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STRATEGIC MANAGEMENT FOR TOURISMAND HOSPITALITYBUSM4572 - Semester 1, 2021Assignment 3A - Strategic Management Group ReportGroup MembersNguyen Thi Quynh Nhu (s3740838)Nguyen Tra My Edwards (s3759026)Nguyen Khanh Huyen (s3794744)Tran Giang Ngoc (s3802257)Lecturer Dr. Nuno RebeiroClass Thursday 11:30 ...

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STRATEGIC MANAGEMENT FOR TOURISM AND HOSPITALITY BUSM4572 - Semester 1, 2021

Assignment 3A - Strategic Management Group Report

Nguyen Thi Quynh Nhu (s3740838) Nguyen Tra My Edwards (s3759026) Group Members Nguyen Khanh Huyen (s3794744) Tran Giang Ngoc (s3802257)

Lecturer

Dr. Nuno Rebeiro

Class

Thursday 11:30 AM - 14:30 AM

Date of submission

21st May 2021

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Table of Contents INTRODUCTION - 270w

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MACRO ENVIRONMENT - 410w

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1.1 Political Factor

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1.2 Economic Factor

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1.3 Social Factor

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1.4 Technological Factor

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1.5 Environmental Factor

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1.6 Legal Factor

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MICRO ENVIRONMENT - 350w

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A. Threats of new entrants (Very Weak)

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B. Bargaining power of buyers (Weak)

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C. Bargaining power of suppliers (Moderate)

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D. Threat of substitute products (Strong)

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E. Rivalry among existing competitors (Weak)

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CORPORATE’S SUSTAINABLE COMPETITIVE ADVANTAGES- 570W

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1.1. Resources and Competencies

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1.2. Tangible Resources

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1.3. Intangible Resources

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1.4. Core competencies

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1.5 VRIN Framework

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CURRENT STRATEGY IDENTIFICATION - 770w

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Business Strategy

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Different Level of Current Strategy

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NEW STRATEGIC INITIATIVES - 683w

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Critique of current strategy

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New Strategy

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STRATEGY IMPLEMENTATION AND EVALUATION 800w(incl.risk)

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RISK MANAGEMENT

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CONCLUSION 330w

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References

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Appendix

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INTRODUCTION The purpose of this report is to review the micro and macro environment of Vietnam Airlines (VNA) within the aviation industry to evaluate the current strategy, discuss the current generic type of business strategy; presenting a new strategy as well as evaluate its effectiveness in achieving the organization objectives and implementing properly. Vietnam Airlines (VNA) is the leading national airline in Vietnam. Before Covid-19 hit, in 2019 alone, the company projected the record revenue of 100,316 billion VND, exceeding 8.3% in its annual plan and achieved its new record as the best performance ever (Vietnam Airlines 2020). However, the COVID-19 pandemic has an unprecedented crisis to all airlines, VNA recorded a loss of 10,676 billion VND, caused by total assets decreased by 17.6% with increasing major debts and lower significant equity (TTXVN 2021). In such a context, it requires urgent application of a series of policies to respond quickly to the new situation. The outline of the report starts with a micro and macro environment analysis to identify the trends and competitiveness within the aviation industry to develop strategic context. Through the analysis, resources and competences of the organization that are likely to identify sustainable competitive advantages to compete within the industry by using different frameworks. Therefore, aligning with VNA's vision of the objective to rehabilitate the revenues and routes in 2023 and developing a sustainable aviation company to 5-star by 2030, is a major difficulty that every level of the organization needs to involve. The results of the plan will favor the social and economic development of Vietnam, involving the objectives of adopting both the Retrenchment strategy, applied for the short-term (2021 - 2023) and Growth strategy, to be resumed from 2024 onwards.

MACRO ENVIRONMENT The P.E.S.T.E.L framework by Aguilar is applied to demonstrate critical external factors that intensely influence the tourism industry.

1.1 Political Factor To help firms deal with the COVID-19 pandemic, the Government deducted revenue tax relief up to 30% for middle and small businesses (Huy Thang 2021). The airline industry needs strong support from the Government in terms of the post-recovery pandemic process since it is a pivotal sector in the value chain (Minh Tuan 2020). .

