysing the macro environment is necessary to achieve a comprehensive view of the air transport industry, therefore, predicting and planning the market issues in the firm's strategies (David, 2009) PESTEL Analysis This report applies the PESTEL framework (Aguilar, 1967) to analyse the Vietnamese aviation industry's five influential elements, which impact VietJet's strategies Political, Economic, Social, Technological, Environmental, and Legal aspects will be discussed in the upcoming paragraphs Vietnam is a political stability country in South East Asia (UK's Government, 2021) Participated in multilateral cooperation organisations such as APEC (1998), WTO (2007), and various Free Trade Agreements; the popularity of air travel rose, boosting revenue Furthermore, the industry easily accesses up-to-minute technology and enters the worldwide market The government motivates aviation growth by supporting policies to make it an essential factor in the country's development (Vietnam's Government, 2018) However, the threats are foreign competitors, who plan to enter the world's seventh fastest-growing airline market (ITA, 2020) 2 According to The World Bank (2020), Vietnam has fast economic growth through two decades, which affects the air transport industry Despite the Covid pandemic, Vietnam’s economy expanded by 2.91% (2020), and it is ranked at the highest growth rates in the world (IMF, 2021) Those resulted in the growth of foreign investment, GDP per capita, tourism industry, and 20% growth in the aviation market over the past five years Vietnamese inflation proportion was forecasted to increase by four percent in the next few years (appendix 1, Aaron, O., 2021) The problems will appear with the fluctuation of input cost, including labor costs, subcontract tender prices, and fuel prices (the main component of airline’s cost, approximately 20%, E Mazareanu, 2020) In terms of social, the Vietnamese population will reach above 101 million in 2025 (Statista, 2020), and the total number of people under 35 years old has 55.5% of the population (Population Census Report, 2019) This phenomenon provides a larger domestic market and also a low-cost labor resource However, the young population structure and the increase of the middle class, which is expected to reach 26% by 2026 (Worldbank, 2020), require improvement to meet the instant gratification and the better service quality in the social changes The development of technology creates several opportunities and challenges Vietnam will construct six new airports and upgrade most tourism airports (ITA, 2020); it will improve modern fleets, ground services, and open new entrants' opportunity, threatening current players Another, information technology (IT) and internet growth create better conditions for the firm's customer service activities and improve customer satisfaction The airlines should maintain and upgrade their IT systems regularly and monitor the social networks, a two-bladed knife; it dramatically impacts the brand images The environmental aspect plays an essential role in this industry Covid-19 and the bad weather conditions resulted in decreased total flights in Vietnam by 31.9% (Hanoitimes, 2020) It is a crisis "Aviation's recovery from the COVID-19 crisis will be a long-haul flight" (Eurocontrol, 2020); in an optimistic prediction, the Vietnamese aviation industry will be recovery by 2023 (Hanoitimes, 2020) This downturn 3 generates an obstacle for all start-up businesses Besides, the encouragement in reducing carbon footprint was implemented by all airlines In 2017, VJC signed an SFCO2 agreement, which reduced fuel consumption and CO2 emissions to save input costs (AJOT, 2017) Companies’ action to save the green environment is not only an illustration of their social responsibility, but it also contributes to their profit maximization The new legislation brought an advantage for the airline companies' expanded strategy and created a fiercely competitive market (Vietnamlawmagazine, 2019) The maximum ownership percentage of foreign investors increased, attracting more investment capital to current companies On the contrary, the minimum capital for airlines was reduced, creating threats from new participants Nevertheless, the approval for new airlines was banned until 2022 because of the impact of Covid 19 (Simple Flying, 2020) Many of Vietnam's start-ups are still awaiting government approval after the recovery Porter’s Five Forces Analysis The Five Competitive Forces shape the company's strategy (Porter, 2008) By analysing suppliers' and buyers' bargaining power, the threat of new entrants and substitutes, and the rivalry among existing players to understand VietJet's position and competitive advantage in the Vietnamese aviation market The Vietnamese airline market has high bargaining power of suppliers Boeing and Airbus are two major suppliers who easily control nearly 99% of the market share (CNBC, 2019) The firms often sign long-term contracts with their suppliers, who provide favorable credit interest, so they not have other selections to develop their fleet Another, the special requirement of labour resources is a challenge for this industry However, with the industry's investment plan, including the construction of the new airports, improvement of ground services, and the development of training systems (Vietnam’s Government, 2018), the air transport companies will be benefited 4 The buyers have low bargaining power First, the customers are highly pricesensitive, while various businesses deliver a different levels of