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Copy of Oasis Hong Kong Airlines: The First Long-Haul, Low-Cost Airline in Asia

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Transcript of Copy of Oasis Hong Kong Airlines: The First Long-Haul, Low-Cost Airline in Asia

Company Overview
2008

Dysfunctional long-haul low-fare airline
Based out of Hong Kong International Airport
Ceased operations in April 2008
Competitive Analysis
Cathay Pacific
Case Overview
Threat of New Entrants
External Analysis
Business Level Strategy
Tangible Resources
Integrated Cost Leadership/Differentiation
Post Case Analysis
Case Question
Can there be such an airline that is low-cost AND travels long-haul?
Answer
YES, but not the way that OHK Airline attempted to achieve it.
Nick Bigham
Calvin Lai
Audrey Beggs
Clancey Garland
A dysfunctional long-haul low fare airline that was based in Hong Kong, China
Based out of Hong Kong International Airport, and majorly focused on providing scheduled flights to London Gatwick, Chicago (Midway), Oakland, Berlin, Cologne, and Milan
Targeted Hong Kong frequent flyers (e.g. those who attend boarding school in U.K.) that seek for low-fare to Canada and the United Kingdom
Ceased operations in April 2008 after suffering an accumulated loss of HK$ 1B (US$ 128M)
Five Forces Analysis
• Already a group of well-established
competitors in the industry
• Economies of scale are created by strong
competitors like Cathay Pacific and British Airways
• New airline would need to earn reputable status quickly
Difficult to do
LOW
Supplier Power
• LARGE number of suppliers for the industry
• Many components are produced by
hundreds of companies worldwide
• However, Boeing and Airbus both
aggressively dominate and compete as
aircraft suppliers
MODERATE
Threat of Product Substitutes
MODERATE/LOW
Only certain airlines are serving the routes that are authorized
With the fact of providing long-haul services only one way that passengers can travel from Point A to Point B
Only few product substitutes for the industry
Examples:
Other airlines that provide better service and value to their customers.
Reward Program
Flexible Schedules
AircraftType
Buyer Power
HIGH
Provide the cheapest fare cost for long-haul service
– Cheapest among airlines that serve same
routes
Provide premium services to differentiate themselves
– Unique fare variation, free meals & drinks
Scope of Rivalry
VERY HIGH
Many well-established competitors are already in the market
– Cathay Pacific, British Airways, Quatas Airways
Few of the most competitive routes within the industry
– Between Hong Kong, London, and Vancouver
Never-end-battle for market share
Low switching costs for passengers
Is the Airline
Industry attractive?

NO
EXTREMELY competitive
Existing airlines need innovative strategies to remain competitive
New airlines have to create unique business strategies to keep pace with existing competition
Operates both scheduled cargo and passenger services to 114 destinations in 26 countries worldwide
Fleet Size: 132
Wholly owned subsidiaries – Dragonair & Air Hong Kong
At the end of 2010...
Passenger Flown: About 27M
Turnover: HK$89,524M
Net Income: HK$14,048M
One of the 7 airlines to be ranked as a 5 star airline by Skytrax
British Airways
Largest airline in the UK based on fleet size, int. flights and int. destinations
Fleet size: 225 (+40 orders) excl. subsidiaries
Subsidiaries: OpenSkies, BA CityFlyer, BA World Cargo
Founding member of the Oneworld airline alliance
As of March 2010,
Passengers Flown: ~32M
Turnover: £8M
Net Profit (Loss): (£425M)
1. To be the world’s best airline, strive to excel everything they do
2. To utilize their dynamic team provides the highest service so their customers are happy to choose Cathay Pacific
Offers two reward systems: Asiamiles and the Marco Polo Club
Made the world’s first non-stop transpolar flight flying over the North Pole in July 1998
Fleet Size: 132 (93 include cargo)
~20,000 Total employees
Current Ranks
Most Profitable Airlines: #2
Net Operating Profit: #7
Total Revenue Passenger Km: #10
Freight Ton (in Km): #4
Focuses primarily on flights between Bangkok and Taipei
Offers services to 26 countries and 114 destinations
Internal Analysis
Core Competencies
& Capabilities
Capabilities
Core Competencies
Cargo
Usage of extra space in the bottom of the plane for high cargo demands
Customizable options
Business- and economy-class
Management expertise
Founded by ex-Dragonair CEO
Long-Haul, Low Fare!
Competitive pricing
Usage of secondary airports
High aircraft utilization
In excess of 15 hours per day
Fewer take-offs and landings
Lower maintenance costs
Lower fuel consumption
Value proposition
Slightly inferior service than that of competitors at a much lower price translates into solid value
One way tickets
Final Question
Does the company have the resources, capabilities and core competencies to execute their business strategy?
NO
Intangible
Resources
Founded by ex-Dragonair CEO, Stephen Miller, was knowledgeable and experienced in the airline industry
Human Resources
MODERATE
Innovation Resources
STRONG
Had many ideas to set them apart from their competitors such as complimentary in-flight meals and other services that other low-cost carriers did not offer
At the time of the study, they had only been operating for two years
Difficult for them to win customers based on track record because they didn't have one
Reputational Resources
WEAK
Five Boeing 747-400s
81 business-class seats
278 economy-class seats
Physical Resources
WEAK
Principal investment came from property developer, Raymond Lee, and his wife
Could only purchase two planes to start out with so the company did not have many assets
Financial Resources
WEAK
Not very structured
Ideas were great, but they struggled with implementing them in a way that they could still profit from
Organizational Resources
WEAK
Technological Resources
WEAK
Limited online presence
Low-fares
Differentiation
Long-haul
Economy/Business class
Products and services
MISSION
Success of the airline depends on GDP growth in Hong Kong and demand in the markets that Oasis serves
Economic
General Environment:
Airline Industry

