Analysis of Nepal Airlines
Nepal Airlines, national flag carrier of Nepal, was established in 1st July 1958 to provide the domestic and international operations in Nepal. Formerly known as Royal Nepal Airlines, the airline serve domestically and internationally in the Far East Asian countries. Due to the unstable government, the airline is struggling in both domestic and international market. It has lose its market share and facing fierce competition from other Asian Airline companies like Air India, Etihad, Jet Airways, Qatar Airways etc.
Operating with only 2 aircrafts, the Airline become famous in the 1990 and then significantly got worse after the death of the late king Birendra in 2001. The political system is corrupted and unstable leading to the mess within the Nepal Airline Corporation.
Although the Airline has added 2 new international carrier, it still has to buy more to increase the market share. There is a high demand of aircraft in Nepal as more Nepali workers are emigrating daily in the Arabian labour market. There is high potential for Nepal Airlines if the government is stable, more safety checks operated and more planes added in the future.
Nepal Airlines, once renowned as ‘Royal Nepal Airlines’ is the national carrier of Nepal. Established in 1 July 1958, Nepal Airlines Corporation (NAC) has been representing Nepal through domestically and internationally (Nepal Airlines, 2015). The ‘Royal’ was used in the airline as a tribute to the Royal family serving as the head of the kingdom Nepal. During the 1950’s Indian Airlines used to connect Nepal with Indian cities. After the slow increase of International visitors especially Ghurkhas, British officers and Royal family and friends, Nepal needed a civil aviation industry to serve domestically and internationally. Royal Nepal Airlines started its operation in 1958 domestically with one DC-3 plane while its international operation only started from 1960 with a fleet of Douglas DC-3 Plane (Nepal Airlines, 2015). After 1972 Royal Nepal Airlines Corporation extended its operation with Boeing 757s replacing the old 727s. Although the Aviation industry and Corporation in Nepal has gone through various critical stages with hook and crook but the demand for the market is very high. Nepal Airlines Corporation (NAC) is currently operating Far East Asia regions and domestically 25 cities
Current situation of Nepal Airlines
Although NAC is still operating its activities internationally and domestically but its progress has been negative. It has less planes then it used to have before. The corporation itself is disorganised and corrupted. The political system is volatile as there is no safe environment for airline operation. As the demand is soaring for migrant workers the NAC itself cannot commit to buy planes to enlarge the service. Its failure to provide quality service and time to grounding of planes is another problem the industry is facing. There is no transparency in the organisation and all operation activity is hugely corrupted. The government is unstable and the industry is in complete mess. The market demand is very high but the government cannot afford to buy any more planes because of its loss throughout the years, poor runway and increased competition.
Analysis of Nepal Airlines
Nepal Airlines is the national flag carrier of Nepal. It has its own market domestically and internationally however it is not performing its operation as it should be doing. The political system is the major reason of the downfall of the Airline. It has its own problem inside within the Organisation and people working inside.
A SWOT analysis always determines the major strengths and weakness of the company. An airline might have various challenges and opportunities too. For a competitive market in Nepal, Nepal Airlines has to know its own position and strategy to challenge and remain competitive in the market. SWOT can be vital in making strategic decisions by generating strategic options and future course of action (Johnson et.al, 2008). This also allows the manager or the Board to form new strategy using various tools and techniques. By exploring the internal and external environment it can be successful in reaching its goals and objectives.
Nepal Airline is a national flag carrier of Nepal so it has the strong backing of Nepal Government. It has both domestic and international operation. More Nepali workers are emigrant to Arab countries so Nepal Airlines can serve as a good communication during the journey. The Airline itself has a strong brand representing Nepal.
Weakness are the major factor for any industry. For a struggling airline like Nepal Airline, weakness can be very expensive and dangerous. The main weakness for Nepal Airlines is the political system of Nepal. Unstable government and not enough investment is the main reason the airline is struggling. Technical and mechanical issues are also costing the airline and time to time it has to ground planes due to faulty parts, mechanical fault and not enough engineering checks. Although the airline is serving both internally and internationally but the current number of planes is not enough. Domestic rivals like Sita Air, Tara Air, and Buddha Air has more planes then Nepal Airlines. The Airlines has poor communication system in its operation and time to time the passengers are being overcharged or delayed in flights.4
Opportunities are great occasion in expanding the business and increase the market share. Nepal is also a growing aviation market. More than 20 international flights take place every day in different countries. Most passengers are Nepali workers immigrating to Arabian countries for work. There has been high demand of tickets and flights every day. Nepal Airlines has good opportunity to add more planes and increase the market share. The income level of Nepali people is rising so people can afford travelling through planes. The number of European foreigners visiting Nepal is rising so Nepal Airlines can connect European cities and attract new customers. It also has opportunities to link up with other major Asian Airline companies to increase the profit.
