Case study on hk express

  • Category:
    Management
  • Document type:
    Case Study
  • Level:
    Masters
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    4
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    2375

HK Express Case Analysis 5

HK EXPRESS CASE ANALYSIS

Introduction

HK Express is a low-cost airline carrier (LCC) in Hong Kong. The airline mainly focuses on low fares and effectiveness in on-time reliability. In addition to its first flight that took place in October 2013, the airline has created a number of additional destinations on its operations. Currently, HK Express operates to destinations in the region of Asia including Japan, China, Taiwan, Thailand, Cambodia, Korea, and Vietnam. At the moment, HK Express operates several modern Airbus A320. Due to increase in the list of destinations, the airline is set to further growth in the number of the fleet with plans to an estimated thirty Airbus A320 by 2018. HK Express faces strategic issues of competition, socio-cultural practices, managerial implications, and dual-branding with its sister carrier Hong Kong Airline.

The operation of HK Express as the only Hong Kong’s LCC has granted it a greater opportunity of having a bigger impact on market and travel stimulation. HK Express has received a positive market entrance which makes it more competitive and visible. As explained by (Park, 2015), HK Express faces a great challenge of competition from full-service carriers such as Cathay, Dragonair, and Hong Kong Airline. As low fare offered by HK Express tends to attract many guests, some customers have the perception of low-quality services. More often than not, cases, the price is comparative to quality hence the assumption will make some customers opt for full-service carriers as proposed to HK Express.

HK Express’ general external environment

General external environments such as economic, political, sociological, demographic, socio-cultural, global, and technological influence the business activities of HK Express by creating opportunities and threats. The opportunities enable HK Express to enter into the world markets and secondly, use appropriate technology. The threat includes regulations on its operation in the global market as suggested by (Samarrokhi,2014). Economic factors such as GDP value, interest rates, inflation rates, and monetary policies need monitoring to compare with economic factors facing HK Express’ competitors to define indications of changes in market competitiveness. Factors such as a change in political levels, political stability, and change in government policies and regulations all define the political environment surrounding HK Express. Political environment affects business activities of HK Express in various ways. For example, any terrorist attack in any destination of HK Express will cause a large impact on its flight activities.

In a social environment, variables such as population, demographic changes, and customers’ values affect the type of products and services offered by HK Express. Different countries have diverse cultural practices. The practices influence consumer tastes and preferences. Change in values of the culture will affect the goods and services in the market and determine which kind of commodity or service to be delivered to specific market. Technological changes in the fields of electronic commerce, internet development, and information technology have created a significant impact in HK Express service delivery. It influences all business operation information and communication, products innovation, and production process. Technology speeds up operations in cargo handling and clearing. As such, creates effectiveness in information handling in HK Express.

Industry analysis of HK Express using porter’s five forces:

The porter’s five force is a technique that analyzes the industrial competitiveness. It identifies the attractiveness of the industry for long-term profitability. The forces also determine competitive position of the industry as argued by (Pearson, 2015). The porter’s Five Force consists of new competitors’ entry, threats from substitutes, buyers bargaining power, suppliers bargaining power, and rivalry among existing operators.

Competitive rivalry

HK Express incurs competitive rivalry from full-service airlines such as Cathay, Dragonair, and Hong Kong Airline. However, these airlines are mutually interdependent. A competitive action from HK Express will have an effect on other airlines in the market commonality hence determining its market position. For instance, the excessive cut in price and promotion by HK Express will destroy the existing market of full-service airlines. HK Express has shielded itself on dynamics of competition from competitors by gaining the loyalty of its customers, increase the experience of customers on its services, seeking large markets, and controlling its operations properly. High level of competitive rivalry in Hong Kong’s airline industry has compromised potential profitability of HK Express leading to innovation as suggested by (Tsui, 2016). As such, it has stimulated consumer demand on HK Express services.

