Final Report: Air Astana

Executive Summary

Air Astana is the main airline of the Republic of Kazakhstan (Zaleden 1). The company provides a number of both domestic and international services in Kazakhstan from Almaty International Airport on 64 routes. In 2013, it was nominated as the Best Airline in the whole of Central Asia for second time (“SkyTrax World Airline Awards”). Furthermore, the World Airline Award has recognized Air Astana as having the Best Staff Service across Central Asia and India (worldairlineawards.com). It is the only airline in CIS region and Eastern Europe that has managed to continuously garner a four-star Skytrax rating, being one of the fastest growing companies in the world. Currently, the company runs a fleet of 25 Western aircraft and about 63 local and international routes. It is the only airline in Kazakhstan to have received the certification from EASA part 145 standards. Its future growth, the quest to gain competitive advantage and the increase in quality of service delivery has made the airline order for Boeing 787, Embraer 190, Airbus A320 and Boeing 767 (Air Astana). In 2015, Air Astana introduced ‘Economy Sleeper’ that is qualitatively similar to the products of premium economy. Air Astana has achieved consistent profitability over the years and has featured many times in the top twenty of the most profitable airlines in the world in relation to the net margin. For instance, in 2015, the company secured an increase of its operating profit margin by 115% in the first half of the year to 23.9 million dollars (Air Astana). According to Business and Air Finance Journal, the airline is on the 20^th position in its global airline financial rating survey in 2015. Air Astana represents an unbelievable success story, especially in regions of the world often forgotten and this portrays a global trend where the privatization and deregulation makes private companies flourish comparing to the state owned counterparts.

SWOT Analysis of Air Astana

Strengths

The company boasts of a highly trained staff with excellent interpersonal skills (Zaleden 1). Customers are always thrilled and satisfied whenever they travel and the staff makes them feel comfortable, welcome and cared for. Hence, they tend to prefer the services of such an airline to others. Air Astana considers its staff one of its greatest assets because they are the ones who successfully interact with clients on a daily basis. The staffs are highly skilled professionals, well trained to handle different customer behaviors. As a result, they can contain hungry customers, enthusiast and even curious ones. Interpersonal skills such as perfect personal etiquette knowledge, grooming, an appropriate tone and courtesy are the quintessential characteristics in securing customer loyalty in a competitive market.

The foundation in place of recruitment design and associated policies guaranteed consistency in the quality of service delivery. The company is keen to recruit the individuals who add value to the airline rather than just good performance oriented people. The human resource managers are keen to employ the creative, innovative and excellence in their work people. These are the individuals seeking the opportunity to achieve prominence rather than simply conform to the existing practices in the company. As a result, they develop new creative and innovate ways of operations and foster ideal performance in all areas of work to ensure that the airline remains and hopefully becomes more competitive over the years.

Weaknesses

The lack of group exercises to test a person’s skill level proves to be a weakness (Zaleden 1). As a result, some employees may not possess the required modern skills to perform excellently in the company, thus hindering its progress in certain areas. It also means that the level of teamwork in the company is either low or insufficient. There is also of the necessity for a competency-based selection in performing specific duties. The management assumes that every employee is best qualified to perform a given function as long as that is his/her area of expertise. However, that notion proves to be a gamble because one can be qualified in a given field but not competent enough. Competence comes with experience and continuous training rather than educational achievements (Armstrong 18). The screening procedure is also a desirable point of company’s future progress. It has not incorporated the use of modern equipment in screening yet and as a result, dangerous weapons and substances can find their way into the airplanes. Considering that the Airline works in Asia, a continent full of violent extremism, it is ironical that it has a weak screening process.

Opportunities

Air Astana is currently planning to redesign its recruitment process. This step would ensure that it attracts special talents and skills rather than mediocrity (Zaleden 1). Training both new and old recruitment teams to meet the same standards is integral in ensuring there is uniformity in the service delivery of the company. This opportunity would standardize the quality of services and empower other employees. There is only one selection training program in place nowadays, presenting many opportunities to incorporate up-to-date methods of enhancing the work of the staff. Lastly, the company can pass course generic sections to the rest of Air Astana.

Threats

A weak practical selection skill is a big threat to long-term competitive future of the company (Zaleden 1). Other companies are strengthening their selection process by hiring foreigners to gain the competitive advantage (Armstrong 12). Air Astana is not making a favorable impression in terms of professionalism. As a result, certain customers, such as government officials, tend to ignore the services provided by the airline. Besides, inconsistent recruitment threatens the health of performance in the company since in the years to come, and it would not sustain the quality of services it is known to offer.

Industrial Analysis (Five Forces Approach)

Air Astana is part of Airline industry that is famous for offering a unique kind of services to those traveling. It provides transport to people with efficiency and a high level of convenience that cannot be provided or even substituted by any other industry. Therefore, Air Astana is proud of itself in the way that it treats the customers on board with food and drinks, various forms of entertainment and a welcoming staff.

