FireFly Case Study
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Transcript of FireFly Case Study
ARSHAD AYUB GRADUATE BUSINESS SCHOOL (AAGBS)
STRATEGIC MARKETING MANAGEMENT
MICHAEL PORTER’S FIVE FORCES ON FIREFLY CASE STUDY
PREPARED BY:
AHMAD AZID TAHAR BIN AHMAD LATIFFI (2013379075)
NUR HIDAYAH BINTI ZAFFRIE (2013532009)
PREPRED FOR:
PROFESSOR DR. ROSMIMAH MOHD ROSLIN
1.0 Introduction
Firefly was launched on April 3, 2007 where Firefly is a fully-owned subsidiary of Malaysia
Airline System Sdn. Bhd (MAS). Firefly operating hub located at Penang and Subang, Firefly
also provides connections to various points within Malaysia, Southern-Thailand, Singapore
and Sumatera of Indonesia, aligning itself with the Indonesia-Malaysia-Thailand Growth
Triangle (IMT-GT) agenda.
The total fleet that Firefly have is around 17 fleet and flies around 19 routes in total which it
serving Singapore, Indonesia, and Thailand region.
The commercial air passenger market is focused into Full Service Carriers and Low Cost
Carriers, with Firefly targeting in the end. Even with the overall drop in air travellers, low
cost air travel is still growing in this region. Firefly has placed down themselves as a
Community Airline which offering reasonable low fares and at the same time ensuring
passenger are at ease and convenience.
At the moment, Firefly will keep endure to face stiff competition from AirAsia, the Low Cost
Carrier market leader in this region. AirAsia has many strong point including a powerful
brand presence, high efficiency and strong online services. Moreover, Firefly’s hub in
Subang Airport has poor public transport services thus, this matter are causing trouble to their
customer.
2.0 Issue
Firefly has difficulty to reach customers. It does not have any uniqueness that differentiates
itself from other low cost companies. AirAsia and Malindo give Firefly a great impact in
promotion element which AirAsia and Malindo are competing aggressively head-to-head in
giving the best advertisement through every channel and medium while Firefly still left a few
steps behind.
3.0 Michael Porter’s Five Forces on Firefly
This model identifies and analyses 5 competitive forces that shape every industry, and helps
determine an industry's weaknesses and strengths. Frequently used to identify an industry's
structure in order to determine corporate strategy, Porter's model can be applied to any
segment of the economy to search for profitability and attractiveness. This model will
identify the competitiveness of Firefly in the industry through the five forces.
3.1 Rivalry among existing competitors
Firefly main competitors are basically AirAsia and Malindo since both of these airline is Low
Cost Carrier (LCC) airlines. AirAsia has the world’s lowest unit cost but this matter does not
become a biggest issue for Firefly since Firefly is a subsidiary of MAS, thus they are
basically targeting in slightly different target market. This is because AirAsia’s hub is in
KLIA 2 along with Malindo while Firefly’s hub is at Subang and Penang. The most establish
carriers including Tiger Airways (Singapore), Nokair (Thailand), and Jetstar (Singapore)
these LCC airlines are operating in Malaysia which provide the same route as local airline.
Since AirAsia has the world’s lowest cost this enables AirAsia to offer competitive prices
combined with its strong brand presence. AirAsia is a direct competition for two routes from
Penang and six routes from Kuala Lumpur. Although AirAsia flies to the LCC terminal in
KLIA whilst Firefly flies to Subang, the airports can be considered to be closed and a
competition for point-to-point.
As all know Firefly growth has been rapid since Firefly is on of MAS subsidiary but because
of a strong competition among LCC like AirAsia and Malindo Firefly become volatile.
Firefly may growth because of MAS influence but to be by its own it’s hard for Firefly to
achieve it since Firefly has a lot of deficit compared to AirAsia and Malindo.
As mentioned earlier, there are several airlines operating on the same destination including
the international airline.
The competition becomes stronger also because of the limited product differentiation. The
product differentiation includes the technology, regional market, price leadership, and
operational efficiency. As all know, nowadays every single transportation especially airplanes
are provide with facilities like Wi-Fi. Technology also describes how they use advertisement
approach to advertise their services and product. At the same time, their regional market is
about the same with other airlines which all airline are about targeting the same target market,
it may have slight different target market but most them are travellers, business dealers, and
for those fast traveller but save their cost. The price between LCC does not have a big
different between one and another. However, if one of the airline are offering the best and
low price toward their customer then it will be a big issue to other airline and also they need
to figure out how to overcome and make some improvement towards service and quality
instead of lower the price. AirAsia are always offering the best and low price.
