RMIT International University Vietnam Bachelor of Business Program ASSIGNMENT COVER PAGE Strategic Management for Tourism & Hospitality

For the reason of examination on how a real-life business executes their strategic plans, Vietjet Air - a budgeted airline ranked 2 in market share acquired in the Vietnamese aviation in

RMIT International University Vietnam

Bachelor of Business Program ASSIGNMENT COVER PAGE

Subject Name: Strategic Management for Tourism & Hospitality

Location where you study: Vietnam - Saigon South

Title of Assignment: Assignment 3A - Strategic Management Group Report

Do Linh Chi - s3751492 Nguyen Quang Hong Phuc- s3752084

Le Quang Kim Ngan - s3751591 Nguyen Nhu Phuong Anh - s3741039

Assignment due date: 21 May 2021

Date of Submission: 21 May 2021

EXECUTIVE SUMMARY

The increasingly intensive and competitive tourism and hospitality industry in Vietnam created challenges for tourism/ travel corporations to define their brand positioning In order to be sustained within such a market, corporations are required to identify, analyze and develop the appropriate strategies from the internal and external environment of the industry if they want to be the market leader For the reason of examination on how a real-life business executes their strategic plans, Vietjet Air - a budgeted airline ranked 2 in market share acquired in the Vietnamese aviation industry, will be chosen as the case study.nd This report will demonstrate the factors of market analysis in both macro and micro environment surrounding the operation of Vietjet Air, using theoretical tools of STEEP (Social, Technological, Economical, Environmental and Political) and Porter’s Five Forces analysis model Moreover, the current strategies implemented will be described, analysed and evaluated for the case of Vietjet Air in all 3 levels

of corporation, business and functional, using Boston Consulting Group’s Growth-share matrix (BCG) and Porter’s Generic Strategies Then, new initiatives with detailed analysis on the beneficial contributions to Vietjet Air (in terms of corporate strategies and functional improvements) will also be presented Finally, the strategies recommended will be evaluated using Rumelt’s four criterias (Consistency, Consonance, Feasibility and Advantage) The report is utilizing strategic management journal articles, books, strategic management theories and business reports to strengthen the arguments stated

Table of Contents

I INTRODUCTION 1

II MARKET ANALYSIS 1

1 M ACRO E NVIRONMENT - STEEP A NALYSIS 1

1.1 Social 1

1.2 Technological 2

1.3 Economic 2

1.4 Ecological 2

1.5 Political 3

2 M ICRO E NVIRONMENT - P ORTER ’ S F IVE F ORCES 3

2.1 Threat of new entrants 3

2.2 Bargaining power of suppliers 3

2.3 Bargaining power of buyers 4

2.4 Threat of substitute products 4

2.5 Rivalry among existing competitors 4

III INTERNAL ANALYSIS 4

1 R ESOURCES AND C APABILITIES 4

2 C OMPETENCIES 5

IV STRATEGY ANALYSIS 5

1 C URRENT B USINESS S TRATEGIES 5

1.1 Corporate Level 5

1.2 Business Level 6

1.3 Functional Level 7

2 N EW I NITIATIVES AND MPLEMENTATIONS I 8

2.1 Corporate Level 8

2.2 Business Level 8

2.3 Functional Level 9

V STRATEGY EVALUATION AND CONTROL 10

1 C ONSISTENCY 10

2 C ONSONANCE 10

3 F EASIBILITY 11

4 A DVANTAGE 11

VI CONCLUSIONS 11

VI REFERENCES 12

VII APPENDICES 17

I INTRODUCTION

Being top aviation businesses in Vietnam, VietJet Aviation Joint Stock Company was the first-privatelyowned airline brand and started to serve diverse domestic offerings since December 2011 In response tofierce competition among various airline corporations such as strong rivals of Vietnam Airlines or newentrants of Bamboo Airways, its strategic business model ‘low-cost carrier’ (LLC) with the focus on middle-income class and first-time experience flying customers effectively creates competitive advantage forbusiness growth Moreover, special features such as young, dynamic and expert at applying advancedtechnology in aviation service are also prescribed on the first day of establishment As a result, since anew generation aviation business like Vietjet who pioneers for developing new routes ranging frommodern infrastructure, talent acquisition, service quality to head forwards green value for the community(Vietjet 2019), the title of ‘Asia Pacific Low Cost Airline of the Year’ by CAPA was given to Vietjet However,

in the journey of ‘conquering the sky and bringing innovation to Vietnam’s aviation industry’, the impact ofCOVID-19 crisis poses threats to the sustainability of Vietjet, even worse on the edge of operation closure,and hindrance for further development It is fundamental for Vietjet, or any aviation corporations, todetermine their comprehensive strategy to not only leverage competitive advantage, but also bear varioussources of risks in the volatile aviation market