aviation services Each airline has a niche; Vietnam Airlines serves standard services, VJC and Pacific Airlines are LCC, Bamboo Airways, and Vietravel Airlines focus on hub tourism areas Additionally, the benefit from internet growth helps the product's information is easy to access, leading to low switching costs Nevertheless, social media's popularity and consumer protection regulation will significantly impact buyers' power in the future Although the industry is the fastest-growing group globally, new entrants threat does not hugely affect Five existing firms have experience in flight operations and wellknown brands It is a barrier for start-up businesses in this industry Moreover, the capital requirement is a big challenge, although the new regulation reduced the minimum charter capital for newer (Vietnamlawmagazine, 2020) The preparation time for a newer is too long; for example, Vietjet Air needed four years Finally, the close governments' regulations and the limitation of foreign businesses entering are challenges for new players A typical example is the four failures of AirAsia to enter to Vietnamese market (Vnexpress, 2019) The risk substitute is also an essential aspect with a medium level For the domestic market, the diversity of transportations creates a threat for flight firms Consumers can choose suitable forms of transportation, depending on the distance, time, and price The government's policies to upgrade transport infrastructure lead to increasing other forms' competitive advantages in the future However, in a fierce competition market, the LCCs offer affordable tickets, and air travel is the fastest and high level of convenient to compare with others This industry's competition is very intense with five companies in the market (graph 1) and a new player, Vietravel Airlines The fixed costs are incredibly high; thus, it makes firms hard to leave the industry Before 2010, Vietnam Airlines (the nation airlines) accounted for over 90%; the growth of Vietjet had changed the market picture Furthermore, it will adjust considerably under the pressure of new ambitious players (Bamboo Airways is a subsidiary of the Vietnams' leading resort property 5 group, and Vietravel Airlines is a new investment of Asia's leading travel agencies) Therefore, each travel airline will conduct the appropriate strategies with their targeted customers to maintain and increase their market share Graph 1: Market share in the domestic aviation industry in Vietnam 2019 (Vietnambiz, 2020) Graph is a summary of five forces analysts in the Vietnamese aviation market After considering all things, the key focus should be to deal with the upper level of competition between the current players' rivalry (Spender, 2014) On the contrary, the other areas of the model tend to rise in the future, but it is less threatening than, thus, existing companies not have to rely too much on these areas of their strategic operations 6 Graph 2: Five Forces Analysis in Vietnamese Aviation Market Strategy analysis The report analyses VietJet's strategy by using the Blue Ocean Strategy concept Kim and Mauborgne (2005) argued that firms' strategic implementation impacts the same industry businesses' success level A Red Ocean refers to a competitive market space; the Blue Ocean refers to a market space that has an unexplored potential for rapid growth Like Southwest Airlines, VJC has transformed public opinion in the aviation industry and built a new broad market VietJet has changed people's transportation by looking across the buyers and users’ chain (Path 3, Kim and Mauborgne, 2005) to serve the target buyer group, leading to discovering the new ocean blue The Vietnam territory stretches over 1100 miles with many small cities scattered, raising the demand for citizens' and visitors' transportation However, the constraints of road systems, safety, and travel time in land transport created potential air travelers at the lower end of the market in most of the population Additionally, Vietnam has a small LCC market among six ASEAN countries in 2011 (CAPA, 2011), when the beginning of VJC Using the Blue Ocean methodology, Graph illustrates the people's transport industry in Vietnam – average airlines, VietJet Air, and in land transport The Strategy Canvas identified the key factors that VJC competes on and then rated the VJC offering and average airlines and Average express buses/coaches against We found 7 that VJC scored better than on seven key factors and more focused on frequent point-to-point departer, price points, ease of buying travel, and ease of travel sectors Level of Competing (1-5) Average Airlines VietJet Air express buses/coaches Choice of class and/ or seat Meals4 Average Luxurious cabin Speed 10 Friendly services 12 Price 14.Points Ease of using travel solution Graph 3: The Strategy Canvas at VietJet Air Price Lounges 11.ofFrequent point-to-point departer Choices destinations 13 Ease of buying travel Hub connectivity7 Marketing Analysing four action framework, which is reflected in graph 4, VietJet has implemented some actions to build up its successful strategy: Reduction in ticket prices and raise the level of price points VietJet Air has mainly taken A321ceos with new 240-seat configuration from 2018 (CAPA, 2017) instead of 230-seat from 2017 onwards The increase in capacity raises the revenue and helps to decline the average costs The firm launched many late-night flights, which discount up to 30% on airfares (VietJet Air, 2012) because of the decline of input costs at off-peak times Moreover, prices