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ASSIGNMENT 1

Introduction.
VietJet Air is a company which is the first private low cost airline in Vietnam and
being granted its initial approval to operate by the Vietnamese Minister of Finance in
November 2007. The airline was approved by Vietnam's Minister of Finance in
November 2007 and became the fourth fourth airline of Vietnam after Vietnam
Airlines, Jetstar Pacific and Vietnam Aviation Service Company (VASCO).

I. Identify the strategic context of the company.


1. Mission.
VietJet missions are:
First, expanding and developing a wide range of flight routes, bringing more and
more flying opportunities for all residents and visitors.

Second, delivering breakthroughs in aviation services on e-commerce platforms.

Third, making air transport becomes a popular means of transportation in Vietnam


and internationally for all people.

Finally, bringing joy, satisfaction to customers with outstanding service and friendly
smiles

2. Vision.
VietJet’s vision is to become a multinational airline corporation with wide network in
regions and the world, develop not only aviation services but also goods on the basis
of e-commerce. And also become the brand that customers love and trust.

3. Value.
VietJet develops its brand based on four core values: Safety – Fun and Friendly -
Affordable price - Punctuality. Commented [1]: Explain the role of business strategy
to obtain business objectives and goals in general and
by giving example(s).

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II. Macro environmental audit.
PESTEL analysis, stand for political, economic, socio-cultural and technological,
legal and environmental, is a framework or tool used by marketers to analyse and
monitor factors in external marketing environment that have influence on the
organisation.

1. Political.
Political factor have some negative influences with Vietnam’s aviation industry in
general and VietJet in particular. In recent years, Vietnam has been implementing
economic reforms in order to promote internal forces of all economic sectors, boost
equitization, and continue to innovate comprehensively the field of law and financial.
Vietnam continues to strengthen multilateral and bilateral relations for international
integration. The government also encourages the development of tourism, moving
from exploring tourism to building a real tourism industry, considering tourism as a
key economic sector.

However, in reality, the problem of bureaucratic state officials, corruption is still a lot
of limitations, shortcomings. This is interrupting, slowing down the development of
private businesses in Vietnam. With ineffective, complex in working, blindly obey and
abuse the organizational power of the bureaucracy, bring the difficult barriers for
private enterprises. Typically, regarding barriers in administrative procedures,
inconsistencies between laws: Investment, Environmental Protection, Land,
Construction; Ineffective in inter-settlement procedures for investment, land,
registration of businesses; the state of many agencies together manage a problem,
causing difficulties for businesses; Inadequacies in the guidance on tax procedures,
customs ... are the dominant barriers.

Besides, administrative procedures focus primarily on the cumbersome and


complexity of the regulatory system, the papers, the sense and responsibility of the
direct enforcement. Besides, businesses also have to pay informal payments for
administrative procedures.

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Many businesses are annoyed with tax and customs administrative procedures,
attitudes, sense of responsibility and capacity of officials and public employees in the
implementation of legal regulations, policies and administrative procedures are not
high and slow. This causes unforeseen financial losses for enterprises.

2. Economic.
Foreign direct investment (FDI) will grow at 5-7% per annum and foreign tourist
arrivals in Vietnam will grow at 10-12% per year (CAPA, 2017). The economic
structure and labor are moving rapidly towards industrialization and modernization.
Rate stability, prices of goods, services and inflation are expected to continue to be
controlled, abundant labor resources and low labor costs compared to other
countries in the region. Vietnam continues to be considered a safe destination for the
region and the world. All these influences create favorable conditions for Vietjet to
have the opportunity to grow not only in economy but also in terms of branding to the
global.

Vietnam's domestic traffic growth has slowed down less than 10% in 2017, after four
consecutive years of double-digit increases (CAPA, 2017). Vietnam's domestic
market was one of the fastest in growing domestic markets in the world from 2012 to
2016, but is expected to grow at a modest rate of between 10% and 15% annually in
the coming years.

Fuel cost accounts for the largest share of VietJet's total cost. It depends on a lot of
factors such as economics, politics around the world. Recently, world fuel prices
have increased and remain high. This greatly affect the cost of air transport.

3. Social.
Vietnam is located in the Asia-Pacific region, the region with the largest population,
strong economic potential and especially the area with dynamic economic activities
and development. In addition, with the advantage of being located on the east-west
and north-south transportation axes, which are the most important and most
important transportation routes in the world, Vietnam has great transportation
potential.

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With an average population growth rate of 2016-2020 at 1.3% per year, it is
expected that Vietnam's population will reach 100 million by 2020, distributed in the
Red River Delta, the Central Coast and the Southern Delta. Rapid urbanization
across the territory with three large centers of Hanoi, Da Nang and Ho Chi Minh City,
and economic growth of these centers average about 15% per year. This is a great
potential for the development of air traffic between these centers and regions
throughout the country as well as with major regional and global economic.

