Phân tích chiến lược cạnh tranh của hãng hàng không VietJet Air và kịch bản tương lai sau đại dịch COVID-19 - STRATEGIC ANALYSIS REPORT OF VIETJET AIR

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.

Date submitted: April 06, 2021

Word count: 3220

STRATEGIC ANALYSIS REPORT

OF VIETJET AIR

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-Forces analysis Further strategic analysis using Strategy Canvas and concluding by

adopting impact-uncertainty matrix and future scenarios matrix to identify future

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

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)

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

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 do 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

The buyers have low bargaining power First, the customers are highly

price-sensitive, 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

well-known 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

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 2 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 do not have to rely too much on these areas of their

strategic operations

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 3 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 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

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Graph 3: The Strategy Canvas at VietJet Air

Analysing four action framework, which is reflected in graph 4, VietJet has

implemented some actions to build up its successful strategy:

1 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

9 Choices

of

destinations

Level of Competing (1-5)

1 Price

2 Meals

3 Lounges

4 Choice of

class and/

or seat

5 Hub

connectivity

6

Luxurious

cabin

7

Marketing

8 Speed 10

Friendly

services

11

Frequent

point-to-point

departer

12 Price

Points

13 Ease of

buying

travel

14 Ease of

using travel

solution

Average Airlines

VietJet Air

Average express buses/coaches

reduced by reducing complementary products that scheduled airlines

frequently served The simplification of the service process (using

web-booking, self-check-in kiosks, and mobile tickets) contributed to improving the

service speed It reduced the costs for resources such as labour costs

2 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

3 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)

4 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

5 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