Bargaining Power of Buyers

Many people select their flight depending on the destination, cost and time availability and convenience. In conjunction with all the services mentioned, Air Astana attracts loyalty because it is the best Airline in Central Asia and Eastern Europe. This company focuses on having the best amenities, with the bargaining power of customers hence posing an extremely low threat to its existence in the industry. Air Astana proliferate distribution systems and online ticketing for the fliers in the region not to depend on intermediaries and agents for their ticketing needs. The fliers in Central Asia and Eastern Europe have also benefited from the resultant prices from low cost carriers used by the airline. In addition to this, the stringent regulations directed to the demand side of this airline have protected the passengers from regulators, thus tipping the balance of power to passengers’ favor. Numerous factors, such as competitive pricing and the techniques of management have ceded power to the consumers, making their influence moderately high (Porter 40). Additionally, buyers can participate in price discovery and consequently, the fluctuations in prices can hardly deter them from booking flights.

Bargaining the Power of Suppliers

The main suppliers in the airline industry are the airplane manufacturers such as Airbus, McDonnell, Douglas, and Boeing. The inputs required are highly standardized. However, the companies are forced to differentiate with amenities since the planes are similar in design and outlook. For instance, Air Astana introduced business economic class and economic sleeper class, which do not exist in other airlines. It is always not easy for Airline companies to switch their suppliers. This company has nevertheless signed contracts with both Boeing and Airbus to supply commercial aircrafts. The planes require high capital products. Thereby, Air Astana makes long-term loan agreements to have favorable credit terms. Consequently, it does not lose or switch the partnership with the above stated companies. The funding necessary to make and supply planes is as high as $200 million, with few suppliers being able to thrive in the business online. Air Astana, identically to other airlines, needs aircrafts on wet lease basis or outright sales meaning that the airline must depend on the Boeing and Airbus to meet their needs. Therefore, the power of the supplier, considering the three inputs that must be injected (labor, aircraft and fuel), is categorically high (Porter 27). The costs of these inputs are largely affected by the external economic environment.

The Threat of New Entrants

Entering airline industry requires huge capital investment. Even to exit the sector, an airline must absorb and write down numerous losses. This implies that the entry and exit barriers are high. For example, the enormous infusion of capital, sophisticated knowledge and a high cost of labor become deterrent factors (Porter 38). Additionally, Air Astana leverages the synergies and efficiencies from its economies of scale, thus setting entry barriers too high.

The Threat of Substitutes and Complementarities

Air Astana can be gradually substituted when or if its potential consumers decide to take trains and buses for journeys. This is predetermined by the fact that the airline operates in a developing world, unlike in the United States where flying is considered a natural phenomenon for most people. However, the company and the entire industry do not have the substitutes for long distant international travels, especially to the areas that are not connected by railway or roads (Porter 34). It is also important to note that the complementarities such as free Wi-Fi and other sundries do not translate into more passengers since fliers are nowadays more attracted by lower fares.

The Rivalry with Existing Players

As it is in any high-income industry, rivalry in this one is extremely intense. Air Astana faces constant and rather tough competition from Asian Airlines, KLM, Turkish Airlines, Rossiya Airlines, Austrian Airlines and Etihad Airways. The industry is normally stagnant and is at the mature stage of the business cycle. The products are extremely complex, thus heightening the competition. Brand identity tends to lessen competition at times. For instance, Air Astana is known for its new amenities and prices charged for fliers in economy class. The market share appeared to be distributed equally owing to the fact that each company has its own segment of the market and the cost of switching to another sphere is not low. Consequently, it is not possible for a firm to occupy a large share of the market alone (Porter 45).

Recommendations

Time Performance

Since 2012, the airlines have found a range of ways of overcoming the challenges of departing on the set schedule. This is because punctuality is one of the principal performance indicators in the industry and a key service differentiator, more so among high-yield customers. Air Astana has not been excellent when it comes to on-time performance. In recent years, it experiences flight delays of up to fifteen minutes. However, the improved timely performance is vital for achieving significant cost savings. Delay costs Air Astana from 0.6 to as high as 2.9% of company’s operating revenues (Niehues 10). The best way to achieve the strictly-scheduled performance is by ensuring network control and planning, grounds operations processes and aircraft availability. Air Astana can integrate the planning process, develop a sound structure, suitable block, and slack time deployment, effective recovery strategies, unscheduled maintenance and identifying real delay root causes.

Not Enough Direct Destinations

Air Astana covers few direct destinations because of the rules and regulations set by Aviation authorities on required standards by Airports to be allowed to operate direct flights to countries such as the US and numerous European states. As a result, it is maximizing on its potential influence on certain markets. For instance, Africa can provide direct destination but the airline has hardly exploited the option. Therefore, direct flights to the US would increase its market share by $875.1 million, namely, by more than 10% (Air Astana).

Related Free Business Essays