A Case Analysis On Arik Air Nigeria Commerce Essay

This essay is a case analysis on Arik air Nigeria and will therefore seek to identify the major threats and opportunity in the environment, analyse the strength and weakness of the company, identify the strategic position of Arik air, and suggest a strategy to be adopted by the airline in an effort to sustain its competitive advantage.

BACKGROUND

Arik Air is Nigeria’s biggest indigenous commercial airline offering domestic flights to major cities in Nigeria and with an expanding network of regional and international flight operations to major cities in the world (Eze, 2010).

Presently, Arik Air flies to 17 Domestic destinations in Nigeria and 8 International destinations (Arik air, 2010: Online).

Arik Air Nigeria

The company’s corporate mission is:

‘To be a safe and reliable airline by selecting and operating new, modern aircraft and by employing the most experienced and efficient staff.’ (Airkair, 2010: Online)

Vision:

‘To make Nigeria proud of its aviation industry’ (Arikair, 2010: Online)

Strategic Intent:

Arik’s strategic intent is to be the preferred airline carrier of choice in West Africa. (Airk Air, 2010: Online)

EXTERNAL ANALYSIS:

The external analysis was conducted using PESTEL Framework and Porter’s five forces as the basic tools (Thompson, 1997; Luffman et al, 1996; Welsh, 2005; Johnson et al, 2009) in an effort to understand the effect of changing environment on Arik Air’s operation.

The findings based on pestel framework (See Appendix 1) and Poster’s five forces (See Appendix 2) are as follows:

An analysis of the political environment revealed that governments around the world are tightening immigration regulations due to the surge in terrorism the implication of which is a reduction in the number of global traveller thus posing a threat to airline including Arik Air. (Stevermen, 2009; Cartar, 2010). However liberalization and Deregulation efforts are being made in several regions of the world with Asia setting a target for the full liberalization of its skies by the year 2015. This is projected to boost aviation industry performance by creating avenue for fair competition platform between more established airlines and the growing competitors like Arik Air(Bailey, 1986; Smith & Cox, 2007; Ting, 2008).

The rising fuel price is a matter of economic concern in the world, with Aviation fuel price estimated at $85 per barrel (IATA, 2010: online) the implication of which is an increase in running cost for airlines and this poses a high threat to Airlines. However, there is optimism that a global economic recovery is on the way with the world economy expected to grow 2.7% in 2010 (World Bank, 2010: Online) and the aviation industry is forecasted to reduce its loss from $5.8 Billion in 2009 to $2.8 Billion in 2010. (Financial Times, 2010). The World travel & tourism council (2010) projects an increase in the number of holiday travellers in 2010 with further growth expected in 2011. The 2010 world cup is expected to boost travel to Africa in 2010 (Eberl, 2010).

Impact on this year’s fuel bill of the global airline industry:

Source: IATA (2010: Online)

With heightened security checks and the introduction of the full body scan at airport, there are concerns over the privacy infringement due to the utilisation of the full body scan. (McDonough, 2010).

Arik air is in the traditional full service airline industry offering pre-flight, in-flight, and post flight services to customers and its competitors in the industry include Virgin Atlantic, British Airways, Air France, Lufthansa, Emirate, Qatar Airline and South African Airways all of which are established airlines with good brand image. An industry analysis revealed as follows (See Appendix 2): there is high competitive rivalry within the industry; barrier to new entrant is high due to the enormous capital required to start an airline; buyers have a high bargaining power due to the various options of airlines available to them and suppliers have a medium bargaining power.

INTERNAL ANALYSIS:

The internal analysis was conducted through an evaluation of the resource based view of strategy (resources and competencies) (Mahoney & Pandian, 1992; Johnson et al, 2009); as well as competitive advantage; value chain and VRIO (Johnson et al, 2009; Thompson, 1997; Luffman et al, 1996) to identify the strengths and weakness of the company. (See Appendix)

UNIQUE RESOURCE(S) AND CORE COMPETENCIES (See appendix 3 for the list of tangible and intangible resources of the company)

Arik Air’s unique resource is its chairman who is an elder statesman in Nigeria with an easy access to finance while its core competencies are its excellent customer relations skill and reliability

COMPETITIVE ADVANTAGE

Arik air derives its competitive advantage from a unique merge of low price and quality service. This is based on its vast research and unique understanding of the West African market need for quality service at affordable prices and the support it receives from the Nigerian government and some other West African countries through concession and subsidies which thus reduces its operational cost and affords it a lower price than competitors (William, 2010; Russell, 2008; Abioye & Ezeobi, 2008).

THE VALUE CHAIN (See appendix 4)

An evaluation of Arik Air’s value chain activity revels as follows:

The Inbound logistics which involve the delivery of fuel for the aircraft, in-flight meals, cleaning of the aircraft in preparation for a flight is outsourced (procurement) through an effective human resource management practice in an effort to reduce amount of people employed by the airline and reduce fixed operational costs.

Arik with its strong finance base utilises an integrated ICT technology (Infrastructure/technology) to manage and support its operation by enabling online bookings, ticket purchase and flight check-in in an effort to reduce operational cost of employment. To ensure safety/reliability, a strict maintenance of its fleets is outsourced and an effective human resource management policy is put in place (training and reward) to promote employee commitment and performance (Arik, 2010: Online; Banfield & Kay, 2008).

Outbound logistics with regard to customer’s luggage is coordinated and monitored with a technological coding and is outsourced to Sachol to ensure the safety of customer’s property and to sustain Arik Air’s reliability (Airkair, 2010: Online, Sachol, 2010: Online) while an extensive marketing is implemented through the media to promote sales.

This enables Arik air to achieve its competitive advantage through a systemic integration of technology (speedy services and reduced operational cost), human resource management (ensures quality delivery of services by employees) and a firm infrastructure to support its primary activities thus enabling the airline to deliver quality services at reduced prices in comparison to competitors.

VRIO:

The VRIO examines the sustainability of a firm’s competitive advantage (Johnson et al, 2008);

Arik Air offers its low priced fares with excellent in-flight services unparallel to none offered by any Nigerian airline (Eze, 2010) which implies that its services are valuable and rear. However this can be imitated by other airline thus Arik air enjoys a Temporary competitive advantage (Khanna, 2010)

In the airline industry the critical success factors are: a good brand image; good quality service; good customer relations; cost effectiveness; Reliability; safety. (Svein Vidar, 2004; Bijan & Kenneth, 2005). Judging by the critical success factors in the airline industry, Arik Air’s performance is standard in the industry since the airline’s services are affordable, safety is given high priority, it offers good customer service, and is reliable. However, there’s need to develop the Arik brand beyond West Africa.

SWOT ANALYSIS (Kotler et al, 2009)