Effectiveness of The Performance of Eco-Air: PESTEL & SWOT Analysis

Executive Summary

This paper aimed to evaluate the strategic decisions to safe the Eco-Air, which is a company struggling with finances. Due to deregulation of the airline industry, the large companies left the small cities and capitalized their investments in large cities. The phenomenon resulted in emergence of small airline companies, which offered stiff competition to Eco-Air. To be able to make accurate decisions, different tools were employed to establish the internal and external environment that the company operates in. The frameworks used were SWOT, PESTEL analysis and the marketing mix(4P’s). The findings of the report elucidate that several options were to be taken. The management decided to set aside a budget for marketing and advertising to make the customers aware of the services offered by Eco-Air. Also, a significant decision was to form a duo designate with Uno Air, thus rebranding the company into Uno Express. Others included training of staff, increasing safety by maintaining the old planes, being environmentally and socially responsible. The paper recommends the following: the company should pay dividend to shareholders, increasing the training of staff by training the managers, & exploring other non-competitive routes.

Introduction

The airline industry is highly regulated by the government, and the investors in this niche have to continually update themselves with the changes that are forwarded by the regulatory authority. Apart from the regulations, it is a high-end venture needing a lot of capitation to start, and at the same time to run it. However, well-managed airline business brings good returns, which has attracted new entrants into the market (Jory et al. 2019). Large airlines ply the routes that cover the major cities, leaving the smaller cities less utilized. This report provides a strategic approach of making decision, to uplift a company-initially named Eco Air, that is struggling financially. The company did a dual designate with Uno Air and went from EcoAir to Uno Express. The main aim was to utilize the large company’s resources and skills (Jory et al. 2019), as a way to cutting cost.

Before the dual designate to operate as Uno Express, the company was serving the small cities scattered through the great lakes region of the United States. Its vision is transporting people and transforming lives, which the company was not living up to, due to declining services. The mission of the company is employing innovative strategies to continuously improve and ensure sustainable, economical and environmentally responsible operations. Due to the financial struggles of the company, the management decided to operate under an umbrella of a large company—Uno Air. The following objectives will be met in the report:

  • To decide on appropriate marketing strategies.
  • To establish how to improve the human resource department.
  • To analyze the internal and external environment by use of SWOT and PESTEL analysis.
  • To establish ways of improving the operations of the company.

The frameworks that were used to analyze the market includes SWOT and PESTEL analysis, and 4ps marketing mix. The report will cover the four broad areas in the critical commentary, which includes marketing, human resource, operations, and finance. The conclusion will follow, and the report will finalize by providing the recommendations for future growth.

Critical Analysis

The section discusses the frameworks that were adopted to evaluate the performance of the Eco-Air. According to Amankwah-Amoah (2016), use of the appropriate tools to position the business in a market helps in avoiding the unforeseen risks. The author supports the use of SWOT analysis and PESTEL analysis to assess the internal and external environments, which have direct impacts on the company.

SWOT Analysis

The first company’s performance objective was to leverage on the underserved routes, which was an important catchment area of the Eco-Air. Based on the SWOT analysis, it’s clear that the company’s assets and brand recognition were well known to the people who resided in the small cities. Despite there being the operations knowledge of the airline business, Eco-Air finances do not reflect its strategic plan. The company is struggling to meet the costs of operations to the extent of being unable to retain the employees. Nirmalraj and Malliga (2011) conducted a secondary study on the factors that sustain companies operating in the airline industry in the business. The author noted that having the right tools, in this case, planes, is not enough to be in business. The writer pointed out that the revenue generated by the plane is the most important thing. The author’s assertion is seconded by Manuela (2011), who is of the idea that having proper marketing strategy, and making the customers like the service bring more clients. Eco-Air, therefore, possess the right tools to be in business, but its dwindling performance is linked to lack of internal disruption from the way it operates.

The airline business is changing with time, and retaining the old models of planning and doing things might fail to generate enough revenue in the current era. Lerrthaitrakul and Panjakajornsak (2014) conducted a market survey to establish some of the external factors that have direct impact on the way the airline industry operates. The authors’ interest was on small airline companies, which was done by reviewing how the managers of the singled out companies adhere to the set-out standards. To achieve the objective, the author searched for the startup companies in the airline industry database, and reviewed their operating manuals. The conclusion of the study affirmed that external factors play significant role in the success of an airline business. The PESTEL analysis conducted below gives an overview of the nature of environment that Eco-Air is operating on.

PESTEL Analysis

Political

The deregulation of the airline industry by the government leaves the companies operating in the market at check of the government (Manuela 2011). The approach was adopted to control the industry, which was once flooded with operators who never complied with the required standards; thus risking the lives of the people. The companies are required to keep extensive record-keeping, minimum maintenance schedules, which are all monitored by the government.  While meeting the required standards laid by the government, Elias et al. (2015) noted that it could be costly to the company, especially small airlines that have not established their base well. Among the costs noted to add value to the company are training of the pilots, certification to meet the compliance, and recruiting of more staff to meet the recommended number. Nazri and Adzharunddin (2017) affirms that compliance is one of the costly processes in the airline industry, and it can impart more cost to the company. Although it’s done to enhance the safety of the customers, some of the requirements, such as the schedule of maintenance should be given a minimum value, but not limit the number of times the planes should be serviced.