4. Technological.
In recent years, aircraft manufacturers have introduced new generations of aircraft
with better economic and technical indicators for passengers and riders.
Manufacturers are constantly improving on the fuselage structure, engine, etc, for
better commercial, technical and commercial parameters such as longer range,
better lift, fuel saving.

At present, in Bien Hoa industrial zone there are some 100% foreign invested
companies producing some parts of aircraft such as sensors, small capacity motors,
Components are manufactured at Airbus and Boeing (modern airliners).

The aviation information network is quite modern, meeting the current demand for
aviation information. The air navigation network includes 49 VOR / DME, NDB and
ILS routing stations ensuring coverage on all routes. The aviation surveillance radar
system consists of nine radar stations that are unified to ensure the coverage of
almost all two air traffic management areas managed by Vietnam.

5. Legal.
The State has implemented a reasonable policy of protecting domestic airlines by
allowing only domestic airlines to operate on the domestic market, while the
international market is implementing a regulatory policy that guarantees The ratio of
actual supply capacity between Vietnam and foreign airlines on the principle of
commercial exchange. This policy has ensured that Vietnamese airlines have the
opportunity to participate in the international market, which is competitive even
though the majority of foreign airlines have greater potential.

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Ministry of Transport and Communications carried out the planning of the airport
system according to the schedule approved, contributing to the long-term, balanced
and consistent development orientation of the Government, meeting the demand
Socio-economic development of the whole country in general and each region and
locality in particular.

6. Environmental.
Like other economic sectors, civil aviation activities also create specific
environmental pollution. It is the pollution of air, noise, waste water, waste ... Report
on aviation environment management from the Vietnam Aviation Administration said
that the source of pollution mainly concentrated in airports with frequencies High
flying and many auxiliary services.

III. Industry/sector audit.


1. Potential new entrants.
The threat of new entrants refers to the possibility of new competitors entering the
industry and raises the level of competition, thereby reducing its attractiveness. It
seems that the entry threats in airlines industry are low because the pool of entry
candidates is small and industry members will strongly contest the efforts of new
entrants to gain a market foothold. Commented [2]: https://docslide.net/documents/five-
competitive-forces.html

2. Substitutes.
The availability and threat of substitutes refers to the likelihood that companies in
one industry come under competitive pressure from the actions of
companies in a closely adjoining industry whenever buyers view the
products of the two industries as good substitute. Substitutes for air travel
include travelling by train, bus or car to the desired destination. The degree of this
threat depends on various factors such as money, convenience, time and personal
preference of travellers.

In Vietnam, the need of traveling is increasing rapidly because of it convenience and


time savings, more and more people choose air travel instead of other transportation

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if they have to travel a long distance. Therefore, the degree of threats of
substitutes can be consideration as low.

3. Suppliers.
Factors relating to the bargaining power of suppliers include the threat of forward
integration and the concentration of suppliers in the industry. Suppliers for
aviation industry ranging from aircraft makers, fuel corporation, flight academy which
provides pilots, flight attendances, etc to a catering company.

The threats of supplier in Vietnam aviation industry high. Airline companies is


dominated by Boeing and Airbus in buying aircraft. The concentration supplier is
undermines the ability of airlines to exercise control over suppliers. Besides, the
monopoly of Vietnam Aviation Petroleum Corporation-Vinapco pushes domestic
companies into a dilemma which is they have no option but to choose Vinapco as
their fuel suppliers.

4. Buyers.
Buyer power is determined by switching costs, the relative volume of purchases,
the standardization of the product, elasticity of demand, brand identity, and quality of
service. Because of the Internet, pricing information is less fragmented and easier to
compare. Often, a traveler can find price discrepancies for the same exact flights.
Airline travel is not cheap, and can be the most expensive part of a family vacation.
Hence, for some buyers, price sensitive and search for the best deals available,
demand is very elastic.

Nonetheless In Vietnam airline industry, bargaining powers of buyers low. Being


limited in options especially for long distance, infrequently in purchase item and
monopoly in providing core product have decreased the bargaining power of buyers
in airline market.

5. Rivalry.
Competitive rivalry describes the intensity of competition between firms in an
industry. Since carriers are involved in a constant struggle to take away the market

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share from each other, industry growth is average and as it is easy for buyers to
switch between the airlines companies, depending on price, the rivalry is increased.

Rivalry is high in Vietnam airline industry due to high fixed costs. The airlines are
continually competing against each other in terms of prices,technology, in-flight
entertainment, customer services and many more areas. With different strategies,
rivalry force of Vietnam domestic airlines industry is very strong, which
requires carriers to have strong competitive advantages to win the game.

IV. Specific stakeholder analysis.


Nguyen Thi Phuong Thao, born in 1970 in Hanoi, is a businesswoman and billionaire
currently in the position of general manager of VietJet Air, Standing Vice Chairman
of the Board of Directors of HDBank. She own two companies which are Sunny
Sunflower Investment Limited Company and Sovico Holding. Her companies and
herself, as the CEO of Vietjet, are the are the three largest shareholders with 44,92%
Vietjet's share value.