Although Nepal Airlines is a national carrier of Nepal but it also has its threats. Due to poor safety conditions of Aviation in Nepal, Nepal Airlines has been banned by the European Aviation Authority (Europa, 2014). Nepal airlines also face difficulty in maintaining its balance of books due to more operational costs and staff costs. Unstable government is a major threat for Nepal Airlines as new government is not compatible and changes are more likely. New increase in the domestic market is also a major threat as Nepal Airlines do not have enough planes to connect cities inside Nepal.
Macro Environment and PESTEL Analysis
Every organisation survives in its business environment. Any change in the macro-environment factors will lead to the change in the strategy and techniques. In an unstable country like Nepal, Nepal airline can face serious difficulties. The political environment can be unfavourable to the strategy and needed to be change according to the government. PESTEL can be used to identify the possible future trends in the political, socio-cultural, environmental, legal and technological environments and suggest Nepal Airlines to identify key strategic drivers of change. Normally business environment operates as the following diagram (Johnson et.al, 2008).
The change in the business environment can be very fatal to Nepal Airlines. The political situation is not stable which brings uncertainty in the airline industry. Poor government management and corruption within the organisation can affect the airline’s policy and operation. Although the economy of Nepal is constant but the average income is rising so Airline can have good opportunity in the future but fuel price is rising which can be costly to the passengers. Proper security checks at the major airport and lack of modern technology at airport can be a major problem. There is growing demand of another international airport in Nepal which can be good news for Nepal Airlines which it can plan to extend its operation. Nepal airlines face serious challenge as Nepal government do not give priority for the national carrier and international airlines are attracted. Although Nepal government encourages domestic market by cutting tax but there has been no change in airline law for long time as Nepal Government shows no interest in change. As more and more people are working in Arabian countries Nepal Government is facing difficulty in buying planes. Time to time it has to ask for foreign aid and sponsors. The aviation industry itself has been criticised for poor safety records and blacklisted in EU. Although the geographical location of Nepal does not suit for safe airports but the safety checks at planes is not carried out time and time.
Value chain Analysis
Value chain Analysis explains the level of activities done at different levels to make a product (Porter, 1980). As any business organisation, an airline industry also has various activities. Nepal airlines also operates its level of activities. By using single fleet of planes it has reduce its costs. The model of porter value chain analysis is shown below:
Inbound logistics: Goods received from suppliers are inbound logistics. In Nepal Airlines collection of accurate information from its suppliers. Maintaining enough stocks of goods is also primary activities.
Operations: In an airline industry the major operation is to provide service. Day to day running of the flights, offering customers check-in services, managing ticket booking, customer services are series of operations.
Outbound activities: Outbound activities is all about warehousing and distribution and sending ready products to customers. Nepal airlines provides excellent customer service, hotel reservation and baggage service.
Sales and marketing: Nepal airlines do series of marketing. TV ads and newspaper are some examples of it. It also sponsor some charities and educational programmes as marketing. Time to time it offers promotion to regular customers and student discounts (Nepal Airlines, 2015).
Service: Nepal airlines provides different services to its customers. It offers excellent customer service, online checking services, and alternate flight services if cancelled.
Firm infrastructure: It supports the general structure of an organisation, its culture and control systems. It has high expert people in control management and has effective communication.
Human resource management: Nepal airlines recruits local and expert personnel to reduce the operational costs. It also train staffs, pilots and all employees and develop their career (Nepal Airlines, 2015).
Technology Development: Nepal Airlines do not invest in R&D and do not have updated control systems. It has to invest more in updating new technology and do more mechanical checks in the planes.
Porter’s five forces
Porter’s five forces is to find in an industry where an industry can defend itself against various competitive forces or it can influence them in its favour (Porter, 1985). Michael Porter successful explain this theory to find out the various factors that can influence the business position in the market and how can company influence its strategy and operations in competitive environment. As the demand for airline industry is high, major Asian airline is competing heavily with the Nepal Airlines to fulfil the demand. The five forces derived by Michael Porter is shown below (Porter, 1985).
Threat of New Entrants: New Airliners internationally are coming to Nepal market. Recently Turkish Airlines and Srilankan Airlines have joined. This increases the competition for Nepal Airlines. Turkish has already offered reduced ticket price to gain market share.
Rivalry within the Industry: There is growing demand for airline in Nepal. There has been already strong competition within the industry. Lack of more planes is major problem for Nepal Airlines to remain competitive.