Environmental

Presently, there is a massive campaign towards green flight. The issue has attracted considerable attention from the international bodies due to the reported cases that airplane fly high in the sky, and the release of carbon destroys the ozone (Oliveira 2016). The association of planes with the cause of climate change is an issue that is affecting the airline industry, especially on the kind of fuel to use. According to Stephenson et al. (2018), modern planes use saturated fuels, which are reliable source of carbon dioxide-classified as a greenhouse gas. Remaining responsible for the environment is a costly venture to the company, which siphons much of the finances as the management aim to comply with the environmental standards.

Apart from the surrounding, Climis (2016) noted that the market environment dictates the strategies that a business can use to position its products in the market. The airline industry is becoming competitive, due to the entrant of companies offering lower prices, compared to Eco-Air. Also, the rules and regulation placed across by the government limits the opportunities and compels the companies to remain on their routes of operation (Elias et al. 2015). Seeking to establish a new path is expensive and would take time to get certification from the government

Social

The nature of the consumer changes with time, and the difference is transmuted to the business. Stephenson et al.  (2018) performed a study to establish the reason some of the traditionally recognized airline companies in the world have continued to register a decrease in the number of customers. To achieve the objective, the author reviewed the secondary sources and identified that most of the companies never considered the aspect of social welfare to immediate customers. The method used by the author is acceptable since the sources were retrieved from reputable databases, which focus on airline industry. Social factors include the fares charged to the customers and contributing towards improvement of the lives of the people, such as supporting education (Ryden et al. 2018).  The study elucidates that airline companies have little regard for such activities, which could be the reason behind the depressing number of customers. Eco-Air could integrate such actions in its operation to revive its initially lost glory.

Technology

Technology in the airline industry is essential in the control of the flow of traffic, marketing, and ticketing (Kotegawa et al. 2014). Passengers now are required to access the services without taking much of their time. One of the areas that the company in the airline industry can leverage on is marketing. With the proliferation of social media platforms, the company can use free platforms to save on cost of advertising in the mainstream media. The approach saves on price and also helps in reaching out to a high number of customers. Uno Air has not fully integrated the use of technology, and especially in ticketing and advertising, which is a prime area to focus on.

Legal

Aviation laws and regulations cover the issues that arise in the airline industry. Manuela (2011) noted that they cover aspects such as aircraft trading, finance and leasing, litigation, dispute resolution and commercial & regulatory. They are in thirty jurisdictions, in regards to the United States precepts. Any company, either small or large, is supposed to adhere to the stipulated laws since they form the basis of regulating the industry to be only run by the experts., Eco express which is operating as dual designate has been in the market for a long time, and the management is aware of the existing laws and regulations.

Key strategic moves

The financial performance of Eco-air was depressing, due to the entrance of the competitors in the market. While the company was known due to its brand strengths, new entrants into the industry, offering cheaper and high-quality services minimized the profits of the company, thus finding it hard to sustain in the market. Oliveira (2016) noted that competition is one of the strong waves that can deceive the company’s finances if not well checked. In the case of Eco-Air, the customers were shared with other players in the market, and the only option was to restructure its operations. One of the decisions that was arrived at was to form a dual designate with Uno air, and the company rebranded itself to Uno Express. The approach was arrived at, to minimize the operation cost (Elias et al. 2015) by utilizing some of the resources of the mother company (Uno Air). While the decision is a way to save on cost, the implication is that a certain amount of the profits made by Uno Express had to be channeled to the umbrella company. At the initial stages, the company might fail to generate enough revenue to sustain the cost of its operations and pay the specified amount to the Uno Air. Forming a dual designate curtails the company being integrated from making significant decisions (Richter and Witt 2016), which would slow down the company’s innovation.

Besides, the management conducted several changes in marketing, to jumpstart the company from its struggling condition. The company decided to invest heavily in advertising and marketing. According to Clow (1996), one of the strategies that help the companies to withstand the stiff competition in the market is capitalizing on creating brand awareness. The airline industry is growing at a rapid rate, and the need to focus making the company’s image alive to the eyes of the customers is essential. Choosing to exploit on marketing was fueled by the fact that the change of company’s name from Eco Air to Uno Express would make the previous customers confuse it to a new company.  However, the option is not easy since the company is at infancy stages of regaining from the market shocks.  As a result, use of the salespeople from Uno Air was considered as an alternative to minimize the costs of marketing. The decision is supported by Nazri and Adzharuddin (2017), who alluded that in a dual designate, the companies can cost-share, to uplift the struggling entity.

In the same vein, Ryden et al. (2015), noted that marketing decisions are guided by various theories and application of appropriate models. In this case, the 4P model was used, to assist in making decisions in regards to price, place, product, and promotion. The four are referred to as a marketing mix (Okeudo and Margaret 2013), which plays a central role in positioning a company to the customers. The fare was set to normal, but the cabin services introduced-free soft drinks and snacks for specific flights. The approach was aimed at attracting the customers, whose tastes have changed with time (Clow et al. 1996).