Threat of new entrants

New entrants of airlines in the aviation industry bring the new capacity of service delivery thus providing substantial resources provided the market be profitable. Conversely, it may create a competitive environment for new entrants to gain market share. Thus, an effective barrier to entry determines the extent of the threat of new entrance. Some of the barriers to entry include factors such as economies of scale, government policies, market channels, high capital investment, and access to the skilled human resource. HK Express experiences difficulties in deciding on their investment policies due to uncertainty in demand and pricing policies. Emerging trends in new entrants include open air markets. Besides technological and financial challenges, HK Express faces political constraints in the international destinations where it carries its operations.

Power of customers and suppliers

Due to increase in some operators in the airline industry in Hong Kong, customers have a variety of alternatives to choose the airline that appropriately meets their expectations. As such, it has resulted to HK Express to improve its service delivery. HK Express uses the low price mechanism and value-added strategies to target its customers. On the other hand, the bargaining power of suppliers also influences the operation of HK Express. The suppliers provide special inputs such as skilled human resource, components, and equipment. Quality inputs from suppliers have enabled HK Express to offer services that meet customers’ expectations leading to increasing its competitive advantage.

Threat of substitutes

Substitute services can satisfy the same need as another service thus generates a threat to existing service provider. If the substitutes become more attractive regarding performance and cost, then consumers will tend to prefer the substitute. For HK Express to prevent the threat of substitutes, it has upgraded its service qualities. HK Express has upgraded its services by offering value-added services, strengthening its facilities, and reducing prices. Competition from substitutes is a significant threat to HK Express, therefore; the airline should analyze and monitor market circumstances and consumer expectations more closely.

Opportunities and threats faced by HK Express

Opportunities

  • Technological development

The effect of technological development has generated a positive impact on HK Express operation, particularly in a market. Use of developed technology has led to new designed low-fuel consumption aircraft. This aircraft used in HK Express has low costs of operation hence the company does not incur much input costs as compared to the outstanding profitability. Furthermore, use of advanced products benefits the effective operation of the airline.

  • Change in socio-cultural

HK Express’ main targeted customers are those flying for leisure and business purposes. The other target is the western business travelers who seek the state of art technology.

  • Increase in competitive pressure

HK Express faces aggressive competition from full-service airlines of Cathay, Dragonair, and Hong Kong Airline. Privatization of aviation industry has led to increased competition increasing complexity in markets of air transportation.

An internal organization analysis for HK Express

HK Express financial business performance relies majorly on underlying economies of the route destinations, fuel prices, leisure opportunities from Hong Kong, and currency mix. In October 2015, HK Express started realizing trafficking financial figures, which indicated a double in size of its financial business career. As such, the carrier did not have any external financial borrowing in the first quarter of 2015. On the upside, the introduction of A321 Airbus in HK Express means uplift for revenue growth of $0.22M provided complication in the competition indicates low risk in hybridism.

Technological development

HK Express has invested in technology to streamline its business operational ability. The carrier uses integrated communication network to enhance airline operational efficiency and customer service. HK Express is one of the leading proponents of information technology, navigation, and traffic surveillance in Hong Kong. The introduction of electronic ticketing has rendered passengers with greater convenience and control over their travel plans. HK Express has also launched a mobile application, which pioneers online innovative experience for its customers. Using this mobile app, customers can conduct flight booking services, check route map information, and check seat upgrades. In general, technological development in HK Express has triggered better work methods and has driven the carrier to set new and efficient standards of operation.

Human resource management

HK Express has a team of energetic and highly qualified staff from all around the globe. The company has been hiring an average of one employee after every two days. As such, HK Express has raised its employee number from four hundred to six hundred across cabin crew, pilots, and administration. In contrary, HK Express has opened up career development opportunities for its staff to benefit them with a vast knowledge of professionalism.

Competition

HK Express faces stiff competition from full-service carriers such as Cathay, Dragonair, and Hong Kong Airline. However, HK Express has reduced competitive stress from its competitors through the strategic initiative of LCC, which has enabled the carrier to have a larger impact on travel and market stimulation by securing a sizeable competitive advantage on the market according to (Heshmati, 2016). HK Express competes by using a business model that makes use of latest technology, operating at the high utilization of its resources, and eliminating costs that do not contribute to customers’ experience. Implementation of these methods enables HK Express to offer a high level of safety to its esteemed customers but with low costs of fares to markets that it operates. Consequently, HK Express also gives its customers a choice to make on extra services they would like. Services like beverages and meals on the flight, seat with extra legroom, and checked cargo, are among the services that enable the company to be competitive in the market by extending low fares to its customers.