Supplier power: There is high supplier power for the airline industry, which also includes Nepal Airlines. Only Boeing and Airbus are two safest airliners in this day which is expensive for Nepal to buy.
Consumer power: There is huge competition in Airline industry. Consumers have their own preference and option in buying the ticket. Online ticket price and too many choices is a major challenge for Nepal Airlines.
Threat of substitutes: Although there is no much substitute available for international flights, still India can be travelled with bus or train. Domestically consumers have choice of travelling via coach, bus or taxi.
Nepal Airlines Corporate Overview:
Nepal Airlines started its service from early 1950’s where mainly few foreigners had penetrated into Nepal. Later on Indian air companies started business purpose and connected Nepal with Indian cities. At the same time Royal Nepal Airlines (RNA) established its national flag carrier, company started to expand its service domestically and internationally. In 1958 the company started its business internationally which is to and from India. However, in early Nepal Airlines took over an international schedule and started its service. From that time to present, Nepal Airlines operates 4 international destinations like Bangkok, Hong Kong, south East countries like Kuala Lampur and Middle East Doha. Looking at airlines business, in Nepal, transport system is only one of the main factors that will develop country economically. A Nepal airline operates its services frequently inside the countries more then 25 destinations. So Airlines in Nepal is a strong vehicle for national integration and had provided to be a symbol of freedom movement, both within and outside the country. (Corporation, 2014)
Strategic choice of the company are identified, how an organisation position itself in realtion to competition in chooses market. They need to choose the product and market where company is going to perform. Strategic choice besically helpe company to asked question itself, WHERE TO COMPET AND HOW TO COMPETE. Should organisation very focused on just one market with few products or with range of products. This also helps organisation to analysed how are we going to pursured those strategic with in our organisation and how are we going to evaluate during its performance. Generally strategic choice described following thress areas;
Strategic Choice Modals:
Porter’s Generic Strategic Analysis:
Source: (Porter, 1985)
According to porter (1980, 1985), the scope of the market in which company would serve and how the company would compete in the selected markets are some of the basic choice faced by many companies. Having lower cost or the highest prices can leeds company in achieving higher profitability in the market competition. Competitive advantage can be achieve by differentiating their products and services from those of competitors and through low cost. Company like Nepal Airlines, can target their products by a broad target rather than focusing on a narrow target market. (Porter 1980). Looking at Nepal Airlines, the target market set by the company is middle east countries and asian countries. It shows that the company have to enlarge its service internationally inorder to compete in market and to make more profits. Having said that, going through this process Nepal Airlines must have well structured strategy that would leed company with a strong competitive position.
Looking at Generic Strategies; there are two way to compete in a chooosen market which their competitors, they are; Cost Base Leadership and Differentation. This strategy suggest that, company must have better quality of their product to charge higher price or lower the quality lower the price. Company cannot have lower quality products and higher price in a competative market. The board of directors must decide which one company is going through. Company like Nepal Airlines, it will be more difficult to the comapany going through Differentation strategy dut to more competitors in the market. They do not have enough capital to offere great service compare to othere airlines and also will be difficult to build uniquess into offerning. There for cost base leadershipe will be applicable to Nepal airlines.
Ansoff’s Strategic Development Directions:
According to Ansoff (1988) mentioned in Journal et al (2006, pg. 341) mentioned in his strategic development directions modal that, all organization have a choice when they are making strategic decisions. Companies can develop existing resources by ‘Protect/build’ or product development or they can enter into new market with market development or diversification. Nepal airlines mentioned in their (1982) annual report that, this company decided to utilized existing resources and develop their products which is known as market penetration. Which means, opening more airport with in a countries rather then increasing frequent services internationally. Because of not having enough resources like human resources, capital and enough flights to operate. They decided not to focus on international market. The second reason is there are own by government and have enough flight to operate nationally to compete with few private airlines.
However, this strategy do work really well but due to more competitors coming in and operating services from Tribhuvan International airport (Kathmandu), company start loosing its profit and its own market. In (2000) board member of Nepal airlines decided to used different strategy in order to compete with their competitors. They again follow Ansoff’s strategic which is product development. They buy more flights with luxuries features and operate their services more frequently in their existing market mostly middle east countries. Due to job opportunities, many citizens from Nepal are migrating there and those countries needs manpowered for country development. The revenue of Nepal is been increasing from last 15 years because of those people. Nepal Airlines, by keeping those points in mind they increased their service and motivated those people to use their flight by giving them discount and frequent service then other competitors.