Socio-Cultural
Demographic
Global
Airline Industry
Characteristics
three
two
one
four
five
Market Size
Growth Rate
Scope of Rivalry
Rivalry Concetration
Pace of Industry
Hong Kong is an important trade port between the East & West
Post recessionary levels have been uncertain, causing for unpredictable markets
Airlines operate on extremely low margins due to high cost obligations
As the global business work force expands and diversifies, so too does the demand for business services
According to the Institute of International Education (2009), 62% of international students in American univerisities came from Asian countries (620,000)
Aging population around the world
Elderly, students, and businesspeople account for 87% of Hong Kong's population (7.01 million)
HK International Airport attempting to serve the Pearl River Delta area
According to Boeing's 'Current Market Outlook' in 2005:
Passenger air travel to increase 5% annually between 2005-2024
Cargo air travel to increase 4.5% annually
European/American markets mature; 3.4%-5.5% growth
Asian markets expanding; 6.9%-8.8% growth
Airline industry subject to globalfocusing
Best used when concentrating on international niche markets
Difficult to enter high-volume airline markets with competitors that have strong customer relationships and market knowledge
According to Boeing's 'Current Market Outlook' in 2005:
Passenger air travel to increase 5% annually between 2005-2024
Cargo air travel to increase 4.5% annually
European/American markets mature; 3.4%-5.5% growth
Asian markets expanding; 6.9%-8.8% growth
Cathay Pacific
Hong Kong Dragon Airlines
Air Hong Kong
CR Airways
Hong Kong Express Airways
Oasis Hong Kong
Rapid and ever-changing
Competitive advantages are held for VERY short amount of time, if that
Problems with Differentiation
Too much variation for such a small airline
Offered economy and business class seating
Even offered several sections of business class
Spacious seating
Four fare types:
Flexi Fare
Advanced Purchase Fare
Value Fare
Hot Deal
Deadly Core Competency Combination
Economy Class
Business Class
All Classes
All passengers offered standard complimentary hot meals (2 meals and soft drinks)
All passengers offered upgraded meals (2 meals and soft drinks)
Free snacks and alcoholic drinks
Free headphones, pillows and blankets
Noise-cancelling headphones and amenity kits for purchase
Personal TVs and in-flight magazines
Lounge access
Provided special fares for passengers
Add financial planners and accountants with extensive cost-controlling backgrounds

Increase the inventory size
Provide more frequent scheduled services for flyers
Expand services to secondary hubs in North America & Asia
MORE FOCUS ON BUDGETING
CONDUCT MARKET RESEARCH & SEGMENT CUSTOMERS
INVENTORY CONTROL
Extensive market study of customer demands
Provide more frequent scheduled services for flyers
Expand services to secondary hubs in North America & Asia
OASIS HONG KONG: DO-OVER
Mission
Vision
To become the premier long-haul, low-cost airline based in
Hong Kong
To provide customer service with a sense of warmth, friendliness, and individual pride to its guests, while providing customers with exceptional value to destinations in North America and Europe.
The Oasis Model
“While Oasis did not position itself to be a low-cost carrier, competitive pricing was nevertheless one of its competitive advantages.”
Questions?
2007:
$430B industry after posting 11.3% year-over-year growth
2.1B total revenue passengers, 5.6% year-over-year growth
Since 2001, air fares have fallen 35%
"Hub-and-Spoke" - airline settles on a few major hubs as a foundation for passenger and cargo flights
Full transcript