Analysis of HK Express strengths and weaknesses

Strengths

Based on competitive advantage on customers’ services, HK Express meets most of its clients’ expectations by offering quality service delivery regarding safety, low fares, in-flight customer entertainments, and on-time arrival. The customer-driven strategies have reinforced HK Express’ image on the market. Additionally, HK Express has strengthened its brand loyalty to gain competitive advantage. The company puts much effort in branding its image to market through product tour, arrival in better shape, and establishing a favorable government relationship.

Weaknesses

HK Express faces ineffective costs and yield control weakness caused by a yield in the weakening of the Asian currency. The management committee, however, should implement its deliberate strategy to gain profitability in the face of spiraling competitive forces, rising fuel prices, raise the exchange rate, and shrink in yields.

Business level strategies used by HK Express

HK Express has embraced a dual-brand strategy with its sister full-service carrier Hong Kong Airlines. HK Express expects to be a hybrid LCC, making operational connections with HK Airlines and other HNA Group carriers. The success of HK Express transformation to LCC relies majorly on the freedom granted by HK Airlines.

HK Express has realized its business objectives through the implementation of management strategy. HK Express has incorporated its management committee with expertise managerial skills to solve market changes through easy communication amongst the staff. HK Express also uses a system of internal controls to adhere to management policies, safeguard assets and secure its assets. The internal system of auditing department reviews business processes of the company, which include computer and financial systems. The managerial strategy enables HK Express to improve on reliability, quality, and effective operation of business processes.

Use of LCC strategy has enabled HK Express to fly an extra eight thousand passengers daily. LCC strategy has pioneered HK Express to have a vast and diverse air travel market. Low fares to HK Express’ customers have enabled the carrier to gain more competitiveness in the market from frequent leisure trips to Hong Kong. LCC strategy insulates HK Express from growing competition in Hong Kong market.

Evaluation of HK Express’ decision to enter an LCC alliance

HK Express transitioned to LCC on October 27, 2013, due to a widely anticipated need of low-cost travel in Hong Kong. The core vision of HK Express was to make low fare travel accessible to its customers. The airline achievement in LCC alliance has been a great success. HK Express has achieved carrying over three million customers with low fares, excellent service delivery, and on class performance as compared to other airlines in Hong Kong. HK Express offers low fares aimed to encourage first-time travelers and travel frequencies from its esteemed customers.

Recommendations to HK Express for sustained competitive advantage.

HK Express faces the future with tight limits as competition and fuel prices remain a constant concern. Therefore, the managerial implication of HK Express should have appropriate ability to understand competitive strategies and cost control strategies to respond accordingly to the changes in the business operation of the airline. Appropriate response will have it that HK Express continues capturing profitability in future.

The key recommendation for HK Express to remain competitive in future and enjoy a significant market share is that the company should offer training programs to its staff to equip them with innovative creativity and skills to deliver best experiences to customers both onboard and ground.

References

Heshmati, A. and Kim, J., 2016. Introduction to Efficiency and Competitiveness of International Airlines. In Efficiency and Competitiveness of International Airlines (pp. 1-14). Springer Singapore.

Park, N.K., Lee, J. and Park, U.D., 2015. Korean Air Cargo: Strategic Challenges in an Evolving Environment. Asian Case Research Journal, 19(01), pp.127-154.

Pearson, J., Pitfield, D. and Ryley, T., 2015. Intangible resources of competitive advantage: Analysis of 49 Asian airlines across three business models. Journal of Air Transport Management, 47, pp.179-189.

Samarrokhi, A., Jenab, K., Arumugam, V.C. and Weinsier, P.D., 2014. Analysis of the effects of operations strategies on the sustainable competitive advantage in manufacturing systems. International Journal of Industrial and Systems Engineering, 19(1), pp.34-49.

Tsui, W.H.K. and Fung, M.K.Y., 2016. Analysing passenger network changes The case of Hong Kong. Journal of Air Transport Management, 50, pp.1-11.