Oasis Hong Kong Case Final

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Transcript of Oasis Hong Kong Case Final

Strategic

ManagementCase 22MGM490 Section C

Submitted to: Professor Elie Chrysostome 26th April, 2012

Group: 14 Matt Johnson Ting Zhang Yin Zhang Dan Tracy

Hong Kong Oasis Airline

12-4-26

History February 2005, Oasis Hong Kong Airlines was founded October 26, 2006, the first flight, flight O8 700, took off from Hong Kong International Airport after a 24-hour delay June 28, 2007, Oasis offered non-stop service from Hong Kong to London, and began a service to Vancouver

Stephen H. Miller

1

Hong Kong Oasis Airline

12-4-26

History (cont.) The airline was voted "Worlds Leading New Airline" at the Annual World Travel Awards 2007 April 9th 2008, Oasis's CEO Stephen Miller announced at a press conference that the company would cease operations after suffering an accumulated loss of US$128 million The last flight, flight O8-901, departed from Vancouver at 10:15 am and arrived at Hong Kong at 3:09pm2

Hong Kong Oasis Airline

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The Oasis Model Oasis Hong Kong Airlines offers low-cost long-haul flights with standard service offered in traditional carriers Offers two classes: economy & business class while other low-cost carrier only offer economy class One way route to London Gatwick (UK) & Vancouver

3

Hong Kong Oasis Airline

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Key Strategic Issues Lack Airline Fleet Limited route selection

Frequent fluctuation in fuel price results a high fuel cost Lack of hubs and connections to primary cities Higher operating costs than expected4

Hong Kong Oasis Airline

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External Analysis General Environment Industry Analysis Competitor Analysis

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Hong Kong Oasis Airline Demographic Global Economical

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Technological

General Environment

Political

Socio-cultural

Legal

General EnvironmentDemographic, Economical, Political, Legal, Socio-cultural, Technological, Global6

Hong Kong Oasis Airline

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Demographic Segment Oasis Airlines target market focuses on frequent flyers between Hong Kong and major cities worldwide Focuses on economy class passengers as well as business class passengers First low-cost, long-haul carrier service in Asia.7

Hong Kong Oasis Airline

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Economical Segment Signs of global economical recession since 2007 Rising in oil price since 2006 Hong Kong adopts a capitalist and liberal economic

system

8

Hong Kong Oasis Airline

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Political Segment A stable political environment & high public transparency Low tax system

Well organized and developed transportationinfrastructure

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Hong Kong Oasis Airline

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Legal Segment Worldwide deregulation following United States International air traffics are regulated by bilateral air

service agreement between countries Different regulations in different countries

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Hong Kong Oasis Airline

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Socio-cultural Segment Higher rate of expenditure during the holidays Mixture of Eastern and Western culture

Bilingual in English and Cantonese Many people send their children to study abroad

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Hong Kong Oasis Airline

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Technological segment Introduction of newer and more efficient aircraft Converting older models to freighters

Many airline companies planned to replace theBoeing 747-400s with Airbuss A380, but were forced to hold the 747-400s longer due to an unexpected 22 month delay in the Airbuss A380 programs12

Hong Kong Oasis Airline

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Hong Kong Oasis Airline

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Hong Kong Oasis Airline

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Global Segment Average air fares dropped by 35% Major airlines settling on few major hubs as foundation for connecting passenger and cargo traffic to other destinations. Worldwide competitive pressure triggered series of privatization of flag carriers in Europe and Asian countries15

Hong Kong Oasis Airline

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Threat of NewEntrants

Bargaining Powerof Buyer

Rivalry Among Existing CompetitorsBargaining Power of Supplier Threat of Substitutes

Industry AnalysisThreat of new entrants & substitutes; Bargaining power of supplier & buyer16

Hong Kong Oasis Airline

12-4-26

High barriers to entry due to high startup cost Low

Competitive deal in airfare

Many airlines to

Threat of New Entrants

Bargaining Power of Buyer

choose from High

Rivalry Among Existing Competitors High

Moderate

No other low-costlong-haul airlines Many airline offer different types of services

Threat of Substitutes

Bargaining Power of Suppliers

High

Fluctuationin fuel price cause high fuel cost Acquisition price of aircraft is high17

