Strategic Management Report On Air Canada

Value Chain Analysis

Strategic management seems to be the operation of establishing goals, processes, and aims and objectives to increase the firm’s profitability. This also does provide appropriate direction by planning and decision making and guidelines to meet the goals so that they can allocate the resources to implement the plans. In this report, Air Canada Company has been chosen, which is the largest domestic and international airline serving more than 210 airports on 6 airports (Rabetino, Kohtamäki and Federico, 2021). This report covers the characteristics of the industry that can be determined through value chain analysis and using five forces of porter’s frameworks, competitor’s analysis, and current buyer behaviour. Also, an internal analysis has been done using the current company strategies in this report, and apart from that key strategic issues and gaps facing the company over 3 years based on the analysis. Through this, proper evidence and example must be examined so that effective analysis could be achieved.

Value chain analysis refers to the activities of the company that performs and links each activity to a strategic competitive position in the industry. So, it is analysing the value chain activity of the chosen company so that it evaluates the value of goods and services. Following analysing the value chain activities of the company is as follows-

Primary activities –

• Inbound Logistics- These tasks are related to accepting, recording, and spreading input consumer goods. It entails the physical manufacturer’s movement of material and storage and distribution that helps in storing the information of customers for a digital media company (Bogers, et.al., 2019).
• Operation- This will assist the business in converting raw materials into completed commodities. The requirement for just using user information to serve advertising messages based on client conduct update the future, as well as moulded packaging to produce things usable.
• Outbound Logistics- Air Canada, in this activity to distribute the finished products to the partners and final consumers. It involves wholesales and retailers’ order fulfilment, scheduling, distribution network and warehousing (Ketchen Jr and Craighead, 2020).
• Marketing and Sales- All such operations involve company sales leadership, mode selection, brand management, and publicity, which can be used by the firm to construct the methods through which consumers can purchase the specific product or service.
• Services- 

Support Services

• Firm Infrastructure- Air Canada additionally supplies after-sales solutions and support to ensure a enough use of offerings, which include post-sales repair, retraining, and technical services utilised continue providing backside realignment of technology and part delivery.
• Human Resources Management- Air Canada HRM is also successful, which involves recruitment, people who are planning, employment, learning and development, selecting, performance assessments, and remuneration. It affects the competitive advantages in the industry and given the company has effective human resources management as it also won the Best Airline in North America 8 times in 10 years and Best Airline staff in Canada and Best Airline Cabin Cleanliness in North America (Semko and Altukhova, 2020).
• Technology Development- It covers all contemporary tasks and also covers some operations like materials processing, work pieces, practice area technologies, and functionality design. It also has competitive advantages for the company which helps the company to sustain the tough competitive market.
• Procurement Activities at Air Canada- It includes some activities that are undertaken to purchase the inputs used by the company. It includes raw material, suppliers, machinery, laboratory equipment, office equipment and buildings.

This model helps in assessing and evaluating the competitive positioning of the business and has three horizontal competitive forces and two vertical analyses. In the context Of Air Canada, following are some of the forces are as follows-

• The Threat of New Entrants- It reflects new market players that build the threat to existing players. Air Canada has a low threat of new entrants in the Airline Company as it has gained a strong position in the industry which reduces the chances of threat from new players. As there are also lots of barriers in this industry as it requires many rules and regulations and certain legislation barriers. New entrants in this industry require lots of investments and resources and very time-consuming regulatory frameworks which reduces the chances of a new player entering this industry. So, for a given company this will be useful to stay in this industry with lower chances of new players. Apart from that, the company has gained enough customer support which will not let the customer switch the brands easily (Khamidov and Kakhkhorov, 2020).
• Threat of Substitute- This refers to the competitive advantages that will challenging force for the company. For, Air Canada, there is a medium threat of substitutes of products and services as there are other big players also available in the airline industry which has increased the threat of substitutes for products. The force is not higher because, company has acquired the trust of the customer so this is not easier for the customer to choose other products or services, so this is essential for the company to deal with the quality and sustainability of the services.
• Rivalry Among Existing Firms- There is tough competitive rivalry among the services as some strong players are existing in the market. This becomes necessary for the company to improve the satisfaction among the customers so that they could build the strength by developing the customer relationships. Could be seen that some international airlines in Canada have increased their customer base due to multiple services such as Australian Airlines, Air New Zealand and many other companies. Higher competition in the industry, enhance the rivalry among the existing firms (Ivanova, et.al., 2019).
• Bargaining Power of Suppliers-There is low supplier bargaining power for the Air Canada, as a supplier of the industry is not concentrated and also switching costs are low which reduces the bargaining power of suppliers. Also, the company can manage the risk and has adequate market knowledge which helps the company to survive in the airline industry. It gives the strength to the company that there will be lower chances of the supplier to bargain with the company (Fedushko, et.al., 2021).
• Bargaining Power of Buyers- This indicates the pressure exerted by the customer on the business to get high-quality products. As, according to Air Canada, there is low bargaining power due to lesser sellers and low switching costs. Also, customers have low market knowledge and purchasing the standardised products in large volumes also decreases the buyer’s bargaining power. Apart from that company has been able to gain an effective relationship with the customers which has reduced the chances for customers to bargain (Dimitrios, et.al., 2020).