1.2 Economic Factor Tourism is ranked 4th in terms of the country's GDP contribution. In 2019, the GDP was high compared to other countries , although the slow growth in the first quarter of 2019. School of Business and Management 4

The trade war between the U.S and China brings Vietnam certain chances and challenges regarding labor force upskilling and infrastructure enhancement. National income is another aspect, in 2008, there were 20.5 million domestic travel trips, then enormously reached 80 million in 2018, whose main objectives are the Vietnamese’s growing middle class (World Bank 2021).

1.3 Social Factor As for demographics, there were 96.5 million people in 2019, 55% under 35 years old, which is highest among neighboring countries with similar income levels (World Bank 2021). The psychology and behavior of Vietnamese people mainly concentrate on quality, brand attributes and good purchasing experiences. Digital behavior regarding multi-channel and omni-channel and young customers’ demand for quality require effective loyalty programs. School of Business and Management 5

1.4 Technological Factor Several projects such as Metroline, upgrading and constructing inner-city highways (Xuan Tung, Thu Dung & Duc Phu 2020), the opening of high-speed train 320km/h (Vietnam News 2021) are other cheaper and speedy transports alternatives that can be formidable rivals for the airline industry. In addition, the Government attempts to industrialize the economy with such technological innovation and start-up support (Vietnam Briefing 2020), to help improve customer’s journeys, yet the digital transformation stands at the infancy stage (Deloitte 2020).

1.5 Environmental Factor Industrial development along with travel rampant has seriously caused environmental pollution and natural resources damages (Ai Vuong 2016). Another drawback comes from lacking longterm vision related to the policymaking process as well as concern towards environmental issues (Tuan & Rajagopal 2019). .

1.6 Legal Factor Vietnam has a friendly border since the Government is willing to provide visas for almost all countries globally. However, the impacts of COVID-19 resulted in the restriction of the international flight that seriously affected Vietnam Airlines business. Besides, to encourage tourism purposes, many banks have offered loans for tourists.

MICRO ENVIRONMENT Porter's Five Forces model will be used to identify and analyze the five competitive forces that shape every industry and aid in determining an industry's weaknesses and strengths.

A. Threats of new entrants (Very Weak) Despite being ranked third in the Asia-Pacific region for quickest development, Vietnam's aviation industry is deemed low entry due to high entrance barriers, such as economies of scale, high capital costs, and a limited supply of suitable locations, which limit new entrants. The government has taken attempts to ease the requirements for entering the aviation industry;

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nevertheless, due to the severe laws prohibiting outside investors from owning aircraft, these are largely domestic competitors.

B. Bargaining power of buyers (Weak) As a full-service airline with a 4-star service rating, Vietnam Airlines targets customers who are not price-sensitive and are willing to pay more for excellent service. The concentration of a big group of consumers, such as tour operators, domestic/international hotel or convention organizers, and the prevalence of poor profit margins are not included in this analysis. As a result, customers have little or no control over pricing changes.

C. Bargaining power of suppliers (Moderate) Vietnam Airlines' main suppliers include aircraft (Boeing, Airbus, etc.) as well as smaller providers in the area of food and beverage, human resources,etc. The choice of aircraft suppliers requires the prestige of demonstrating product certification. However, the low cost of switching raw materials, market availability, and rivalry makes suppliers' bargaining leverage low to moderate.

D. Threat of substitute products (Strong) Air travelling becomes one of the major modes of transport which brings about many customer segments and they tend to be price sensitive. The threat of substitute products is high due to the fact that the switching cost is low, which means passengers can switch to other low-cost airlines such as: VietJet, Pacific Airlines and Jetstar.

E. Rivalry among existing competitors (Weak) Service is a highly competitive industry where the boundary between product differentiation is hard to define. Currently, in the domestic market, Vietnam Airlines has 4 main direct competitors including: Vietjet Air, Jetstar Pacific, Bamboo Airways and VASCO, in which, VietJet Air is considered the main competitor with 43% market share. Hence, the rivalry among existing competitors for Vietnam Airlines is medium to high.

