Jet Airways India, Ltd. External Environment Analysis
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Jet Airways India, Ltd. External Environment Analysis 2/17/2012 [Type the company name]
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Abstract
The aim of this paper is to identify the factors affecting the external environment of Jet Airways
India, Ltd. The external environment analysis is divided into two sections. The first section
allows readers to understand the external environment affecting and organization. The second
section includes a review of the existing business plans and strategies of Jet Airways. Charts and
Figures pertinent to the study are presented in the Appendix.2
Company Profile
Jet Airways is the largest Indian airline based company in Mumbai, Maharashtra. The company
was founded by now Founder and Chairman, Naresh Goyal in April 1, 1992 and commenced
operation in May 5, 1993.
It operates on a slogan, “The Joy of Flying” capitalizing on achieving an average of 400 flights
daily on a total of 76 destinations –52 domestic destinations and 24 foreign destinations. To
cover all these flights, Jet Airways operates a total of 100 aircraft.
Under its wing as a subsidiary to Jet Airways India Ltd., Jet Lite was acquired in April of 2007.
It was positioned as an “all-economy, no-frills airline” with 19 Boeing 737 series of aircrafts.
The Let Lite flies to over 31 domestic destinations and 1 international destination with an
average daily operation of 110 flights daily.
1.1 External Environmental Factors Affecting An Organization
Competitive
Position
Economic Technology
JET
AIRWAYS
Political Social
Legal
Source: Author3 A company is influenced by many things especially those that concerns its competitive position in the market. Amongst this factors include technology. These include incorporating technological advancements in form of electronic ticketing, online booking and even checking-in online without having to fall in line for hours. Social factors on the other hand include customer satisfaction and privileges, legal factors also extends to political factors since it involve new policies and legislation adopted by the government concerning privatization, tariffs and taxes, and lastly, economic factors would involve recession and global economic crisis (Refer to Appendix A) (Johnson, G. & Scholes, K. 2005.) 1.2 Needs and Expectations of the Stakeholders of JET AIRWAYS The Board of Directors along with the management team of Jet Airways is responsible in bringing the strategic plan for the company through a consolidated periodic meeting. The mentioned earlier, the stakeholders are the customers, employees, suppliers and the government (Refer to Appendix B) (Mitchell, R.K., Agle, B.R. & Sonnenfeld, J.A., 1999). The customers expect convenience and quality service at an affordable cost (Refer to Appendix C.) Employees would naturally expect high salaries; benefits and a favorable working environment (Refer to Appendix B.) The government/regulators at one hand expect for the organization to follow the policies and legislature affecting their operation (Refer to Appendix B and D) (Pfeffer, 1994).
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1.3 External Environment of Aviation Industry
Social
Ethics Technological
Aviation
Industry
Legal Economic
Political Environmental
Source: Author
Steeple Analysis (Refer to Appendix E.)
To analyze the macro-environmental condition of the airline industry, factors that might play
a significant role in the in influencing the demand and supply level of the organization must
be considered (John, 2005).
The aviation industry has been affected by many political factors particularly the degree of
government intervention which affects companies entrant into the market. Legal factor
extends to policies concerning privatization of airline companies. Technology plays a crucial
role in establishing a strong brand name in this industry since the society positively responds
to new industry trends that makes their business efficient. Due to the escalating cost of fuel
brought about by the decrease in the available resource of this non-renewable material the
aviation industry takes active effort to promote environmental campaigns. The aviation
industry takes active involvement in social responsiveness through active campaigns and5
social civic causes. The need for an ethical committee assures the organization of following
with the ethical standards set by the aviation industry.
2.1 Tools for Analyzing the Effects of the Current Business Plan
Financial Analysis
The purpose of financial analysis is to give a concrete picture on the company’s position and
situation. Financial statements are used to provide the necessary information of the financial
position (Refer to Appendix F), profitability (Refer to Appendix G) and the operating
investing and financing activities (Refer to Appendix H) of a company.
BGC Matrix (Refer to Appendix I)
Jet Airways indicates a negative growth in the BCG Matrix. Amongst its competition, Jet
Airways owns a lesser market share. It is therefore recommended that Jet follows the strategy
proposed for each category.
Star Strategy: Making clever investments for future growth
Question Mark Strategy: Invest heavily to increase market share
Dog Strategy: Ensure cash flow
Cow Cash Strategy: Secure growth through other forms like investing profit on other
areas that would support own security (Stern, 1998).