She has a confident thought in doing business that is "just dealing great business"
and is it has worked. When she just 21 years old, due to the business of natural
rubber, fax machines, office machines and electronics, she owned 1 million US
dollars.

With the management and administration of Mrs. Thao, she contributed and created
certain successes for Vietjet. For example, due to her financial contribution, Vietjet
signed a contract to buy 100 Boeing 737 aircraft.

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Figure 1. Stakeholder map of Vietjet.

Apart from CEO of Vietjet, there are some stakeholders that have some impact on
Vietjet. They are board of directors and management. They have a great contribution
to the company as well as a key component of the company, together they come up
with strategies and decisions to help the company achieve its objectives.

In addition, the government and some suppliers have a great influence on Vietjet
even though their interest in the company is low. The government plays a major role
in regulating the macro economy through its economic, financial, monetary and
spending policies. In order to take advantage of opportunities, reduce the risk,
businesses must grasp the views, regulations, prioritize government spending
programs and also establish a good relationship, even can make lobbying when
necessary to create a favorable environment for business operations.

About suppliers, as analyzed above Boeing and Airbus are dominating the airline
companies in Vietnam including Vietjet. Their decisions can make a great impact on
Vietjet business. As aircraft suppliers, Vietjet is also dominated by Vinapco due do its
monopoly in Vietnam.

Shareholders, departments, affiliates and subsidiaries are considered as


stakeholders that want to be informed and involved in the project, but just don't have
the power to be a top priority. They have a certain contribution to the company but

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the level of interest of the company for them is just to provide as much information
and guidance as the company can about the project.

Customers and competitors are two stakeholders that have low interest and power
toward Vietjet. Buyers are partly dominated by the airline companies in general
including Vietjet. Most of them don't purchase frequently and provide exclusively as
well as the limitation in options of long distances flights. They should be provide
enough information such as sales and incentives. About competitors, competitors of
Vietjet including Vietnam Airline, Bamboo Airline, Jetstar Airline, etc. Their actions
may have impact on Vietjet so company only need to keep an eye on them when it is
necessary.

V. OT analysis.
1. Opportunities.
With the high need of air travel, Vietjet will have chance to raise the market share
and brand awareness, especially in domestic market. With the proper marketing and
great promotions, Vietjet can gain customers credibility, both loyal customers and
new ones, when purchasing and using Vietjet service.

VietJet plans to expand its routes to big cities in developed countries such as
Russia, Japan, USA, Australia, etc. Many new routes opened for the first time,
increasing the frequency on existing routes as well as creating more jobs in the
region. The most significant is the strong development of the Chinese, Korean,
Japanese, Vietnamese and Indian aviation markets.

Although the level of competition in the aviation industry is high, Vietjet has the
highest market share and brand awareness, they have great opportunities to win in
the competition with other airlines. Therefore, it is easier for Vietjet to maintain strong
brand policy to build credibility with customers, partners as well as promote
sustainable values for businesses, as well as developing products and services on e-
commerce platform to increase the benefits, shopping opportunities for customers as
well as economic benefits for businesses.

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2. Threats.
Currently, in addition to Vietnam Airlines, Jetstar Pacific, VietJet also have new
competitors such as VietStar, AirAsia and Lion (CAPA ,2017). AirAsia and Lion are
both strong rivals in the Southeast Asian market, they have large scale and they can
put a lot of resources into a new venture.

Tan Son Nhat Airport (Ho Chi Minh City) is operating in excess of designed capacity.
Runways and parking lots at the airport are currently very limited, especially during
rush hour. This has a lot of influence on the growth of VietJet.

VietJet is currently having a challenge as they place too many aircraft in a short time
(CAPA ,2017). Vietjet will have difficulty reaching the number of 200 aircraft it has
ordered, due to infrastructure constraints and slower-than-expected growth in its
domestic market. Moreover, the Vietnamese market is not capable of holding more
than 100 aircraft.

Reference. Commented [3]: Vietjet Air, 2017, “Annual report”,


viewed 15 January 2019,
CAPA 2017, ‘Vietnam domestic market: growth slows as Vietnam Airlines regains <https://ir.vietjetair.com/File_Upload/financial-
information/annual-reports-root/annual-
market share from VietJet Air’, Centre For Aviation, viewed 15 January 2019, reports/AR%20VJA%202017%20-%20ENG%20-
%20UP%202206%20(2).pdf>
<https://centreforaviation.com/insights/analysis/vietnam-domestic-market-growth-
slows-as-vietnam-airlines-regains-market-share-from-vietjet-air-383417>

CAPA 2017, ‘VietJet Air SWOT: rapid success and growth in booming Vietnam, but
future challenges’, Centre For Aviation, viewed 15 January 2019,
<https://centreforaviation.com/insights/analysis/vietjet-air-pre-ipo-swot-rapid-
success-and-growth-in-booming-vietnam-but-future-challenges-324179>

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