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CORPORATE’S SUSTAINABLE COMPETITIVE ADVANTAGES 1.1. Resources and Competencies Resources can be defined as stocks of tangible and intangible assets available for the company, whereas competencies are routines for the deployment of resources (Galavan 2015). They represent the main source of competitive advantage and profitability for any enterprise that can enable businesses to drive the industry and to compete with its products and offering to customers needs (MBA Skool Team 2020). This section uses one of the most cited models of the resource-based view of the firm, VRIN model, to describe how Vietnam Airlines can achieve sustainable competitive advantage through resources that fulfill certain criteria (Salminen 2017). Resources can create a competitive advantage, but they must be scarce, distinctive, non-tradable, inimitable, durable, idiosyncratic, and non-substitutable (Pearson, Pitfield & Ryley 2015, p.179-189).

1.2. Tangible Resources Capital Vietnam Airlines, 86% owned by the government, using various capital sources to ensure sufficient provision of financial resources for investment needs (Reuters Staff 2020). Due to the global crisis brought by the COVID-19 pandemic, Vietnam Airlines recorded a net loss of $453 million in the first 9 months of 2020. However, Vietnam's National Assembly approved a plan to increase the capital of state carrier Vietnam Airlines following the coronavirus pandemic by

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purchasing new shares from the country's flag carrier via its State Capital Investment Corp (SCIC) (Reuters Staff 2020). Modern aircraft Vietnam's largest airline fleet In its journey to become a 5-star airline, Vietnam Airlines successfully flew its first Boeing 78710 Dreamliner, one of Asia's youngest and most modern fleets capable of performing efficiently and effectively while providing exceptional passenger comfort and amenities advanced technology (Vietnam Airlines 2019). Advanced Technology The airlines also introducing the ecoDemonstrator program which aimed to solve contemporary issues and create safer and more sustainable flights by using less noise reduction technology, UV lights technology to sterilized aircraft cabins and cockpits to deal with the COVID-19 pandemic and sustainable fuels that can reduce CO2 emissions by up to 75% (Vietnam Airlines 2018).

1.3. Intangible Resources Brand Reputation Vietnam’s aviation industry is primarily driven by two main types of airlines which are full cost and low-cost airlines. Vietnam Airlines is the largest full - cost airline in Vietnam, providing large, complicated operations with numerous staff and different types of aircraft to support both domestic and international flights (Mai & Le 2014). Service quality The brand Vietnam Airlines after ten years of membership in Skyteam is similar to other airlines in the region, which also have positive changes to service quality. Vietnam Airlines, in particular, was recognised as a 4 - star airline by SkyTrax for four consecutive years from 2016 to 2019 due to its consistent service level (Vietnam Airlines 2020).

1.4. Core competencies Pearson, Pitfield and Ryley (2015, p.179-189) stated that resources which meet all four requirements of VRIN are considered core competencies and sources of sustained advantage. Digital transformation Vietnam Airlines is continually seeking a transformation to a digital airline to improve service quality and customer experience as a step in becoming a 5 - star airline. Specifically, the business leverages the development of ICT in Vietnam to digitize flight management documents, artificial

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intelligence (AI) and Big Data in business, operations, and fleet management and applies automation and customization to enhance the customer experience (Vietnam News 2019). Self-training transshipment program One of the most outstanding advantages of Vietnam Airlines is the ability to localize the pilot training program by launching its first simulator complex in Vietnam, allowing the brand to take the initiative in training, ensuring that pilots meet the safety criteria. This self-training transshipment enables saving up to 285 billion in 10 years (Vietnam Airlines 2018).

1.5 VRIN Framework

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CURRENT STRATEGY IDENTIFICATION The airline industry has suffered tremendous changes in past decades. Thus, firms need to pursue appropriate strategic management to achieve competitive advantages to survive in the industry (Teece, Pisano & Shuen 1997).

1. Business Strategy Differentiation There are three generic strategies proposed by Michael Porter to gain significant competitive advantages. Differentiation was implemented by Vietnam Airlines, the strategy concentrates on offering unique and high-quality products and services at premium prices (Akan et al. 2006). Specifically, VNA upgraded their services by providing the extra service seats 1 and advanced aircraft with a new generation fleet 2 (VNA n.d.). Moreover, the airlines highlight Vietnamese cuisine as a hallmark of VNA flights, newly-designed tableware, as well as offering pajamas, blankets, and bed linen to bring the best comfort and luxurious experience on those long-haul trips (VNA n.d.). Most importantly, to become a digital airline leader, VNA has strenuously worked on applying modern technologies. Skywise 3 , Oracle cloud 4, and new versions of mobile applications with more advanced features 5 (Vietnam Investment Review 2019). Additionally, the strategic strength of VNA falls for 75% support of the Government (Pearson et al. 2015). Focus cost Apart from the differentiation strategy, VNA pursues the focus cost regarding its adoption of Jestar Pacfics (Pacific Airlines) to tackle the threat of low-cost rivals in Vietnam (CAPA 2015).