2.2 Review of the organization’s position in the current market6 Porter’s Five Forces Porter’s five forces draw upon the industrial organization economics that determine the competitive intensity and attractiveness of Jet Airways. In this case attractiveness is taken in the context of an overall industrial profitability. (Refer to Appendix J). Jet Airways belongs to the wide range of intense industries like hotel and textile industries. This means that almost no company earns attractive return on investment. Today, the global airline industry consists of over 2000 airlines operating more than 23,000 aircraft, providing service to over 3700 airports (IATA, 2011). Base on relative market share, Jet Airways accounts for 0.936% in the whole world. In India alone, the major rival of Jet is Kingfisher, let alone the other local and international airlines operating in India. Competitors Nationally, Kingfisher is Jet’s major competitor. It is India’s premier private airline company second only to Kingfisher which is the largest in India accounting to 84,000 passengers. Other competitors come in form of the low cost carriers like Air Deccan, Go Air, Spice Jet, Indigo and Paramount.
7 2.3 The competitive strengths and weaknesses of an organization’s current business strategy SWOT ANALYSIS (Refer to Appendix K) Jet Airways management team is built of tycoons and professionals with substantial local and international experience in the airline and other airline related industries. The powerhouse team builds a phenomenal and well-developed network. Jet benefits from the chairman’s knowledge of the sector. The massive pool of loyal customers secures the organization’s position in the airline and aviation industry. The organization’s ability to survive major economic downfall especially amidst global recession is considered of an excellent notch in the field of airline and airline related industry.
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References
Financial Statement for Jet Airways India, Ltd. (2012). Bloomberg BusinessWeek. Availableat
:. Retrieved in 1 February 2012.
Grimm, C. (2005) “Strategy as Action: Competitive Dynamics and Competitive Advantage.”
Carry, NC, USA: Oxford University Press. p. 235
Jet Airways: Fact Sheet. (January, 2012). Available at
http://www.jetairways.com/doc/JetAirways_FactSheet.pdf. Retrieved in 16 February
2012.
Johnson, G. and Scholes, K. (2005). “Exploring Corporate Strategy.” London: Prentice Hall. pp.
64, 236, 320
Krishnan, R. (2008). “The Indian Airline Industry in 2008.” Vol. 2. Indian Institute of
Management Bangalore. Available at:
Retrieved in 1 February, 2012.
Lynch, R. (2003). “Corporate Strategy.” 3rd Edition. Financial Times: Pearson Education.
Miesel, N. (2004). “Governance Culture and Development.” Paris: OECD Publishing.
Mitchell, R., Agle, B., and Sonnenfeld, J. (1999). “Who matters to the CEO? An Investigation of
Stockholders Attribute and Salience, Corporate Performance and CEO Values.”
Available at www.jstor.org/pss/256973Retrieved in 1 February, 2012.9
Pfeffer, J. (1994). “Managing with Power: Political Influence in Organization.” HBS Press. P.43-
58
Porter, M. E. (1980). “Competitive Strategy: Techniques in Analyzing Industries and
Competitors.” New York: Free Press, p.233
Robert, M. (1999). “Power of Strategic Thinking: Lock in Markets, Lock out Competitors.”
Blacklink, OH, USA: McGraw-Hill Companies. pp. 178-193.
Stern, C. and Stalk, G. (1998). “Perspective on Strategy.” Wiley.10
Appendix A
A. External Factors
Competition
The primary factor that affects a business depends on how competitive it is to go against
other product/services catering to the same group of customers.
Other factors that affect the business are:
Social – the changes in the structure of the society that requires the services of the industry
i.e. businessmen, youth and families. For example, leisure had become more global in
perspective. Families and peers began the concept of bonding through local and international
tourism.
Legal – the way that the government has taken active participation in formulating legislation
that directly intervene with the affairs of businesses. Laws, policies and regulation affecting
privatization, infrastructure and importation of key components needed for operation affect
the company’s decision and plans.
Economic – in particular, how recession affects a business in terms of spending, tariff,
interest rates, demand and supply.11
Technological – how technological advancement and modernization affects a business
relative to the pace of development.
B.
Stakeholders/Group Power/Interest Expectation
Customer Medium/High - Customers would
naturally prefer to travel
using the available low
cost players thus pushing
full-service carriers to
lower down their prices
thus cutting profit by
nearly two-thirds.
- Jet Airways offer diverse
perks and incentives that
customers find beneficial
like the Frequent Flyer
Program.
- Jet also introduces many
innovations like the
online check-in kiosk,
and e-ticketing.12
Employee Low/Low - Jet has a total of 13,180
employees under its
payroll.