Strategies used by competitors of the companies are as follows-

• Creating Own Loyalty Program- Many competitors use these programs to reach a new audience and convert them into potential customers. Many airlines use these strategies to give the customer-specific points for free and which they can use for many trips. Through this, customers can use the free seat upgrade which helps in retaining the existing customers.
• Running Social Media Campaign- In the airline industry, most companies started running their social media campaign which will help in enhancing marketing and promotion activities. They were start paid advertising on Facebook, Twitter, Instagram, and Youtube. Through this, companies can reach more customers (Drnevich, Mahoney and Schendel, 2020).
• Focusing on Existing Customers- This is also one other strategy that become common among the competitors of the airline industry in which they focus more on existing and loyal customers. While 55% of aircraft as well as transport marketing firms plan to engage in personalization in 2018, 30% of business travellers believe that technology behemoths will become more engaged in transportation marketing throughout 2018.

One of the competitors of Air Canada is WestJet. So following are its strengths and weakness are as follows-

• Higher Profitability- WestJets has had higher sales from 2011 to 2014 at a consistent rate. Its year-on-year development decreased to 5.7 percent in 2014 after skyrocketing over 65 percent in 2011. These have produced a 14.3 percent amount of profit. Furthermore, it has demonstrated significant balance-sheet resilience by 34 percent of trailing liquidity to 12 revenues.
• Secure Position in Canada- It presently accounts for 22% of Canada’s framework tickets as well as 15% of overall ASMs, but in the domestic economy, it accounts for 31% all passengers with 34% of Annual general meeting ( agm, according to OAG statistics (Hunger, 2020).
• WestJet’s Young Image- Despite being in business for 19 years, the company retains a younger and more vibrant reputation than its competitor, Air Canada. As it becomes more socially oriented with a plan that contribute to greater participation and a well-known reputation in the business. The corporation frequently uses social networks to resolve issues raised by Twitter users and also to warn customers to potential fraud. Through this, it can maintain the fresher looks and image in the airline industry (Teece, 2019).

• The Rising Cost and Narrowing Cost Gap- Westjest is unable to reduce its cost excluding the fuel increase from the CAD8.80 cent. It becomes necessary to maintain the efficiency in the company but it fails to control the cost as compared to its rival Air Canada. Due to its last reports, it is noticed that there will be growth in the cost from 2.5% to 3.5% in near future.
• Limited Numbers of Business Travelers- Many business travelers have changed their network from one to another due to more favorably among the high profits. Due to an increase in cost and high operational activities, many business travelers have changed their networks to reduce any kind of loss(Carayannis, Ilinova and Cherepovitsyn, 2021). 

Buyer behavior refers to the wide range of aspects that influence them to decide what has to be purchased and what not. There are certain factors also included in the Airline industry which has influenced the buying decision of the buyers and led to many changes. Following are current buyer trends in the airline industry are as follows-