Hong Kong Oasis Airline

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Hong Kong Airline Industry Hong Kong act as a hub and connection point for air traffic between the eastern and western world Over 100 airlines operate flights to about 160 locations worldwide, The Hong Kong International Airport handled around 40.7 million passengers and 3.4 million tons of cargo during its first year of operation Hong Kong International Airport ranked 5th busiest airport in the world By 2005, airport authorities had already reported a profit of HK$1.41 billion attributable to equity shareholder. The Board of Directors declared a dividend of HK$1 billion, payable to the HKSAR Government

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Hong Kong Oasis Airline

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Operation Statistic for Hong Kong International AirportYear Passenger Movements 28,631,000 30,394,000 33,374,000 33,065,000 34,313,000 27,433,000 37,142,000 40,740,000 Airfreight movement (tonners) 1,628,700 1,974,300 2,240,600 2,074,300 1,637,797 2,642,100 3,093,900 3,402,000 Aircraft movement 163,200 167,400 181,900 196,800 206,700 187,500 237,300 263,500

1998 1999 2000 2001 2002 2003 2004 2005

20062007 2008

44,443,00047,783,000 48,582,000

3,580,0003,742,000 3,627,000

280,000295,580 301,00019

Hong Kong Oasis Airline

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Competitor AnalysisCathy Pacific Airways, Air Hong Kong, Hong Kong Dragon Airways20

Hong Kong Oasis Airline

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Type of CarriersScheduled Airlines

Commercial Carriers

Feeder Airlines

Charter Airlines

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Hong Kong Oasis Airline

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Major Players

Hong Kong

International

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Hong Kong Oasis Airline

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Cathy Pacific Carrier type: de facto flag carrier Largest airline in Hong Kong Reputation as best in the industry with regular & frequent updates of seats, entertainment systems, meal options, and other in-flight amenities Named Airline of the Year by: Skytrax in 2003 & 2005 Air Transport World in 2006

Two loyalty programs: the Marco Polo Club, Asia Miles Established large number of code-share agreements with major carriers worldwide23

Hong Kong Oasis Airline

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Hong Kong Dragon Airlines Carrier type: flag carrier Headquartered in Hong Kong Wholly owned subsidiary of Cathy Pacific Had its own loyalty program: Elite Later merged into Marco Polo Club, Asia Miles

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Hong Kong Oasis Airline

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Air Hong Kong Operates an express freight network to 12 destinations in nine countries, including China, Japan, Malaysia, Philippines, Republic of China (Taiwan), Singapore, South Korea and Thailand. Headquartered in Hong Kong Subsidiary of joint-venture between Cathy Pacific & DHL

Cargo fleet Focuses on Asia market25

Hong Kong Oasis Airline

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Internal Analysis Competitive advantages Tangible and intangible resources Core competences value chain Performance appraisal

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Hong Kong Oasis Airline

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Competitive Advantage Oasis marketed itself as a long-haul, low-fare carrier thatoffered exceptional value with customizable options Oasis would only serve long-haul routes Offered two classes of service, targeting both economy and business-class passengers

Competitors offered only economy27

Hong Kong Oasis Airline

12-4-26

Competitive PricingHong KongLondon round-trip departing on October 31,2006, and returning on November 10, 2006 (depending on level of travel restrictions)

AirlineHong Kong - London round-trip economy ($) Hong Kong - London round-trip business ($)

Oasis

Cathay Pacific

British Airways HK$2,250 ~ HK$4,525 HK$21,350

Virgin Atlantic HK$5,532 ~ HK$17,263 HK$44,897 ~ HK$46,813

HK$1,000 HK$5,880 ~ HK$9,550 HK$6,600 HK$44,952

Cathy Pacific was 190 to 380 % more expensive than Oasis

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Hong Kong Oasis Airline

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Aircraft Utilization & Efficiency It was expected that Oasis could achieve average aircraft utilization in excess of 15 hours per day Low operating unit cost on a per available seat/kilometer basis Spending a large proportion of time in cruise, an aircraft flying long-haul would have fewer takeoffs and landings Lower maintenance costs for the airframe and engines Lower fuel consumption

29

Hong Kong Oasis Airline

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Aircraft Utilization & Efficiency (cont.) Using secondary airports to save on costs Gatwick instead of Heathrow in London Oakland instead of San Francisco in California (initial plan) Milan in Italy and Cologne in Germany under consideration (didn't follow through) Flying into hubs of major low-cost carriers (EasyJet, G