The other airlines are aggressively competing for the best advertisement. Just like AirAsia
and Malindo they are having a lot of attractive advertisement in terms of video, radio, online,
and hands-out also big screen advertisement. Thus, the advertisement makes their airline
images become one of the best advertisement that airline ever had. Firefly have slow
approach towards advertisement and their advertisement always the same compared to rapid
change of advertisement design and approach of other airlines like AirAsia and Malindo.
Firefly also has lack in promoting new services and the fares is always higher than other
LCC. At the same time, Firefly also got plenty of complaints regarding their flight delay and
this lead dissatisfaction among passenger and this will lead to a bad quality of Firefly and at
the same time it could influence the MAS image.
The exit barrier of Firefly is high. This is because, for an airplane is a fixed asset it cannot be
used other than flying so it is hard to replace it with other usage. Besides that, they have little
scrap which they have little unusable function. Furthermore, the airplanes become worse if
leave it inside the hangar so that the company will keep them flying rather than become a
mothball. Besides, in politic matter the countries tempted to subsidize rather than let their
national carrier exit the barriers.
These conclude that Firefly have a high rivalry among existing competitors and based on
competitive advantages Firefly have competing with AirAsia, Malindo, Nokair, Jetstar, and
Tiger Airways as airlines that operate domestically in Malaysia.
3.2 Bargaining of power of buyers
The bargaining power of buyers is about assessing whether or not the buyers have a
strong pressure on decisions taken by the companies in an industry. This evaluation is
particularly influenced by two elements which are the degree of bargaining power buyers
have, and their sensitivity to prices. In order to asses if the bargaining of power of the buyers
is strong or weak, it is important to enumerate the points that corresponds to each of the
situation.
On the first hand, there are four elements that shows that there may be a high threat of buyers.
Indeed, buyers have a low-switching costs to competing products. They have access to many
information about products and services. Also, they care about the price of the product or
services and they the products they want to purchase are all standardized.
Buyers ‘switching costs are low because they can easily change from an airline company to
another one. The clients have the possibility to choose the company they want to fly with
according to their needs. Booking their flights in relation with the prices, the comfort, the
food and quality of food offered. For example, if the price is too high for one company,
customers will not hesitate to book they flights tickets somewhere else.
Nowadays, the internet facilitate the availability on information, and make easy the access to
them. Customers have a constant access to flight details: prices of products, and quality of
services and products. Also, they are aware of the costs imputed on the prices and can use
these information in order to find better deals.
In this industry, buyers are sensitive to price. They pay attention on their expenses. As they
purchase their flight tickets on low-costs airline companies, we can say that they earn low
profits or income, or they want to save money. From that point of view, purchases represent
then a significant fraction of their earnings and the product performance is not really
significant. Thus, high prices can be a boundary to buyers, and companies will have to lower
the prices in order to sell more.
All low-costs airline companies have the same objective which is to try to cut down the costs
of services, of transport in order to offer lower prices to the population. The products
proposed are then similar to each other since customers focuse particularly on the price of the
products. As the products are standardized clients can easily asses the product that fits their
needs looking at the information of each companies.
On a second hand, two elements shows that buyers may have a weak bargaining power:
Buyers are small and numerous, and buyers cannot easily postponed purchases.
The population who chose to travel by plane does not cease to increase. There are more and
more people booking tickets and who also want to pay less for them. So that the airlines
company are quite few in comparison with travelers. Consequently, the lower the business of
the buyers is, the lower they have the ability to bargain prices with the sellers.
In addition, it is not easy for the client to change their flight ticket. Even if they have the
option to modify their flights they must pay extra fees. With sometimes prevent the
customers to postpone their flights, except if they really do not have the choice.
We deduce from these previous points, that the bargaining power of buyers is strong. Buyers
have them the ability to negotiate the price or exert a certain influence on companies’
decisions.