• Considering Both Direct and Indirect Bookings- Customers will going to book the tickets through direct and indirect bookings so that they provide more convenience to the customers. They increase the awareness and improve the engagement in both ways. Increasing direct bookings, will boost sales and by identifying the high-value customers with the latest analytics. Through indirect booking, it will attract the other customers who want to use the flight’s services.
• Using Social Media to Build Brand Equity- This will be the new trend in the airline industry that lots of companies will be going to use social media to improve brand equity. As more than 8 million people take the flight every day and they post pics during their journey and use to tag airline companies. So, it becomes crucial for the companies to stay on the social media networks and make efforts to build brand equity. Air Canada has also used this to build their brand equity by connecting with them through social media handles. As there are 94 % of customers are using the internet which has identified by the company and tends to connect them in certain ways(Rafiq, et.al., 2020).
• Using Digital Channels- Many customers tend to research and book their flights online and used to make certain online payments online. So, many airline companies should start increasing their presence in digital channels so it becomes necessary for them to use social media platforms to facilitate decision-making. This becomes necessary for the airline companies to use these platforms to enhance their efficiency and effectiveness. As many customers were using the digital channel to book the ticket.
• Advance Self-Service and Biometrics-After the impact of the pandemic on the whole world, also brings some changes in the behavior of buyers in terms of services in the airline industry. Through this technology, customers will be able to use the services without the use of staff to avoid any contact. Some integrated biometric paths would be installed in the airports that allow the passengers to get the self-services easily. This will be safer in the times of pandemic situations when most of the people were used to avoiding any situation(Svatosova, 2020).

The operating expenses in the year 2019 the company were around dollar 17,481 million which was in the year 2018 were approximately $16,507 million which represents an increment of $974 million. From the year 2018 CSM was increased by 4.1% and 6.1%. The financial results of Air Canada in the year 2018 were more meaningful in terms of cost performance. In the year 2019, the company Eliminated operating expenses. In the year 2018, the operating income was around $1496 million was in the year 2019 was $1650 million which shows an increment of $154 million. In the year 2019, the company experienced an increase in EBITDA which was around 13% As compared to 2018. In 2019 net income of $1476 million versus net income Of $37 million in the year 2018. Adjusted net income in 2019 was $1 917 million as compared to adjusted net income of $738 million in the year 2018. On December 31^st, 2019 the net debt of around $2841 million show a decrease of approximately $2373 million because it was almost $5214 million 8 December 31^st, 2018. This represents an enhancement in cash equivalents cash and short and long-term investment balance of $1694 million. The leverage ratio of the respective company was around 0.8 on December 31^st, 2019 But in the year 2018, the leverage ratio was approximately 1.6. In 2019 the net cash flow from operating activities of $5712 million as compared to cash flows from operating activities of around $3470 million in the year 2018 (2 0 1 9 ANNUAL REPORT). The high free cash flow was because of a collection of elements involving a higher amount from operations, a lesser than the projected level of capital expenditures due to certain projects being defrayed to 2020. ROIC of 15.5% for a year was ended on 31st December 2019 which was around 13.5% in the year 2018.

Porter’s Five Forces Analysis

In the year 2020, a global pandemic has caused a severe impact on the airline industry. Air Canada has to face a severe drop in traffic and a major decline in cash flows and revenue because of COVID-19. On 31^st December 2020, the net capital which was recorded by the respective company was around $1532 million. Because of this pandemic, the respective company also experienced a decline in travel demand, incremental refunds to customers, decrease in advanced ticket booking. The net pension and benefit liabilities which were recorded on 31^st December 2020 were approximately $175 million as compared to 2019 was a decrement of around $691 million. This reduction in net pension and benefit liabilities was due to net actuarial gain on remeasurements of workers’ liabilities which was approximately $1077 million. The net debt in the year 2020 was approximately $4976 million which was very high as compared to the net debt in the year 2019 which was approximately $2135 million. Due to the COVID-19 pandemic Air Canada excluded reporting its weighted average cost of capital and leverage ratio. The long-term portion of maintenance provision in the year 2020 was approximately off $1040 million which is less than the year 2019 as it was $200.

The current strategy of company and discuss how the Strategic Triangle elements are aligned with each other

Air Canada has the main objective to become a sustainable global international airline through determining and executing cost reduction as well as revenue-enhancing initiatives, pursuing profitable global growth opportunities, engaging consumers by regularly increasing their travel experience, and providing a positive cultural environment to employees the respective company is enhancing its business to make itself prepare for the future. The company is launching Rise higher which is its newly articulated business imperative. Air Canada will fund its upcoming future by staying vigilant on cost exploring opportunities and creating strategic investments. It will also elevate customers along with developing a meaningful experience for them by developing innovations in loyalty, technology, and products (CORPORATE SUSTAINABILITY REPORT. 2020). The respective company will also reach new frontiers by improving its strength to grow business across the globe. For the year 2022, the main objectives of Air Canada are built upon its several competitive advantages which involves a broad powerful brand, skillful employees, global networking well position to fulfill the requirement of several consumer segments, enhance customer experience, Air Canada rouge, new technological advancement, growing cargo offerings, and commitment towards sustainability.

