(TIỂU LUẬN) STRATEGIC MANAGEMENT FOR TOURISM AND HOSPITALITY

The purpose of this report is to review the micro and macro environment of Vietnam AirlinesVNA within the aviation industry to evaluate the current strategy, discuss the current generict

STRATEGIC MANAGEMENT FOR TOURISM

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 generictype of business strategy; presenting a new strategy as well as evaluate its effectiveness inachieving the organization objectives and implementing properly

Vietnam Airlines (VNA) is the leading national airline in Vietnam Before Covid-19 hit, in 2019alone, the company projected the record revenue of 100,316 billion VND, exceeding 8.3% in itsannual 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 aloss of 10,676 billion VND, caused by total assets decreased by 17.6% with increasing majordebts and lower significant equity (TTXVN 2021) In such a context, it requires urgentapplication 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 thetrends and competitiveness within the aviation industry to develop strategic context Through theanalysis, resources and competences of the organization that are likely to identify sustainablecompetitive 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 anddeveloping 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 theobjectives 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 thatintensely 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 strongsupport from the Government in terms of the post-recovery pandemic process since it is a pivotalsector 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 highcompared to other countries , although the slow growth in the first quarter of 2019

The trade war between the U.S and China brings Vietnam certain chances and challengesregarding labor force upskilling and infrastructure enhancement National income is anotheraspect, in 2008, there were 20.5 million domestic travel trips, then enormously reached 80million in 2018, whose main objectives are the Vietnamese’s growing middle class (World Bank2021)

1.3 Social Factor

As for demographics, there were 96.5 million people in 2019, 55% under 35 years old, which ishighest among neighboring countries with similar income levels (World Bank 2021) Thepsychology and behavior of Vietnamese people mainly concentrate on quality, brand attributesand good purchasing experiences Digital behavior regarding multi-channel and omni-channeland young customers’ demand for quality require effective loyalty programs

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) areother cheaper and speedy transports alternatives that can be formidable rivals for the airlineindustry In addition, the Government attempts to industrialize the economy with suchtechnological innovation and start-up support (Vietnam Briefing 2020), to help improvecustomer’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 pollutionand natural resources damages (Ai Vuong 2016) Another drawback comes from lacking long-term 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 allcountries globally However, the impacts of COVID-19 resulted in the restriction of theinternational flight that seriously affected Vietnam Airlines business Besides, to encouragetourism 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'saviation 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 Thegovernment has taken attempts to ease the requirements for entering the aviation industry;

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

B Bargaining power of buyers (Weak)

As a full-service airline with a 4-star service rating, Vietnam Airlines targets customers who arenot price-sensitive and are willing to pay more for excellent service The concentration of a biggroup of consumers, such as tour operators, domestic/international hotel or conventionorganizers, 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 smallerproviders in the area of food and beverage, human resources,etc The choice of aircraft suppliersrequires the prestige of demonstrating product certification However, the low cost of switchingraw materials, market availability, and rivalry makes suppliers' bargaining leverage low tomoderate

D Threat of substitute products (Strong)

Air travelling becomes one of the major modes of transport which brings about many customersegments and they tend to be price sensitive The threat of substitute products is high due to thefact that the switching cost is low, which means passengers can switch to other low-cost airlinessuch 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

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) Theyrepresent the main source of competitive advantage and profitability for any enterprise that canenable businesses to drive the industry and to compete with its products and offering tocustomers needs (MBA Skool Team 2020)

This section uses one of the most cited models of the resource-based view of the firm, VRINmodel, to describe how Vietnam Airlines can achieve sustainable competitive advantage throughresources that fulfill certain criteria (Salminen 2017) Resources can create a competitiveadvantage, 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 ensuresufficient provision of financial resources for investment needs (Reuters Staff 2020) Due to theglobal crisis brought by the COVID-19 pandemic, Vietnam Airlines recorded a net loss of $453million in the first 9 months of 2020 However, Vietnam's National Assembly approved a plan toincrease the capital of state carrier Vietnam Airlines following the coronavirus pandemic by

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

787-10 Dreamliner, one of Asia's youngest and most modern fleets capable of performing efficientlyand effectively while providing exceptional passenger comfort and amenities advancedtechnology (Vietnam Airlines 2019)

Advanced Technology

The airlines also introducing the ecoDemonstrator program which aimed to solve contemporaryissues and create safer and more sustainable flights by using less noise reduction technology, UVlights technology to sterilized aircraft cabins and cockpits to deal with the COVID-19 pandemicand 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 costand low-cost airlines Vietnam Airlines is the largest full - cost airline in Vietnam, providinglarge, complicated operations with numerous staff and different types of aircraft to support bothdomestic 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 servicequality and customer experience as a step in becoming a 5 - star airline Specifically, the businessleverages the development of ICT in Vietnam to digitize flight management documents, artificial

intelligence (AI) and Big Data in business, operations, and fleet management and appliesautomation 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 pilottraining program by launching its first simulator complex in Vietnam, allowing the brand to takethe initiative in training, ensuring that pilots meet the safety criteria This self-trainingtransshipment enables saving up to 285 billion in 10 years (Vietnam Airlines 2018)

1.5 VRIN Framework

CURRENT STRATEGY IDENTIFICATION

The airline industry has suffered tremendous changes in past decades Thus, firms need to pursueappropriate 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 competitiveadvantages Differentiation was implemented by Vietnam Airlines, the strategy concentrates onoffering 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 and advanced1

aircraft with a new generation fleet (VNA n.d.) Moreover, the airlines highlight Vietnamese2

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-haultrips (VNA n.d.) Most importantly, to become a digital airline leader, VNA has strenuouslyworked on applying modern technologies Skywise , Oracle cloud , and 3 4 new versions of mobileapplications with more advanced features (Vietnam Investment Review 2019) Additionally, the5

strategic strength of VNA falls for 75% support of the Government (Pearson et al 2015)

Business Level

At this level, Vietnam Airlines indicates approval for its functional level strategies The firm hasworked with R&D, HR and Marketing Department and gradually approached its goal by theapplication of new technologies, and the great enhancement of customer satisfaction during the

flights, consequently, recevied three honoured awards and ranked 4-star as one of the best 20airlines 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 presentingnew products to existing market to boost market share (Hussain et al 2013), and VNA literallyapplied 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 (Nguyen2019) Cyber security, development of services including e-payment are other main focuses.Moreover, the firm enabled the e-documents and e-flight folders (Vietnam News 2019), and7

collaborates with VNPT Service Provider Group to develop the leading technologies to resolve

the digital transformation issues (Ngoc Lan 2019) Additionally, the firm represents the airlines

to work with partners from IATA 8 on a digital health passport9project to manage travel healthcredentials (VietnamPlus 2021)

Marketing Department

Besides product innovation, Vietnam Airlines emphasized on enhancing their services bylaunching a new international campaign “Reach Further” to exhibit the carrier’s fleet andultramodern features to deliver superior flying experiences (Marketing 2015)

HR Department

Improving service along with nurturing the core competencies of human resource, VietnamAirlines 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), safety-security training courses with IOSA standards and English courses were also provided (VNA2019)

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 practicescorrespond with its vision and strategies (Grigroudis et al 2012)