3.3 Potential Entrants
Potential entrants refer to the threat of new competitors pose to existing competitors in an
industry. Potential entrants is one of the forces that shape the competitive structure of an
industry and its influence the ability of existing firms to achieve profitability. There are two
situations under potential entrants; there are high threat of entry and low threat of entry. High
threat of entry can be seen increase in new competitors entering the marketplace which
threaten or decrease in the market share and profitability of existing competitors while low
threat of entry is vice versa. Besides that, entrants of new competitors can result in changes to
existing product quality, quantity and price. Both situations may have it pro and cons. For
example, besides decrease in profit potential, high threat of entrants can make an industry
more competitive thus improve the quality of product and service to attract more new
customers. On the other hand, low threat of entry make an industry less competitive and
increase profit potential but it won’t create competitive spirit with others.
There are several factors that determine the degree of threat of new entrants in an industry.
These factors are divided into two. There are barriers to entry and entry barriers. Barriers to
entry refer to the factors or conditions in the competitive environment of an industry that
make it difficult for new business to begin operating in that market. Examples of barriers to
entry are the trends, competitors and switching cost. Entry barriers refer to the difficulties in
gaining access in the industry. Example of entry barriers are government policies, technology
and cost needed.
3.3.1 Firefly’s Potential Entrants: Open Air Policy
ASEAN’s had proposed a new policy in aerospace industry by allowing airlines from
ASEANS countries to fly between one points and another without getting any dictate from
the home government. ASEAN’s ultimately goal is to achieve a single aviation market.
Basically, this policy may now prevent an airline from holding a majority share in a carrier in
another Asean country where there will be free merge across borders between countries. But
still this ambitious goal is come with its own challenge, the implementation itself. This is
because according to Tan (2014) from aviation law academic of National University of
Singapore, it will be hard for Indonesia to agree on this due to the stiff competitiveness of the
local airlines with other stronger carriers from fellow Asean countries. Even though
Indonesia constitutes half of Asean’s population, due to its economy Indonesia have to face
many cons than pros in its implementation. This will be a little bit like the European Union
doing without France, Germany and Britain in aligning their currency.
The ‘Open Skies’ agreement’s freedom is mostly involves an airline flying to one airport of
one’s country to another country without the need for prior intergovernmental approval.
Besides that, an airline have the rights to fly over foreign airspace without landing the right to
stop in another country for refuelling or maintenance addition on having the rights to park its
planes and operate domestic flights in another country.
The Open Air Policy may have its pros and cons in the industry where it contributed profit
and vast market share to the airlines and its customer. If we look at the positive side, airlines
may have a healthy competition between each other’s besides generating more profit and
customer may have variety choices and choose which airlines that offer and fulfil their wants
and needs. Contradict; airlines may lost in the stiff competitions. This might happen to Firefly
if they did not start and change it 4P’s. Firefly has its own target market and ways of
approach. But due to stiff competition from various low cost airlines, Firefly might not
survive in the industry. According to Euromonitor in Firefly’s revenue in the year of 2009 till
2013, its decreasing compared to Air Asia where its revenue are triple as Firefly. Air Asia
may or not be Firefly competition since both of them have different target market and way of
approach towards potential and current customers, but if we look at the bigger picture and
rationally, how will Firefly survive in the open skies environment when they’re having a hard
time stabilize their business in close skies environment?
Yes, Firefly has its strong competitive advantages where they focus more on safety,
punctuality and value in comfort ability. But this may not enough compared to service that
had been provided by Air Asia and Malindo Airline. Therefore, Firefly need to strategies and
do a research in facing a new and competitive environment.
3.4 Potential Substitute
Potential Substitute is define as a product that the consumer can purchase which offer the
same benefits to the consumer as the product produced by the firms within the industry. The
availability of a substitution threat can affect one’s business profit and lead to stiff
competition with each other. Furthermore, the availability of substitution products benefits to
the consumers since the have a variety of products or brands to purchase instead of industry’s
product. Due to that, firms have to create competitive advantages in order to compete with
other competitors and attract more new and potential customers. On the other hand, lack of
substitute products makes an industry less competitive and increases profit potential for the
firms in the industry.
There are several factors that may determine whether are there threat of substitute or not in an
industry. There switching cost, price, quality and lastly product’s function, attributes and
performance of the product and firm.
Switching cost – switching cost refer to when customer have the ability to switch in using one
product with another product. For example, customer may change it shampoo from L’Oreal
brand to other brands such as Sunsilk, Pantene and Herbal Essence.