This paper investigates macro- and micro-environment by STEEP, Porter’s five forces analysis, and brandportfolio by VRIN Framework which exhibits a comprehensive picture and position of Vietjet’s resourcesand competences in the domestic aviation sector Following, current strategies under three levels namelycorporate, business and functional level will be respectively presented with the support of BostonConsulting Group’s Growth-share Matrix (BCG) as a tool to signal which markets Vietjet decided to focus

on, but from there, some underlying strategy issues are also under justification Hence, new initiatives andimplementations will be appropriately proposed for Vietjet to reinforce brand development and sustainablecompetitive advantage in the future Finally, all the proposed strategies implementation will be evaluatedbased on four criteria of Rumelt evaluation approach to ensure the alignment with Vietjet’s initial missions

1 Macro Environment - STEEP Analysis

1.1 Social

Addepalli et al (2016) argued the social dimensions of demography and behavioral factors stronglyinfluence customers' willingness to purchase flights for their travels Vietnam’s population is projected to

reach 120 million people by 2050 (World Bank 2021), along with the fact that millennials and generation Zare shaping the consumption behaviours and beliefs for airlines products of Vietjet (Garikapati et al 2016).Despite the potential offered by the market, customers’ diverse behaviors and preferences still createsmajor challenges for the airline industry generally and Vietjet particularly (Teichert, Shehu & Wartburg2008)

1.2 Technological

With challenging requirements for the highest level of safety insurance, as no minor errors regardinghuman injuries, technical problems or natural disastrous consequences are allowed, Lee & Mo (2011)believed technology advancements can help the aviation industry to diagnose and prevent potential issues

to bring security to flights Technology also contributes to the convenience enhancement for passengersthrough the establishment of electronic tickets Functioning similarly to the regular paper ticket (Chen2007), e-tickets bring additional values - a reduction in potential lost or ticket damage for customers andcost-saving benefit for airlines (Galang 2012) Technology implementation also changes the waypassengers conduct their check-in process at airports At Changi Airport, customers can do the baggagedrop by themselves, using the automated system and facial recognition technology provided (Rajapaksha

& Jayasuriya 2020) This technology implementation allows customers to avoid long waiting lines atairports to check-in Conclusively, technology implementation, which provides a blend of a consistentpassenger experience, becomes a fundamental strategy for airline businesses to manage, includingVietjet (Mclvor et al 2003)

1.3 Economic

The aviation industry is strongly influenced by the economic status, caused mainly by the Gross DomesticProduct (GDP) growth rate (that impacts on the consumers’ spending willingness) Despite the positiveVietnamese GDP statistics in 2019 (261.92 billion dollars) (Trading Economics 2019), COVID-19 struckthe global economy entirely, where most industries were heavily impacted (Dezan 2020), especiallytourism and travel industry Although it may seem pessimistic for airlines, Nordea Trade (2021) predictedVietnamese economy will bounce back post-COVID, thanks to the appropriate governmental strategies tomonitor the national GDP growth As soon as travel activities resume, low-cost carriers (LCCs) like Vietjetare projected to obtain the most opportunities from the market Filled with price-sensitive passengers, themarket under COVID-19 impacts are likely to witness more of these customers that both leisure andbusiness travelers were choosing LCCs to save money (Teichert, Shehu & Wartburg 2008; Mason 2005).Hence, a brighter future is yet to come and LCCs like Vietjet should be prepared to capture upcomingchances

1.4 Ecological

The most significant environment-related problem caused by the airlines is greenhouse gases released byaircraft engines that trap terrestrial radiation and chemically active gases and eventually increase globaltemperature (Lister et al 1999) or leave heavy casualties on the climate and ozone level (Capoccitti,Khare & Mildenberger 2010) On the other hand, typhoons, floods and storms are common negativeimpacts of natural factors (Qui 2020), which create risk on flight safety and economical damage for airlines

as it delays flights As climate change is created by aviation activities (airline engines release), manyairlines including Vietjet established action plans to optimize aircraft carrying capacity and fuelconsumption to reduce exhaust emissions (Vietjet 2019)

