The following information should be used when answering question 1. 1 Introduction The island of Oceania attracts thousands of tourists every year. They come to enjoy the beaches, the climate and to explore the architecture and history of this ancient island. Oceania is also an important trading nation in the region and it enjoys close economic links with neighbouring countries. Oceania has four main airports and until 1997 had two airlines, one based in the west (OceaniaAir) and one based in the east (Transport Oceania) of the island. However, in 1997 these two airlines merged into one airline – Oceania National Airlines (ONA) with the intention of exploiting the booming growth in business and leisure travel to and from Oceania. Market sectors ONA serves two main sectors. The first sector is a network of routes to the major cities of neighbouring countries. ONA management refer to this as the regional sector. The average flight time in this sector is one and a half hours and most flights are timed to allow business people to arrive in time to attend a meeting and then to return to their homes in the evening. Twenty five major cities are served in the regional sector with, on average, three return flights per day. There is also significant leisure travel, with many families visiting relatives in the region. The second sector is what ONA management refer to as the international sector. This is a network of flights to continental capitals. The average flight time in this sector is four hours. These flights attract both business and leisure travellers. The leisure travellers are primarily holiday-makers from the continent. Twenty cities are served in this sector with, on average, one return flight per day to each city. Image, service and employment ONA is the airline of choice for most of the citizens of Oceania. A recent survey suggested that 90% of people preferred to travel ONA for regional flights and 70% preferred to travel with ONA for international flights. 85% of the respondents were proud of their airline and felt that it projected a positive image of Oceania. The company also has an excellent safety record, with no fatal accident recorded since the merging of the airlines in 1997. The customer service of ONA has also been recognised by the airline industry itself. In 2005 it was voted Regional Airline of the Year by the International Passenger Group (IPG) and one year later the IPG awarded the ONA catering department the prestigious Golden Bowl as provider of the best airline food in the world. The courtesy and motivation of its employees (mainly Oceanic residents) is recognised throughout the region. 95% of ONA employees belong to recognised trade unions. ONA is perceived as an excellent employer. It pays above industry average salaries, offers excellent benefits (such as free health care) and has a generous non-contributory pension scheme. In 2004 ONA employed 5400 people, rising to 5600 in 2005 and 5800 in 2006. Fleet Fleet details are given in Table 1. Nineteen of the Boeing 737s were originally in the fleet of OceaniaAir. Boeing 737s are primarily used in the international sector. Twenty-three of the Airbus A320s were originally part of the Transport Oceania fleet. Airbuses are primarily used in the regional sector. ONA also used three Embraer RJ145 jets in the regional sector. Performance Since 2004 ONA has begun to experience significant competition from ‘no frills’ low-cost budget airlines, particularly in the international sector. Established continental operators now each offer, on average, three low fares flights to Oceania every day. ‘No frills’ low-cost budget airlines are also having some impact on the regional sector. A number of very small airlines (some with only one aircraft) have been established in some regional capitals and a few of these are offering low-cost flights to Oceania. A recent survey for ONA showed that its average international fare was double that of its low-cost competitors. Some of the key operational statistics for 2006 are summarised in Table 2. ONA have made a number of operational changes in the last few years. Their website, for example, now allows passengers to book over the internet and to either have their tickets posted to them or to pick them up at the airport prior to travelling. Special promotional fares are also available for customers who book on-line. However, the website does not currently allow passengers to check-in on-line, a facility provided by some competitors. Furthermore, as Table 2 shows, a large percentage of sales are still commission sales made through travel agents. Direct sales are those sales made over the telephone or at the airport itself. Most leisure travellers pay standard or economy fares and travel in the standard class section of the plane. Although many business travellers also travel in standard class, some of them choose to travel business class for which they pay a price premium. In the last three years, the financial performance of ONA has not matched its operational success. The main financial indicators have been extracted and are presented in Table 3. In a period (2004–2006) when world-wide passenger air travel revenue increased by 12% (and revenue from air travel to Oceania by 15%) and cargo revenue by 10%, ONA only recorded a 4·6% increase in passenger revenue. Future Strategy The management team at ONA are keen to develop a strategy to address the airline’s financial and operational weaknesses. One suggestion has been to re-position ONA itself as a ‘no frills’ low-cost budget airline. However, this has been angrily dismissed by the CEO as likely to lead ‘to an unnecessary and bloody revolution that could cause the death of the airline itself ’. Required: (a) Using the information provided in the scenario, evaluate the strengths and weaknesses of ONA and their impact on its performance. Please note that opportunities and threats are NOT required in your evaluation. (20 marks)