Table of Contents
1. External Analysis
1.2 Porter’s Five Forces
2. Internal Analysis
3. SWOT Summary
4. Key Strategic Issues
5. Strategic Options
6. Implementation Issues
A: Comparison of figures and ratios of JAL and ANA
1. External Analysis
Here, the airline industry is defined as international and domestic air transport for passengers as this is the main part of JAL’s business (JAL, 2009, p. 12).
Concerning the macro-environment, the PESTEL-analysis (Johnson, Scholes and Whittington, 2008, pp. 55-57) resulted in the following: De- spite increasing liberalisation, e.g. the EU-US “open skies” agreement (BBC News, 2005) and an upcoming one between the US and Japan (Go- vindasamy and Ranson, 2010), the industry is still highly controlled by governmental regulations and single agreements, restricting free global competition (IATA, 2009, p. 30). To boost tourism, many governments regularly launch campaigns, e.g. the Japanese “Visit Japan” campaign (JNTO, 2009).
While economic recovery is expected to be slower in advanced econo- mies, emerging and developing economies should experience consider- able growth (IMF, 2010, p. 1), especially Brazil, China and India (Pearce, 2009, p. 7). Additionally, China is already the biggest market of the indus- try in Asia but still shows great potential for growth, and so does India (IATA, 2010a, p. 3). Still, repercussions resulting in prolonged low con- sumer spending are likely, e.g. in Japan (Euromonitor International, 2009, p. 2). Increasing oil prices in the future (Shenk, 2010) will raise airlines’ already high costs further.
An ageing population in Western countries, e.g. Japan, makes the elderly an increasingly important target group (Euromonitor International, 2009, p. 8). While terrorism does not seem to have real long-term effects itself, it necessitates high and improving security without annoying people and discouraging travel (Steverman, 2009, p. 1)
Online booking will become more and more important and, combined with new ticket technology (IATA, 2010b) will save costs. Technological pro- gress promises increasing efficiency of airplanes and alternatives to kero- sene which are expected to be certificated until 2011 (IATA, 2010a) and employed as fuel blends in the medium term (Unknown, 2009).
As the interest in the environment increases, more restrictions on carbon emissions and noise pollution like in the EU (Harrison, 2008) are very likely in the future.
1.2 Porter’s Five Forces
From the analysis of the micro-environment using Porter’s five forces (Por- ter, 2008) conclusions are as follows: while regional markets are quite lib- eralised, internationally still a lot of restrictions exist (IATA, 2009, p. 30). Despite high investment requirements and operating costs, sourcing capi- tal is not such a great barrier. However, as the industry is shaken and of- fers low margins (Peer, 2008), profitability is questionable (IATA, 2010c). Therefore, the threat of entry is low internationally and somewhat higher on domestic markets.
With only two of them, suppliers of aircraft are highly concentrated and powerful. Switching the fuel supplier is not an option as fuel prices depend on the oil price. Further, there is no alternative to pilots as suppliers of labour (Porter, 2008, p. 83). Thus, supplier power is high.
Buyers are individual consumers and do not act as an entity. Products are differentiated in terms of service and convenience and frequent flyer programs bind consumers to certain airlines. However, many consumers are very price sensitive and seek the cheapest offers, as the success of lowcost carriers (LCCs) shows which mainly impacts regional markets. Therefore, buyer power is medium.
Travelling by car or train is an alternative on domestic markets but only to a certain degree when air travel becomes far more advantageous in terms of time. Internationally, no comparable substitute for travelling exists. While videoconferencing may be an alternative to business travel, it cannot fully substitute it (Lohr, 2008). Therefore, the threat is low.
With over 1,000 airlines operating worldwide facing low margins (Peer, 2008), over-capacity in many markets (Bloed, 2010), a good proportion of price sensitive consumers and a limited number of available airport slots competitive rivalry is high. Concluding, the airline industry is rather unattractive, showing low profit potential at this point of time.