The strategic triangle was proposed by professor mark Moore where he explains three elements that are important to create a brand image. These three factors include public value, organizational capacity, and legitimacy and support. These factors help in explaining how value is created in public, where the legitimacy and support will come from, and what type of organizational capacity is required to deliver effective services among customers. In the case of Air Canada, the company has always put the safety of its employees and customers. It has also been examined that the success of the respective company is its sustainable development that must be incorporated into the culture of the organization. The company has created its value by providing several safety measures to people even during the Covid 19 pandemic by activating several task forces in early January. The company has also introduced Air Canada clean care plus programs. The company is engaged with partners and supported communities by carrying out fundraising initiatives, distributing support, and providing financial support to Canadian registered charities. The main aim of the respective company is to make positive connections and to care for one another as a citizen of the world. The company aims to integrate environmental, economic common social elements in everything it does and organize these into three sustainability pillars that include business, people, and the planet.

Analysing some key strategic issues over the last 3 years

Competitor Analysis

Air Canada is also facing some strategic issues over the last 3 years which have impacted the operational performance and efficiency of the company(Doktoralina and Apollo, 2019). Following are some of the key issues are as follows-

• Financial Crisis- Air Canada has seen the ‘darkest period ever’ in the last 3 years of commercial aviation. As it has faced the lots of financial problems and face huge losses from the pandemic situation it is reported that there is around $1.05 billion loss in the first quarter compared to a $345 million profit in the same period last year due to the crashing of demand and sales from Covid-19 global travel restrictions and orders. Their stock price has also dropped by 9% which is not a positive sign for the company as there are certain ways through which this situation has recovered but major losses will take so many years to get recover. There are so many steps that have been taken to cut the cost of the airlines such as salary, rents, technology and maintenance, and it is a plan to cut $1 billion in cost this year to reduce the loss from revenue. Also, the company has replaced the retirement plans of the employees due to a lack of funds and cash in the company and also leads to waiving off some other benefits plans of employees. This has been faced by many the airline companies in the whole world in the last three years (Foris, et.al., 2020).9
• Labour Challenges- Due to the pandemic period, Air Canada has announced to temporarily lay off nearly half of its employees and reduce the activity by 90% in the 2^nd quarter of the pandemic situation. There about 15200 employees and 1300 managers were laid off which would help in reducing the cost of Air Canada. This has been taken to balance the loss of overall response from this situation so that it could sustain in the future easily. This is an extremely painful decision made by one of the speakers from the company and they were working towards it to recover from this loss. Certain other tough decisions were made by the company which has led to many problems related to the labor as many of them were coming up with the strikes and putting legal action against the company. Many internal problems have been increased in the company as many of the staff are not happy with the decisions made by the company which has developed anger among them. Also, the company has reduced the salary of top executives by 30% which also creates conflicts among the top management(Petera and Šoljaková, 2020).
• Decrease in Networks- Air Canada has also faced a reduction in the networks as earlier it was 62 and now it has only 40 which is also the main loss of the company. This has been done due to a decrease in the revenue by 15% from $4.4 billion in the first quarter of 2019 as compared with the $3,7 billion in the same year. Through this, many operational challenges were also faced by the company which has adversely impacted the financial position of the company. The need for effective actions has been taken by the company so that these issues could be resolved. Still, there is a chance of continuing to face the loss due to the fear of Covid-19 which will lead to many losses and inefficiency. This overall impact has also been faced by the customer by an increase in the prices of tickets and many restrictions and regulations during their journey(Dess, et.al., 2021).

Conclusion

From the above report, it is concluded that strategic management involves the formulation and implementation of the major goals and objectives which has been taken by the company. In this report, external analysis has been done by using value chain analysis and porter’s five forces of the chosen company. Also, there is an analysis of competitors by examining their strengths and weaknesses and also an analysis of their buyer behaviour through products, services, channels and wants. Apart from that internal analysis of the company has been through using some of the current strategies of the chosen company. Also, some key strategic issues and gaps over the next 3 years based on analysis that has been done such as financial challenges, labor challenges and a decrease in the networks are some of the issues which will affect the performance of the company in the next 3 years. 

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