The international strategy of any companies depends on organizational capabilities and external environment. The organizational capabilities emphasis’s on national and international source of advantages where as external environment highlights on internationalisation derivers. International choice model strategy mainly emphasis on what organisation tends to shape the selection of country markets and the modes of market entry. Company like Nepal airlines must identify which countries to compete in, how far are we modifying companies range of product or services and finally how to manage it across borders. Now days these questions are widely discussion in Nepal Airlines annual meeting and in Board meeting. Competitors like Etihad’s airways, Oman airways, Indian Airways, Qatar Airways and many more are entering into competition with greater products and services with diversify strategies. As an airlines company this company must think about different entry modes like joint venture, foreign direct investments and licensing. Which will obviously help to company by reducing threat of competitor’s retaliation. (Johnson, Scholes and Whittington, 2008)
However, as porter identified some of the concept from microeconmices and caterogised them in terms of five industry forces, or structural elements which would help company acheveing its aim and goals through profitability. Therefore Nepal Airlines have to think and analysed these elements before going through new market as well as implementing new strategy to compete in existing market.
Threat of having new comprtitors
The threat of substitutes
The bargaining power of buyers
The bargaining power of suppliers
The strategy of rivalry among competitors in the industry
(Lewis , et al. 1999)
International strategy Framework:
(Johnson, Scholes and Whittington, 2008)
International Drivers mainly explain about the pressures increasing internationalisation like barriers to international trade, investement and market selection. It is also mentioned by international regulation and different governance that investing and trading oversease is less risky. Having said that, in some countries migration is now becoming more difficult between two countries. It is because of culture, tradition, law and regulation and customer perference. Howevere so called muntinational company like North America and Westrn Europe are basically have a very limited set of international link. Nepal airlines must have cearful dignosis of the strength and direction of trends in particular markets. (Johnson, Scholes and Whittington 2008)
George Yip’s Drivers of Globalisation framework:
According to George Yip,s international strategy must be underpinned by a cearful diagnosis of the strength and direction of trends in aprticular market. His global strategy was applied by most of the international oraganisation. His drivres are apply to broader international strategies , allowed for more limited overseas operatios and looser coordination between them. Some of the Drivers of George Yip’s are described below;
- Market Drivers : there are three components that maily underlying in this driver. First, customer test and needs, company like Nepal airlines must understand what customer want and how they want. Is it about frequent service or its availiable destination. Second, global customers, shall we diversified our service internationally or locally. Thirdly, transferable marketing.
- Cost Drivers: cost can be reduced by operating internationally. Methods of cost drivers are; increaing products volume beyound what a national market might support can give scale economiies. This must be done by both side in purchasing of suppliers and productions. Country spefific differences and favourable logistic also helps in cost drivers.
- Government drivers: looking at Nepal airlines, was operated by nepal government. All board member will be nominated by govermnent itself. But having said that, there are verious factors like tariff barriers, ownership restriction, control over techonology , capital flow control, new rules and regulation and currency fluctulation which directly affect nepal airlines in its business.
- Competitive Drivers: The strategy made by one company must not affect the performance of whole airlines business. Factors like Interdependance between countries must be analysed in that process. For example stopping service from Kathmandu to India might affect to the Indian Airlines it is because flights are connected with each othere and strategy are made on the basis of its operation. Company must integrated worldwide strategy rather than simpler international strategies. (Johnson, Scholes and Whittington 2008)
Stratagic development process
For successful operations of Nepal Airline, it is essential for the company to design an appropriate organisational structure. This will help the managers or higher management in defining the roles and responsibilities of each individual. In this regards, there are five options available to the Airline, these are the functional structure, multi-divisional structure, matrix structure, and transnational structure and project structure. The functional structure is suitable for those companies, which have a narrow product range and are smaller in size. In this, the more focus is on the primary activities of the company. Thus, this is a suitable structure for Nepal Airlines. In case of a multi-divisional organizational structure, separate divisions are created on the basis of products, services or geographical areas. Large and complex multinational companies generally practice it. Thus, is it not useful for Nepal Airlines. Combining both the above stated structures give a matrix structure. In matrix structure, structures are combined on the basis of products, services, geographical locations or functions and divisions (Johnson, Scholes and Whittington, 2008). The company must not practice this, as this structure is hard to control. Transnational structure, structure is suitable for those companies, which operates globally and combines local responsiveness of the international subsidiary and thus is not suitable for Nepal Airlines. Finally, the project-based structure is suitable for only those companies or projects, which have a finite life span. In case of Nepal Airlines, the company will be in operations for a long run. Thus, functional structure is most suitable for the company as the company head will be in touch with all the departments and thus will simplify control.