1.5 Political

Despite having a favorable political condition in Vietnam, with special attention to boost the aviationindustry development by 2030 (Das 2018), limitations in investment policies, for example 30% of lowcontribution of foreign capital and slow issuing of licenses, created barriers for foreign investments to flowinto Vietnam (VOV 2019) Besides, since COVID-19 pandemic is well-controlled by implementingappropriate social distancing measures, the government is encouraging domestic travel demand tostimulate and accelerate the needs of domestic travels, including flights to help the industry to rebound(Constantin, Francois & Le 2021; Vietnam News 2020)

2 Micro Environment - Porter’s Five Forces

2.1 Threat of new entrants

Massive operating cost and initial capital investment are some hindrances for new aviation entrants.Examining the case of VietStar as a new domestic airline, VND700 billion and complex endorsementprocedures are required by Vietnamese government (Shira 2018) Moreover, when investigating thebusiness license of Vietjet (Vietjet 2018), it stated their authorized capital was more than VND5000 billion.The financial barrier to entry is, therefore, incredibly high that eventually leads to low level of new entrantsthreats

2.2 Bargaining power of suppliers

As being operated in a unique industry, Vietjet only has two options to purchase their aircrafts from twomajor producers and suppliers - Boeing and Airbus (Vietjet Air n.d.) With limited sources of aircraftproducers in the market, Vietjet needs to build and maintain a close relationship with these manufacturers

on long-term, billions USD worth contracts, as they planned to update their fleet with 200 jets to adapt withincreasing customer demands and ensure flight safety Eventually, long-term agreements with these

manufacturers ties their relationship with each other and Vietjet has to rely on Boeing and Airbus for theiraircraft manufacturers Therefore, the suppliers’ bargaining power is remarkably high

2.3 Bargaining power of buyers

Despite the rising number of passengers, customers only have limited choice, as each airline defines theirbrand names and development strategies differently If customers are highly price sensitive, they are likely

to choose brands that follow the cost leadership practice to lower the flight ticket price Compared to otherairlines, Vietjet and Jetstar Pacific are the only two LCCs operating in the market that budget travellerscan choose from Moreover, despite the factors of price, flight delays and safety, switching costs in theVietnamese aviation industry are low, meaning that customers can constantly switch from one airline toanother depending on their demands The buyers’ bargaining power is therefore considered as low

2.4 Threat of substitute products

Many substitutes threatening air travelling are road transportations (cars and public buses), trains andcruise ships Customers will choose the appropriate means of transport based on their budget, traveldistance and travel time that leads to convenience during the trip However, for long-distance and time-saving travel, the choice of Vietjet is over other alternatives Positioned in the market as LCC, Vietjet caneasily gain market share and acquire customers from other means of transportation Hence, theconvenience and reasonable price offerings helps Vietjet to sustain and compete within the travel industryand lower the threat of substitutes

2.5 Rivalry among existing competitors

Positioned at the second place regarding market share in the Vietnamese aviation industry, after thepioneer corporation Vietnam Airlines, Vietjet is currently facing an emerging intensitivity in competitionsince the new entrant of Bamboo Airway Unfulfilled aspects of Vietjet such as superior serving standardsand flights’ punctuality can be competitive advantages of other brands The market share of Vietjet ispotentially threatened by Bamboo Airway or Vietnam Airlines as these competitors pursue full-servicestrategies to directly compete with low-cost carriers like Vietjet Hence, the competitive rivalry betweenairlines is classified as high.