- However, Jet needs to
improve its people-
management skills. The
low value and
consideration given
employees sometimes
equate to restlessness and
lack of motivation.
Regulators/Government High/medium - Jet Airways considers the
government or the
regulators as the key
players in making a
decision since this sector
imposes many policies
concerning the aviation
industry.
- The government’s policy
on privatization greatly
affects the entry of new
businesses that lessens13
the stiffness of
competition.
C.
Jet prioritizes customer satisfaction. To further strengthen their massive pool of loyal
customers Jett was the first to offer 30 countries with a specifically designed website with
multilingual sites. The first e-ticketing system to also be introduced in India to facilitate
easier transaction was initiated by Jet Airways. Also a first in Indian Aviation is the Kiosk
Check-in delivered by the same airline company.
Jet Airways hub based in Brussels serves as the “natural gateway to Europe and Africa.” This
hub facilitates a fast and easy connection to customers. Strategically placing one of its hubs
in Brussels allows Jet Airways to connect its customers to New York and Toronto on a daily
basis from Delhi to 51 other destinations in India.
D.
This Stakeholder mapping helps identify the priorities of the organization as well as the
significant sector that influence their decision. In this case the Jet Airways considers the
government or the regulators as the key players in making a decision since this sector
imposes many policies concerning the aviation industry.
The aviation industry had been controlled by the government, interfering with almost all
major decisions. Eventually this resulted to the bankruptcy of the Indian Airlines. This paved
the way for more private companies venturing and investing in the industry to salvage what
is left from it.14
The government again had to step in and interfere through a policy that forbids equity
investment by foreign airlines in domestic carrier through foreign investment. This was
initiated as a reaction to the proposed entry of the joint venture between TATAS and
SINGAPORE AIRLINE in the domestic airline business. Another significant action initiated
by India’s government was the policy that forbids the creation of airports within 150 km
proximity to another airport. This puts additional pressure on the lack of infrastructure and
heightened traffic in many airports in India, thereby affecting the growth of the aviation
industry
E. STEEPLE ANALYSIS
Risk/Issue Strategic Level of Action
Social The significant time advantage of air travel compare
to other means of travelling help in stabilizing the
performance of domestic carriers particularly for
business people.
The growing diversity of the purpose for the use of
air travel has changed. Previously, the society had
been utilizing this medium for the purpose of
business.
Today, air travel has been a popular form of
transportation even for the purpose of leisure and
entertainment.
Technology The significant contribution of technological15
advancement in creating innovation as well as a
brand name for many businesses could not be
compromised.
Innovations led by technology made transaction
efficient.
Environmental The decline in the availability of the non-renewable
resource (fuel) that powers aircrafts greatly affects
many organizations.
In addition, the threat on security brought about by
terroristic activities damage many businesses.
Significant travel restrictions brought about by civic
conflicts in many countries restrict business
operation.
Economic In 2008, the increase in the price of the Aviation
Turbine Fuel hurt the airline industry. Airline losses
in 2007-08 were up to a record of Rs. 40 billion.
Political Aviation industry flourished from many privatization
steps taken by governments.
The political climate in many countries affects the
aviation industry. When travel restrictions are place
on countries, profit is greatly affected thereby
causing a decline in business growth.16
Legal Airlines around the world are experiencing a growing
wave of liberalization if not out-and-out deregulation.
As a result, the aviation industry facing competitive
demands, both from new entrant low-cost airlines and
re-structured service carriers
Ethical Ethical issues have been a concern in the airline
industry. The lack of a unifying body that creates
benchmarks and standard for operation to handle
disputes and untoward incidents may hamper the
growth of the industry.
F. Balance Sheet of Jet Airways (2008-2011)
Statement of Assets and Liabilities
This company's management employs a level of debt in the capital structure that appears to
be in-line with industry norms. However, there are not enough liquid assets to satisfy current
obligations. Accounts Receivable is typical for the industry, with 23.90 days worth of sales
outstanding. Last, Jet Airways (India) Ltd. is among the most efficient in its industry at
managing inventories, with only 25.75 days of its Cost of Goods Sold tied up in inventory.17 G. Profitability of Jet Airways
18 Income Statement Jet Airways Ltd. has been able to sustain revenue growth from 120.3B to 145.2B. In addition, the company has been able to trim down the percentage of sales committed to the cost of goods sold from 74.71% to 74.31%. The endurance of Jet Airways amidst the recent global crisis and trouble in the aviation industry was credited to its excellent financial planning. It can also be addressed to expertise provided by airline industry experts in the management and strategic planning process. The company’s alliance with foreign airlines forge interlines planning with many of the world’s leading airlines. H. Operating, Investing and Financial Activity The merger of Jet Lite and Jet Konnect into a single brand name was in compliance with the program initiated by the government to further strengthen the domestic aviation industry.