2. Internal Analysis
Beginning the internal analysis of JAL, some figures and ratios were com- pared to its main competitor ANA (Appendix A). Before FY2008, when the industry was struck by the financial crisis, ANA presented increasing prof- its whereas JAL mainly struggled with losses. Additionally, ANA suffered losses of ¥57bn in FY2009 but is said to be far better off than JAL with ¥2,300bn in debts and supposed losses of ¥160bn (Hodo, 2010). Thus, JAL’s financial status is disastrous. While ANA performed well until FY2008, JAL shows negative trends in net income and net income per employee and low or even negative operating margins. ANA, other than JAL, seems to be a healthy business which may be expected to grow again with the economic upturn. JAL’s load factor, especially internation- ally, was far worse over the whole period. While they operate a similar number of domestic routes (ANA, 2009, p. 76; JAL, 2009, p. 56), interna- tionally JAL outnumbers ANA by far with 258 to 34 routes (ANA, 2009, p. 76; JAL, 2009, p. 54). However, JAL carries less than half the number of passengers per route than ANA. JAL’s main problem seems to be its un- profitable international route network which it was already aware of in 2009 (JAL, 2009, p. 6) but did not change until its bankruptcy (BBC News, 2010a).
JAL’s fleet still partly consists of old and inefficient airplanes (BBC News, 2010b), thus showing a deficit in threshold resources. Internationally, JAL’s access to the Japanese market, China and other parts of Asia (Soble, 2010b) is, especially compared to non-domestic rivals, a valuable resource. On the Japanese market, JAL is the biggest airline in terms of market share, both for domestic (46 %) and international airline services (66 %) (JAL, 2010). Having decided to stay in Oneworld (Luna, 2010), JAL has powerful partners worldwide with whom it can establish an efficient network. JAL’s core competences are extraordinary punctuality for which it was honoured recently (JAL, 2010b) and outstanding luxury in its Execu- tive and Premium Economy class for which it also won an award (One- world, 2010). JAL’s main core competence, according to JAL’s former CEO, is its “technical capabilities in terms of both hardware and software”, meaning a well-trained workforce throughout the business and excellent logistics and coordination (JAL, 2009, p. 11).
3. SWOT Summary
- Well-trained workforce and excellent logistics and coordination
- Access to Asia-pacific market
- Oneworld alliance
- Unprofitable route network
- Financial status
- Partly outdated fleet
- Brazil, China and India offering growth markets
- Increased tourism in Japan due to “Visit Japan” campaign
- Development of alternative bio fuel blends
- Rising fuel costs
- Environmental restrictions
- Slow economic growth in Western economies
JAL’s main strength, as discussed above, is its well-trained workforce, e.g. in maintenance and their flight and cabin crews, as well as its logistics and coordination of its network, in JAL’s former CEO’s words, its technological skills (JAL, 2009, p. 11). Internationally, JAL’s access to the Asia-pacific market, especially China, is a great strength, and also benefits its third one. Being a member of Oneworld, JAL has the possibility to coordinate its own services with those of its strong global partners to create a network of maximum efficiency.
JAL’s unprofitable route network, mirrored in their low passengers per route ratio, constitutes its biggest weakness. This is aggravated by JAL’s second weakness, its disastrous financial status. JAL’s fleet has been in need for renewal since a long time, lagging partially behind today’s standards, JAL’s third weakness.
Future business opportunities mainly arise in Brazil, China and India, due to their considerable economic growth. Tourism in Japan, and therefore international travel, may be expected to increase, especially if the govern- ment sticks to its ambitions to boost the sector. As alternative fuel blends are already coming in soon, involvement in their development is a great opportunity for airlines to boost their image as an environmentally friendly business, potentially attracting politics’ attention and support.
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- Institution / Hochschule
- Northumbria University
- JAL Japan Airlines Strategic Management Strategic Analysis Bankruptcy SWOT Porter's Five Forces PESTEL airline industry internal analysis external analysis TOWS