III INTERNAL ANALYSIS

1 Resources and Capabilities

A set of tangible resources to assist Vietjet in gaining low-cost position in Vietnam’s aviation market Apartfrom effective aircraft financing schemes, or comprehensive cash-flow management as Vietjet’s financialstrengths, other physical and technological resources respectively, such as huge investments in building

hangers within a fleet of 75 aircrafts and application of advanced technology into customer service, andflight schedule optimization, also contribute to the airline’s development Besides, having 5,092 totalnumber of talented, qualified and enthusiastic human resources and strong brand value are alsofundamental factors to the sustainable development of Vietjet Generally, there are three core resources ofVietjet including training and talent development; brand value; and technology and innovation thatprovides potential for competitive advantage

Regarding capabilities, the use of VRIN framework will examine whether Vietjet’s core resources willmeet the requirements (valuable, rare, inimitable and non-substitutable) to attain sustainable competitiveadvantage or not

2 Competencies

Based on the above evaluation of Vietjet’s three key internal competencies, it is evident that proficientHuman Resource and Technology advancement have created two significant competitive advantages thatwill help Vietjet sustain in the competitive and dynamic airline industry Whereas, strong brand value isonly considered as a short-term competitive parity as it is easy to be followed and would constantly needconsistent effective marketing strategies to maintain

IV STRATEGY ANALYSIS

1 Current Business Strategies

1.1 Corporate Level

Corporate level strategy is formulated for business operations in which its variety of business units work

together to encompass specific organization goals (Bogomyagkov & Machulskyi 2012) Based on Boston

Consulting Group’s Growth-share Matrix (BCG), Vietjet can be categorized as Star level due to itsmarket dominance with high growth rate of 21.4% in revenue compared to 2018 and high domesticaviation market share at 42.83% in 2019 (Figure 1) The growing business is attributable to effectivestrategies implementation in ancillary management, cargo transportation and inflight service improvement(Vietjet Air 2020) Indeed, by following low-cost carrier (LCC) as its primary sustainability-centred businessmodel, Vietjet was ranked 12th globally for its revenue acceleration on top of total aviation industry

The corporate strategies are also reflected in Vietjet’s mission which focuses on building the CorporateCulture as an identity and trust to all stakeholders Its values are to propose ‘flight dream’ for allpassengers with its super-economical price-saving strategy and bring innovation to Vietnam’s aviationindustry Evidently, Vietjet implemented growth strategy when it exploits the efficiency of internationalroutes by flight network expansion over 30% (Vietjet 2019) In 2019, it successfully expanded thetrademarks to Southeast Asia and Northeast Asia with 139 routes comprising 44 domestic routes and 95international routes, leading to a global coverage of 70 destinations

However, the uncertainty of dynamic environment would pose threats to Vietjet’s sustainable corporatestrategy, which is exemplified by the impact of COVID-19 crisis on the whole market (Mastrogiacomo2020) The pandemic forces the closure on airline operations, no expanding international routes andgovernment’s restrictions for flight travel demand According to the Civil Aviation Administration of Vietnam(CAAV), Vietnam’s aviation industry is experiencing an economic downturn with a decline of 46% involume of flight passengers (Figure 2) and huge revenue loss of $1.3 billion Therefore, some approachesare crucial for corporate level to minimize the risks of bankruptcy whether Vietjet is incapable of coveringhuge operation costs to maintain the business

1.2 Business Level

Vietjet offers competitive advantages in product and service differentiation, and continuously makesinnovations in building a New Age Airline model ‘low cost but superior service quality’ that meet the diverseneeds of customers Based on the low-cost business model, Vietjet’s leading position in cost per unit ASK

is associated with the offerings of specific features such as operating short-haul routes, cost control andweb-based distribution channel According to Porter’s Generic Strategies, Vietjet adopted cost- leadership approach to gain a strategic edge in the competitive aviation market Under cost structure,

cost control in major expenses such as fuel, aircraft rental and maintenance is an indispensable factor togenerate competitive advantages over other competitors Particularly, with a reduction of 3%-5% of totalcost in fuel saving, technical cost, pilot and cabin crew expenses, its increasing operational efficiency ismore strengthened by these cost-saving programs (Vietjet 2020)

Regarding Vietjet’s customer segment, 30 percent of Vietjet’s passengers are first-time air travellers Todevelop and nurture valuable resources and capabilities, Vietjet invested in establishing an e-commercemodel platform and software solutions for flight management (e.g., AMOS, AIMS, AirFase, etc.).Additionally, Vietjet is striving for strategic sustainable growth in which material management and fuelefficiency are optimized to mitigate environmental impacts through different practices For example, Vietjetdeploys AMOS Software to detect the rate of material disposal and signs waste treatment agreementswith suppliers to comply with legal requirements on environmental projection Consequently, Vietjet wasrecognized as pioneers in heading towards a green future and natural resource preservation programs Toensure the results aligned with the interests of multiple business units, business-level strategy isaccountable for transferring the idea from corporate level, in which Vietjet determines which market thecorporation should be in, into specific action for the functional level (Seifzadeh 2017)