However, it meant an addition of extra $2 per passenger, which had the potential of scaring away the customers and seeking cheaper alternatives. Furthermore, the company did not hold to strategy with regards to venturing into new routes and schedules, but with the recession taking place, the managers wanted to stabilize the company before taking risks. For products, the company diversified into cargo but didn’t go into auto rental.  The main reason for doing so was to remain faithful to the strategy which is aviation. Similarly, promotion is regarded by Jeon and Kwon (2012) as a way to entice the customers, through enhancing public participation. Uno Express set out a budget to cater for brand familiarization and explaining to the customers of the new collaboration with a new company.

To further improve the output of the employees, the management considered evaluating the human resource department. According to Oppong (2017) human resources is the central nerve of the success of any company. They get motivated or demotivated by the prevailing environment they are exposed to. The author conducted a study of well-performing airline companies in the world and adopted a qualitative methodology. This approach gives diverse opinions and can be relied upon to study a broad topic. The result of the study confirmed that re-skilling was one way that helped the employees to be productive. For Eco-Air, the management decided to spend more money to train the employees. Also, there was a suggestion to increase salaries by 2%. The approach was arrived at since the company had recorded a high rate of turnover (12%).  The figure below illustrates the turnover rate.

Employees exit is fueled by poor remuneration, unsupportive working environment (Prasetya at al. 2018), among others, which should be addressed to motivate them to work. Despite the efforts made by Eco-Air, the financial depression compelled the management to increase the salaries by minute percentage, which might not attract new and skilled employees to the company. Quality is a measure of the public’s perception of the service provided by the airline (Kotegawa et al. 2014).  At a scale of 50-100, Eco Air was ranked at 85, since the management tried to give customers quality for money even while competing economically. The strategy was fulfilled by providing light snacks to customers while flying, and it was anticipated to improve the customer’s loyalty. The graph below illustrates the quality rating over different quarters.

Being environmentally conscious cannot be ignored in the airline business. The Eco Air opted to fly to the maximum to carbon footprint. The approach is not only helpful to the environment but also reduces the struggles of the company with the regulatory bodies, which ensures that all companies remain compliant with the set out regulations (Climis 2016). Operating with old planes, the target to be environmentally friendly was near impossible, not unless the new airplanes were acquired. Kwon (2019) noted that the business’s financial stability dictates the nature of assets it has. Lack of enough funds mitigate the operations and coincides with what Eco-Air was undergoing through. The company failed to pay dividends to shareholders for two years as a way of saving on cost. This has an effect of making the shareholder lose confidence with the company (Climis 2016) thus putting the company in a more financial crisis. However, the company’s finances are sound though did not make any considerable amount of profit. In a situation where Eco-Air, operating as Uno Express is not producing enough profits, capitalizing on safety – a high level of maintenance on all planes is essential.

Reflection

The simulation was an effective way to learn how to help a company in the financial crisis to reclaim its market share back. The model that was used to come up with the reflective is GIBBS. The simulation began by thinking of the possible strategies to make, to take over the company from its depressed financial condition. From the onset of the simulation, I felt that the main thing we could have done was to rebrand the company. However, we decided to work under the umbrella of Uno Air, which was a good idea since we utilized their specialized skills. I realized that we faced stiff competition from large companies and new entrants. Therefore, the main option was to improve our internal operations. In future, we need to invest more in human resources.

Conclusion

Eco-Air is the company in the Airline industry that has been struggling with financial issues. Through the use of appropriate models- SWOT and PESTEL, and integration of the marketing mix, it was confirmed that the company has the opportunity to grow, beyond its financial state. However, a number of changes had to be made regarding marketing, human resource, finance, and operations. The management decided to capitalize on advertising and marketing, to familiarize the customers of the new engagement with the Uno Express. Also, the company opened to use the sales force of the umbrella company to save on cost. Similarly, the report highlights that the training of the employees was essential to equip the workers with the necessary skills within their respective departments. Likewise, increasing the salaries by 2% was considered an option to reduce the rate of turnover, and the management agreed on remaining responsible to the environment by trying to fly at maximum capacity when it came to passengers to reduce carbon footprint.

Recommendations

The company should consider paying dividends to its shareholders. According to Kwon (2019) shareholders are the pillars of any company, and they help in raising the capital. Failing to pay them dividends trigger them to lose confidence with the company, and they can easily withdraw. Eco-Air should, therefore, pay them in phases to retain their shares. Second, the company should invest more in training the employees in their respective areas of specialization. For example, the CFO, marketing manager, and human resource manager have no training in those areas, which is the leading cause of poor decision making. The company can opt to outsource for more skilled professionals in those departments, to help in making complex decisions. Likewise, Eco-Air should explore other routes that have little competition. The company’s profit is retrogressing due to high competition in the routes it operates on. Flying in non-competitive paths would save the company from the financial crunch it’s experiencing presently.

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