Organizing for success
Nepal Airline can successfully operate on functional structure only when it practices correct organizational process. It will difficult for the company practice direct supervision, as this process is suitable for supervision of a single site. Thus, in case of Nepal Airlines, it is not suitable as the firm has multiple operating sites. It can also not practice planning process as in the planning process; a formula or budget is equally applied. However, the firm cannot apply same formula for to all its sites. Thus, the best process available to Nepal Airline is performance-targeting process. Different sites of the Airline Company vary in their performance. Thus, it can accordingly develop processes. For this purpose, the balanced scorecard is the best technique available for the management to gauge different qualitative and quantitative measures of different sites (Kaplan and Norton, 1992).
Once the company is done with designing and implementation of its organizational structure and process, it must focus on managing its resources. For this purpose, Nepal Airlines should practice resourcing strategies, such as managing people and managing technology. It has been said that human resource is the most important resource for any company. It is because, unlike other resources, human resource can influence the strategies of a company through both ways, that is, through competence and behaviour or culture. For managing its people, the first thing the firm should improve is its recruitment and selection procedure. Nepal Airlines must formulate a team of experienced HR managers to look after its recruitment and selection procedure. It must entertain only those applications, which have capabilities and meet its standards (Jarzabkowski and Spee, 2009). Apart from this, the company must provide frequent training and development activities for its employees to enhance their skills and competency. Finally, for organisation, leadership and workforce development and for the attainment of the objectives of the firm, Nepal Analines must perform a Gap Analysis and on the basis of that it should formulate its short term and long term people strategy. It will help the company to serve its flyers in a better manner.
Last, but not the least, managing technology is also of utmost importance for Nepal Airlines. In this regards, it must take help of Porter's Five Force Analysis Model. This model will help it in deciding what kind of technology will provide the company an edge over the others. For Airlines companies, such as Nepal Airlines, the main technology lies in its aircrafts. The company must maintain latest Boeing Aricrafts in its fleet so as to attract customers and to differentiate it from others. Although, initially the company will find this difficult, as it demands huge investment, but gradually it will reap benefits for Nepal Airline. Moreover, for less traffic areas, instead of flying its own flights, it should tie up with other partners. This will reduce its cost of operations and will expand its area of operations. Finally, it must switch its entire process from off-line to online to deliver better facilities to the customers (Porter, 2008). Through the online system, customers will not have to stand in queues as they can get their boarding pass through SMS or e-mail.
Managing Strategic change
For all business organizations, it is the leadership strategy that matters and not the CEO of the organization as CEO come and go, but leadership endures. Although CEO is a very important person in a company, research shows that business performance is driven by leadership strategy. Till date business world has seen many leaders that have transformed their companies and enhanced their performances. Operations and executions in an organization take place at supervisory level and mid level and it has nothing to do with the CEO of the company. When the employees of these levels are trained, coached and aligned properly, the business thrives. Companies which focus on high performance, understand this fact and conduct leadership development programs in order to select, support and train people to implement business strategies. This brings execution into the culture. In this series, UPS is the best example. The company has outperformed in its sector and this is because, it continually promotes a leadership culture in the organization. Another example of leadership can be seen at IBM. Lou Gerstner joined the company and brought revolution by switching it from a "seller of solid technology" to a "deliver of high value services". He built a team of new leaders and focused on creativity and innovation. Presently, Xerox is practicing this concept. This clearly shows that leadership always gets an edge over some of the top positions of the organization (Bersin, 2012).
Basic business operations take place at grass root level and thus; it is essential for the top management to push his leadership strategy down to middle managers, supervisors and middle managers. Researches have proved that leaders are developed from the bottom up fashion in an organisation. Thus, companies must work on the concept of ''inverse pyramid"; that is, all the workers are leaders and it is the responsibility of each individual to understand business, take decisions and achieve the aim and objectives of the company. Accenture also sensed the importance of leadership and have designed a "stewardship" program.
Another example of exceptional leadership quality can be seen in Clive Beddoes. Through his leadership skills, Clive Beddoes transformed a start up company into one of the most profitable airline company in North America (Morrow, Hitt and Holcomb, 2007). Here are some of the reasons that show strategic leadership is important for companies:
They set a clear vision for the workers
They develop structured approach and defined objectives
Motivates and inspire people
Bring new ideas in the company
Maintain good relations among the employees
Helps team to remain focused during crisis and encourage people to set and achieve short-term goals.
Bersin, J. 2012. It's Not The CEO, It's The Leadership Strategy That Matters. [Online]. Available through: <http://www.forbes.com/sites/joshbersin/2012/07/30/its-not-the-ceo-its-the-leadership-strategy-that-matters/> [Accessed on 30th December, 2014].
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