Despite the efficiency of cost leadership strategy as a competitive advantage to attract potentialcustomers, their strategy for managing customer retention is relatively unclear and inadequate leading toineffective brand loyalty (Nguyen 2020) Brand loyalty is described to be the level of likeliness for whencustomers choose to stay with a consistent brand without shifting to another one as they are satisfied andhave certain trust for that brand (Bloomer & Kasper 1995) Hence, there is a need for Vietjet to developbusiness strategies focusing on this concern to foster its long-term business development

1.3 Functional Level

It is vital for any aviation business to establish a comprehensive strategy for research & development,operation, marketing, finance and human resources, thereby always focusing on the core activitiestransparently (Holbeche 2009) In the application of advanced technology to anticipate and controloperation issues, especially safety management, Vietjet is attempting to standardize and automate itsoperational system As a result, the technical reliability index of Vietjet reached 99.64% among the bestoperational safety in airlines field (Vietjet 2020) In terms of financial activities, Vietjet approaches long-term capital mobilization through diverse capital source channels such as International Long-termSyndication or Domestic Business bonds Furthermore, various measures are implemented to optimizecapital and monitor debts, for instance, renegotiation of time payment with suppliers, continuous cash-flowforecasting and derivative financial instruments Business results of Vietjet prove its financial capabilitieswhen being recognized in top 50 enterprises with most effective financial management and high-ratedEBITDA margin

Within the use of ticket discount strategy (0VND tickets and low-price tickets for empty seats) to acquirecustomers and broaden marketing system, Vietjet’s marketing functions create word-of-mouth effectsthrough real-case customer experience and amplified advertising Therefore, its marketing strategiessucceed in gaining potential first-time customers to experience flight service, which creates a foundation

for brand awareness and contribution to brand loyalty (Anal 2020) Meanwhile, for human resources (HR)development, appropriate remuneration policies and mechanisms are implemented to build a wellbeingand professional working environment Training programs and policies are fostered to improve thecompetencies of employees, which were evidenced by thousands of training hours for all level-basedemployees with Aviation Academy model implementation and Airbus support Due to the high-qualityaviation top-notch talents, Vietjet is always considered in the top 100 best workplaces in Vietnam,according to Anphabe and Intage Market Research Company

2 New Initiatives and Implementations

2.1 Corporate Level

The occurrence of Covid-19 with its economic impacts is an alarm bell for Vietjet to consider a saferstrategy instead of Growth strategy Thus, Stability strategy would be an ideal tool for the corporate tomaintain a stable status to thrive during economic uncertainties of the global dynamic market(Alshawabkeh et al 2019) In other words, adopting the Stability strategy means Vietjet will need to slowdown the growth and remain steady operations (Al-Durra & Jaradat 2014)

Specifically, to approach, there are two key activities that help Vietjet run cautiously and still receive amoderate growth rate (Singh 2012) Firstly, since traveling is still restricted and flights cannot occur asfrequently as before, air cargo can be a potential service for Vietjet to focus on executing Cargotransportation is recorded to be in constant demand during this corona pandemic (Choi & Park 2020).Particularly, Vietjet can utilize its aircrafts to carry essential medical equipment or supplies, vaccines tofight against the historical pandemic (Li 2020) (Figure 3) Therefore, Vietjet would be able to not onlymaintain gradual growth but also build a positive image of a supporting, dedicated airline during difficulties

to attract potential customers for post-Covid period (Sun et al 2021) Secondly, Vietjet can optimize time

to improve and advance internal structure, training programs or facilitate infrastructure adjustment (ACI2020) As a result, Vietjet can have a stronger and better appearance to prepare for the possibility ofbooming travel demand in the post-pandemic recovery

2.2 Business Level

At a business level which emphasizes the importance of strong loyalty to acquire sustainable sources ofcustomers to return for their services/products (Miller 2017), what Vietjet needs to improve is to upgradeits brand loyalty Thus improving the customer database system and rewarding programs would berecommended for Vietjet

Approaching a suitable customer base system is the first suggestion to increase Vietjet customeracquisition Accordingly, customer relationship management (CRM) would be a great support since the