were reduced by reducing complementary products that scheduled airlines frequently served The simplification of the service process (using web8 booking, self-check-in kiosks, and mobile tickets) contributed to improving the service speed It reduced the costs for resources such as labour costs Elimination of frills model and complementary services such as hub connectivity, dedicated business class lounge, checked bags, meals, and seat assignments were considered ancillary sales VietJet invested a massive budget in marketing and training activities to build up its brand image and improve service quality Although the "bikini marketing campaign" was controversial during the initial period (similar to the advertising of Virgin Atlantic in 2009), it made a strong impression; thus, VietJet was famous by the nickname "bikini airlines" (BBC, 2017) The firm created a new wind into the airline's marketing actions, which is more funny and familiar with the beach tourist country like Vietnam The firm also determined that friendliness is one of its fundamental values and raises it in all training processes (VietJet Air, 2020) The company continuously expanded new destinations and increased the flight frequency It reached 139 routes in 2019 (appendix 4), and it also created ten new routes in the Covid-19 period VietJet tried to account for the biggest domestic market share first, and then it developed the international routes The increase in the choice of destinations and frequently departer improved its competitive advantage and revenue The internet growth helped VJC create new ways to combine airline tickets with hotels and other travel services For instance, the combo between VietJet and resorts was introduced on its website with a wide range of selections All the travel sectors became its partners, and it raises the opportunities to earn growth revenue With the initial slogan "Save more, Fly more", which is a part of the Blue Ocean Strategy, VietJet has succeeded in developing the aviation market and making air transport accessible to all tourists through affordably-priced safe-friendly-easy aviation services VJC has used Blue Ocean Strategy to reconstruct the market share picture From 2011 to 2016, VietJet Air increased its capacity rapidly (appendix 2) It accounted for the most significant market share in the domestic market till 2019 (appendix 3) 9 The scenario planning of VietJet's strategies Royal Dutch Shell introduced scenario planning in 1965, and now it has had an enormous influence on the process to plan the future of firms, government, and other organisations around the world (Angela and Roland, 2013) This framework's objective is not to predict the future accurately However, it helps to identify, understand, and develop the uncertain possible future scenarios that lead to decision-making effectiveness (Schoemaker, 1995) By using the result of PESTEL analysis and other sources, the impact/uncertainty matrix (graph 4) was created to identify the two the most critical uncertainty factors, and then construct the scenario matrix They are fuel prices and the tourism industry • Fuel prices greatly influence all airlines' operations because it is an essential input, accounting for 35% of total costs (VietJet Air, 2020) However, fuel prices fluctuate frequently for some reasons such as trade war, political instability in the Middle East, and the Covid pandemic VietJet had delayed its first flight from 2008 to 2009 due to a sharp increase in oil prices after the • 2008 financial crisis The airline industry and tourism have relevant interaction (World Tourism Organisation, 1997) The airline firms often open the flight at potential tourism areas In 2020 and 2021, VietJet created ten new routes from Da Nang and Phu Quoc, two of the most attractive travel destinations Its competitors, High impact Bamboo Airways and Vietravel Airlines, focus on exploiting some hub tourism Fuel price Inflation airports Tourism industry Demographics Covid Pandemic and other diseases Green issue & climate change Economic growth International trade regulation The Internet Government stability Interest rates Government policies Global Events Customer trends Foreign exchange rates & commodity price Technology adoption Development of alternative fuels Taxation of air travel Predictable Uncertain Health and saftety regurlation Airline industry standard Land traffic systems Employment law 10 10 Saving levels Unemployment Scientific advances Trade balances Government spending Low impact Graph 4: The impact/uncertainty matrix Using both sides of each element (negative and positive development), there are four future scenarios for VietJet Air was created (Graph 5) High Fluctuation of Fuel Price Costs pressure The quick recovery after the Covid pandemic to the of development of the tourism industry, while thetourism fuel prices fluctu Theleads decreasing the travel demand due to the decline of the industry, Increasing of the tourism industry Decreasing of the tour Promised area The quick recovery after the Covid The pandemic leadsoftothe thetravel tourism industry's development the stability decreasing demand due to the decline with of the tourism in Low Fluctuation of Fuel Price Graph 5: Future Scenario Matrix 11 11 Promised Area The Covid pandemic was controlled well, and international trades came back to normal; the fuel prices change slightly The increase in the number of tourists raises the demand, the fill seating rate, and the number of flights Besides, tourism growth impacts the improvement of infrastructure, airports, and