Price – Price refer to the amount of value for that particular product. In the industry, firm that
charge a lower price may have the competitive advantages. For example, Malaysians prefer
to shop their groceries in Tesco than Cold Storage due to the price.
Quality – Quality refer to the products durability and longevity For example, women don’t
mind to spend more for handbag because of its quality and women need a good handbag
since it had become a necessity for women.
Product’s function attributes and performance – Product’s function, attributes and
performance refer to the product itself. If most of substitute product are equal with other
product it would lead to less profit and stiff competition in the industry.
Therefore, it is necessary for the firm to do an analysis for the product and particular industry
to evaluate the competitive environment and structure for profit potential of a market.
3.4.1Firefly Potential Substitute: Train
Kereta Api Tanah Melayu Berhad.
Keretapi Tanah Melayu is the main rail operator in Peninsular Malaysia. The organisation
was corporatized in 1992 but remains wholly owned by Malaysian government. KTMB is
divided ito two main lines and several branch lines. The total length of the network was 1,699
km but due to some partial dismantling work that occurred between Tanjong Pagar and
Kranji in Singapore, the new total length of the network is 1,677 km.
KTM Komuter is an electrified commuter train service introduced in 1995 which cater from
Kuala Lumpur to certain suburban areas. KTM Komuter provides 248 commuter service
daily serving 45 stations along 175 route-kilometres.
Basically, KTM Komuter is the potential substitute of Firefly since their main function is the
same which bring one person from one place to their destination. But the difference is the
service that their offer. KTM Komuter serves on railway but Firefly on air. Besides that, both
transportation have their own promotion but in term of price, KTM Komuter is much cheaper
that Firefly.
3.4.2 Firefly Potential Substitute: Bus
There are lot of bus that are available in Malaysia that can be used to deliver ones to his or
her destination. In Malaysia there are about 20 buses that Malaysian and tourist can choose to
travel. There are Mayang Sari, Transnational and MARA Liner. These are among the bus
companies that had dominated Malaysia bus industry.
Basically, bus can be a substitute product for Firefly. This is because they share the same
function and services. But most of the passengers are a little bit reluctant in taking bus to
travel due to safety. In Malaysia, there are a lot of cases of road accident happened which
mostly due to condition of the road, negligence of drivers and condition of the bus itself.
In term of price, surprisingly, Firefly domestic plane offer much lower price than bus. That’s
why starting 2010, the statistic of people travel using airplane increasing to 78%
(Euromonitor, 2013). For example, Firefly offer RM 55.99 from Subang Airport to Penang
while Transnational offer RM 65.00 from Pudu Raya to Penang.
Firefly Potential Substitute: Taxi
Taxi is one of the public transports that usually use by Malaysians and tourist to go
someplace near. People don’t usually travel by using taxi due to its price. For example, to
travel from Kuala Lumpur to Malacca the taxi would charge you till RM 60.00. This is why
most people choose to travel by using bus or airline. But still, there are a lot of Taxis
Company in Malaysia such as Sunshine Taxi Co., Blue Taxi Berhad and Hello Kuala Lumpur
Taxi Sdn Bhd.
3.4.3 Firefly Potential Substitute: Car Rental
Car Rental in Malaysia is remained highly fragmented with the offering coming from both
small independent players, domestic and internationally. Car rentals players are incorporating
more convenience factors into their service packages such as pick up of rental cars from one
location and preferred time. Examples of car rental that dominate the industry are Mayflower
and Avis. Avis have its competitive advantage where it have its own online booking through
its website and application where customer may download it from their smartphone.
Basically, Firefly offer same service as Avis where deliver one’s from one place to another.
With Avis online service, more people may prefer to use car rental as their choice of
transportation for service. But still according to Prasarana’s Malaysians Affordability Public
Transport, only 1% of Malaysians prefer to use car rental as their transportation to travel.
3.6 Conclusion
Through this evaluation, we figured out that the competition among rivals is high, the threat
of new entrance is high and the threat of substitute is high, the bargaining power of buyers is
high and so is the bargaining power of suppliers. As a conclusion we can deduce that the
industry is competitively unattractive since all five forces are strong. It may explain the
reason why Firefly faces some difficulties to compete with its rivals, but also to gain more
market share and attract the customers.
Our objective here is then to enumerate some alternatives that the company should use in
order to improve its situation according to the market segment it targets.