2. Different Level of Current Strategy Corporate Level According to Carman & Langeard (1980), the growth strategy focuses on the expansion of new products and markets, which is the main desire of VNA at this level. With the ambition to become the digital leader airlines along with the highest level of service, the firm looks for the proper progress of technology in its operation and business activities, upgrade customer satisfaction and derive 5-star airlines (VietnamPlus 2019). Business Level At this level, Vietnam Airlines indicates approval for its functional level strategies. The firm has worked with R&D, HR and Marketing Department and gradually approached its goal by the application of new technologies, and the great enhancement of customer satisfaction during the School of Business and Management 11

flights, consequently, recevied three honoured awards and ranked 4-star as one of the best 20 airlines on Skytrax for its services (Nguyen 2019). Functional Level This level incorporates the activities and subfunctional activities to achieve the goals. According to the framework of Ansoff’s growth strategies, product development emphazing on presenting new products to existing market to boost market share (Hussain et al. 2013), and VNA literally applied this concept.

Figure 4: Ansoff’s growth strategies

R&D Department To achieve its goal, Vietnam Airlines added the VNPay QR code mobile application 6 (Nguyen 2019). Cyber security, development of services including e-payment are other main focuses. Moreover, the firm enabled the e-documents and e-flight folders 7 (Vietnam News 2019), and collaborates with VNPT Service Provider Group to develop the leading technologies to resolve School of Business and Management 12

the digital transformation issues (Ngoc Lan 2019). Additionally, the firm represents the airlines to work with partners from IATA 8 on a digital health passport 9 project to manage travel health credentials (VietnamPlus 2021). Marketing Department Besides product innovation, Vietnam Airlines emphasized on enhancing their services by launching a new international campaign “Reach Further” to exhibit the carrier’s fleet and ultramodern features to deliver superior flying experiences (Marketing 2015). HR Department Improving service along with nurturing the core competencies of human resource, Vietnam Airlines has intensified its training and development programs for all staff and cabin crew (Nguyen 2019). Specifically, in 2019, “Changing The World '' workshop 10 (Pham 2019), safetysecurity training courses with IOSA standards and English courses were also provided (VNA 2019).

NEW STRATEGIC INITIATIVES 1. Critique of current strategy To assess whether VNA’s strategy is suitable for the current day, the Balanced ScoreCard is used. It is a tool for strategic management which determines if an organization’s business practices correspond with its vision and strategies (Grigroudis et al. 2012).

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(Figure 5. Balanced Scorecard, Bigliardi & Bottani 2010) Vision and Strategy To maintain the no. 1 position of a national flag carrier and become a leading digital airline in Asia (VNA 2019). ● Financial perspective: Increase shareholders’ investment values. ● Customer perspective: Offer high quality and diverse services to meet customers’ expectations. ● Internal Business Processes perspective: Moving towards digital transformation to enhance business operation. ● Learning and Growth perspective: Continue to deliver 4 – star services and strive for 5 star standards. Strengths There is consistency between VNA’s vision and its internal business processes, which emphasizes on the business’s continuous effort to apply technology to enhance efficiency and to offer greater customer service, implicating that the firm is very customer – oriented. VNA also leaves itself room for growth, as it aims to achieve 5 - star standards. These ambitions are supported from the financial perspective, where VNA gets the government's support as it is 86% owned by the government (VNA 2016). Limitations In the domestic (Vietnam) market, VNA’s succeeds with its differentiation strategy, but in the regional (Asia) market, VNA still struggles with differentiation because compared to other Asian airlines like Japan Airlines, Cathay Pacific, Thai Airways, Malaysia and Singapore Airlines, VNA is rated 3* only, while the others are rated 4* and 5* (Pearson et al. 2015). Furthermore, the growth strategy alone is not suitable for the current situation where Covid 19 is still pr...