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Jet Airways (India) Ltd along with Godrej Properties Limited is seeking equity investment to
develop the land of its joint venture project. The land is in the Bandra-Kurla Complex,
Mumbai.
I. BCG Matrix
JET AIRWAYS
The over-all average market growth of passenger flights was recorded at -6.8% while the
average growth of passenger flights of Jet Airways was recorded at -3.08%. Given this
figure, the organization fell under the Question Mark Quadrant (second quadrant) in the BCG
Matrix.
On several occasions, a company might come up with an innovative product which
immediately gains good growth rate. However the market share of such a product is
unknown. In the case of Jet Airways, the added features and constant upgrade in the services
through technological innovations would result to gains in growth rate. However, as new
entry products with high growth rate, the growth rate needs to be capitalized to be liquidated
to a high market share products. New Customer acquisition strategies are the best strategies
for converting Question marks to Stars or Cash cows. Furthermore, frequent market research
would aid in determining consumer psychology.
J. Porter’s Five Forces20
The Porter’s five forces analysis addresses the factors from outside the airline industry
that may affect the level of competition within the organization.
Threat to New
Supplier Power Entrants
- Government Policies
- Suppliers of Fuel used on Privatization
for Aircrafts - The presence of
Economies of Scales
Buyer Power
(Channel and End
Threat of Substitutes Consumer)
- International Airline - availability of
companies from US, Degree of substitutes
Europe and Asia Rivalry of Jet
Airways - presence of
alternatives
-presence of
international and
domestic airline
companies
Threat for New Entrants
Jet Airways along with all other local carriers in India is being protected by government policies
concerning privatization. The Government limits competition with the privatization act
suggesting that only Indian nationals and existing airline companies can acquire a certain
percentage of airlines to operate in India.
Power of Supplier
In 2008, the increase in the price of the Aviation Turbine Fuel hurt the airline industry. Airline
losses in 2007-08 were up to a record of Rs. 40 billion. To compensate for the increase, airline
companies like Jet Airways had no other alternative but pass down the additional cost to
consumers by increasing the fuel surcharge being paid by the flyers.
Power of Buyers would address the channels used by consumers. In this case, Jet Airways has
been able to use the technological breakthrough of using the internet as a powerful medium for
making payments through e-commerce.
Availability of Substitutes comes in forms of the competition from the US, Europe and Asia. The
airline industry is a broad industry with many players. Competition is fierce given that the
competitors are from a global perspective. Let alone, many low cost carriers are putting pressure21 on full-service carriers thereby dictating the price for the services being provided. Despite many innovations being done by organization to lessen the competition, the major factor that affects customer’s decision still relies heavily on the price of the commodity given the availability of a vast number of suppliers. K. SWOT Analysis Strength Jet Airways management team is built of tycoons and professionals with substantial local and international experience in the airline and other airline related industries. The powerhouse team builds a phenomenal and well-developed network. Jet benefits from the chairman’s knowledge of the sector. The massive pool of loyal customers secures the organization’s position in the airline and aviation industry. The organization’s ability to survive major economic downfall especially amidst global recession is considered of an excellent notch in the field of airline and airline related industry. The organization’s strength also relies on the exceptional research and marketing strategies employed by Jet in analyzing what the customers would value in a service. Weakness The inability of Jet to forsee the adverse effects of it decision and investment may upset the company’s growth. In relation to the problems from the messy buyout of Air Sahara to simply outsmart Kingfisher from acquiring it damages the company. The outlandish offer of the company of Rs 23 billion was too much for the airline. Another weakness of the organization was the lack of concern that it have for its people. Jet Airways centers everything to the founder. Without the founder the company will fall. In addition, the organization has very high disregard for its employee and consider them as dispensable. Opportunities With the civil aviation ministry opening international routes to private carriers, Jet can take advantage of this as a natural extension.
22 The strong brand name that Jet Airways has created for itself enables them to enjoy the thrust given by international lending companies. This even enables Jet to pass the adverse inquiry of lenders. Threat The centralized style of management leads to loss of valuable resource for the company. In fact this is the reason why many middle and senior management level executives of Jet Airways left the organization. Another threat in business operation is the increasing price of fuel that would generally and greatly affect operation. Likewise, travel restrictions imposed on many international destinations also affects operation by decreasing revenue for the organization.
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