the quality of services The fuel costs remain stable at affordable prices helps VietJet offers cheap price tickets, which is its competitive advantage Therefore, in this scenario, the firm grabs the opportunities to expand to new markets and grow remarkably It continuously focuses on the Blue Ocean strategy with affordable price-friendly services - easily combined travel sectors However, the company must prepare good plans to solve the overload situations at the peak-time of tourism to control the quality and guarantee customer satisfaction Adjustment The decline of the tourism industry directly influences the turnover in human transport activities, which accounts for the bigger total revenue Nevertheless, similar to the solution in 2020, VietJet raised the airline's cargo volume higher than 2019 by 16% that contributed to maintaining turned profit (Aerotime Hub, 2021) Additionally, lower oil price means lower costs for airlines; the business can offer attractive marketing campaigns or promotions for other targeted customers, such as organisations for business travel, cargo transports, and charter flights Adjusting the routes and destinations will reduce the administration and operation costs Notwithstanding, the travel industry plays a vital role in the sustainable development of aviation VietJet has to coordinate with the government, other travel companies, and even its competitors to identify the main reasons and solve the problems by long-term solutions to improve the travel sector again Cost pressure Maintaining the low-cost carrier strategy in increasing fuel costs and the number of travelers is a challenge From the Strategy Canvas (graph 3), the fuel price is a crucial element of VietJet's strategy; higher fuel prices automatically eat into airline's profits First, the firm exploits the high fuel efficiency rate fleets with a fuel-saving programme Next, the increasing flight quantity can get a higher discount from the 12 12 fuel suppliers Another VietJet introduces fuel surcharges to ticket prices to counter fluctuated oil costs like British Airways' method in 2004 (BBC, 2016) Fuel price frequently changes, so that the company should be flexible to react quickly However, buying modern aircraft or using alternative fuel with stable prices and high operation efficiency is a long-term measure The champion’s decline The hypothesis is that the global pandemic continues for many years, the global politics is unstable, centered on the Middle East and the US-China relations VietJet confronts a sharp crisis, which has declined domestic and international flights due to the tourism industry's decrease, while the costs are increasing Maintaining the Blue Ocean Strategy, which focuses on travel sectors and low price, is difficult in this period The firm needs to survive by adjusting strategies to avoid bankruptcy like Thai Airways in 2020 First of all, it considers the domestic market situation to plan the combined methods with the government, travel companies, and resorts to stimulate tourism demand For example, the promotion combo includes air tickets, hotels, and free destination tickets Additionally, the airline reduces or eliminates ineffective routes and focuses on busy flights Saving-program applies to fuel costs and other costs Furthermore, VietJet can conduct solutions similar to the "adjustment" scenario Despite the profit's decline, all things to for survival and growth in the positive future rather than waiting and disappear Conclusion VietJet had tremendous achievements through ten years from opening time; it is the evidence for the success in its strategies, which focused on the Blue Ocean Strategy Vietnam's aviation market owns several favorable conditions for the growth of VJC in the next ten years However, the high level of competitiveness of the existing airlines and the threats from some key factors, including the fuel price and the tourism industry, influence the future strategies of VJC 13 13 Appendices Appendix 1: Inflation rate from 2009 to 2025*(compared to the previous year) (Statista, 2020) Appendix 2: VietJet and Vietnam Airlines domestic weekly seat capacity: Sep-2011 to Mar-2016 (CAPA, 2016) 14 14 Appendix 3: The changing in market share of Vietnamese airlines from 2012 to 2019 (MBS Research, 2020) Appendix 4: VietJet Air’s route map (VietJet Air, 2020) 15 15 References Aaron O’neill (2021), Vietnam: Inflation rate from 1985 to 2025*, Available at: https://www.statista.com/statistics/444749/inflation-rate-in-vietnam/ (Accessed: 06 April 2021) Aerotime Hub (2021), VietJet navigates crisis with $3 million profit in 2020, Available at: https://www.aerotime.aero/27131-vietjet-profit-q4-2020 (Accessed: 06 April 2021) Aguilar, F.J (1967) Scanning 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April 2021) VietJet Air (2012), VietJetAir launches late night flights with discounts of up to 30%, Available at: https://www.vietjetair.com/Sites/Web/en- us/NewsDetail/news/614/vietjetair-launches-late-night-flights-with-discountsof-up-to-30... us/NewsDetail/news/614/vietjetair-launches-late-night-flights-with-discountsof-up-to-30 (Accessed: 06 April 2021) VietJet Air (2020), Anual report 2019, Available at: https://ir.vietjetair.com/File_Upload/financial-information/annual-reportsroot/annual-reports/AR _VIETJET_ FINAL%20seal%202606%20ENG.pdf... point-to-point departer, price points, ease of buying travel, and ease of travel sectors Level of Competing (1-5) Average Airlines VietJet Air express buses/coaches Choice of class and/ or seat Meals4 Average