Aviation industry has experienced a high end change in last decade. This has completely changed its face and the process is still going on. One such example is of ClearSky Airways that has to make emendations in order to maintain synchronization with the external situations. From a survey it has concluded that there has been a change in customer demands as compared to that previously existed. But before any positive deviation could be taken for the company, there was some adversity created in the scenario due to which some of the initiatives taken by ClearSky Airways did not ended up in a desired fashion. (IFE Implementation ClearSky Airways Report )
Problem
The Problem is that ClearSky Airways was willing to make an initiative towards IFE (Inflight Entertainment) to make sure that it is able to lure maximum number of customers and gain a competitive edge over its competitors. This was derived from a survey that reported the need for such an entertainment system. But somehow the source company of entertainment SurfShop was acquired by one of its competitor company DarkSword Air. This raised the discrepancy for ClearSky Airways making situation worse for the company. Due to high competitive nature of the industry, now ClearSky Airways will not be able to ensure its competitive advantage as it was willing to make previously.
Critical Factors
This may result into several critical factors that will make it difficult for ClearSky Airways to take care of its operations in a hassle free manner.
Financial position of the company will be weakened as it will not be able to provide desired service to its customers. This is one of the most important characteristics of the company as weak financial positioning will hamper company’s future expansion strategies and will also influence some of its present operations that are entirely derived from financial perspective. Even to keep its stakeholders attached with itself, ClearSky Airways has to make sure that it does not dampen its financial position as if the position gets worse; it will be highly difficult for the company to retain its market share and stake without making some significant compromises.
ClearSky Airways will loose over its competitive edge that will make it difficult for the company to plan its long term strategy and pursue it in an efficient manner. As due to globalization company is making high end progress in various domains, it is also extending its flights to various distant areas. And in these long distance flights, it has to ensure that there will be no fatigue type of situation for its customers. Thus it has to install an entertainment system so that it could bind the customers with itself and raise their loyalty. But it has also to make sure that it is earning enough profitability from those entertainment systems such that there won’t be any shrinking in its revenue stream. Otherwise on long term basis, its IFE system will prove to be ineffective in nature.
Development of Alternative Actions
Financial position
It is the basic building block of the company has should be tackled accordingly. Strategies that could be followed are,
Cost cutting measure: it is the most basic type of strategy adopted by any organization in order to ensure that it is able to survive any difficult business situation. It is necessary for company to install IFE system in order to attract more number of customers, but due to controlling stake of DarkSword Air in SurfShop, ClearSky Airways will not be able to implement its planning in an orderly fashion. But it is necessary to take some initiative in this regard such that all the external ambiguities could be avoided if the company could find a measure that will provide it with internal strength. If ClearSky Airways make some arrangements so that its expenditures could be reduced, it will be possible for the company to choose other options for installation of its internet product. Other companies like WildWiFi Company and BruceLee Surfers Ltd could be chosen even though they are providing internet service at a higher rate because overall expenditure of the company would be the same.
Advantages
Disadvantages
There is no need for the company to ask for external help as most of the companies try to finance their projects from internal sources of money.
If due to any possible reason, this initiative of ClearSky Airways fails, it will not be liable to its new stakeholders. And also, it will be able to take care of its fierce competition, i.e. DarkSword Air in an appropriate manner.
Some of its current operations may get impacted due to this initiation, which still can not be considered as successful. This will make it difficult for the company to retain its profitability.
There may be certain echelon of dissatisfaction from its employees as it may obstruct their functionality, thus making the organization weak internally.
External Financing: it is another method of financing an initiative taken by the organization. By this methodology, ClearSky Airways may seek more number of options regarding its internet connection to opt for the best possible deal in the vicinity. By availability of more financing options, ClearSky Airways may enter in a contract deal with any of the internet supplying company for a specific tenure such that both the companies are getting benefitted from the deal. This will make it possible for ClearSky Airways to become unaffected by the controlling stake of DarkSword Air in SurfShop. Also for an organization operating at such a wide scale, it will not be difficult to get financing from various financers present in the market. Need for external financing arise from the fact that, cost for upgrading the flight with these equipments will cost company about 45% of its total revenue and it can not be risked in such a manner that its competitors are at an advantageous position. But with availability of external finance, company may develop various other alternate suppliers that will be hired on a contract basis in order to establish a long term relationship with the company.
Advantages
Disadvantages
ClearSky Airways will not be dependent over SurfShop for its proposal of internet service in the flights.
It may invest its revenues in various other projects that can be considered as more profitable and advantageous for providing ClearSky Airways a competitive edge over its competitors.
This will put entire stake of ClearSky Airways in risk, i.e. if it is not able to make profit from the invested money, it will be very difficult for it to find further investors.
On a simultaneous basis it will be very difficult for the company to get other loans for other projects as then it will increase leveraging of the company, which is not considered to be as good for its market reputation.
Long term measures
A majority of companies adopt long term solutions for their problem. Such type of solution may seem to be obsolete in present situation, but on a long term basis, it becomes more feasible and viable.
Establishing corporate contracts: this measure is the most basic long term step taken by companies that enable them to tackle short term fluctuations and shocks that are generated by business turn moils. One thing that lays the foundation of such an entity is ‘quality’. If this feature is absent in any deal, it will collapse at some point of time no matter what. Thus ClearSky Airways has to ensure that it is giving sufficient consideration to its internet installation along with its deal with Panasonic Ltd regarding inflight entertainment. It may even ask Panasonic to provide it with the former service along with installing entertainment system. This will provide ClearSky Airways an opportunity to explore an opportunity from Panasonic on terms that it will use its entertainment service if they are also willing to provide Airways with internet service.
Advantages
Disadvantages
This will violate all small scale problems that are being faced by ClearSky Airways to carry out its regular and initiative operations.
This may also provide financial benefit to the company as both its operations are being carried by same company, due to which deal can be negotiated.
Such type of opportunities can not be associated with each deal. Thus ClearSky Airways has to strike at the right time to make most of the available options.
If in future one of the sections get distorted to any possible reason, another sections associated with it also gets distorted due to their mutual collaboration.
Buying stake in competent company: another step that ClearSky Airways could take is it could also buy stake in such type of company as done by DarkSword Air. This will cost ClearSky Airways a fortune at the starting but on a long term basis, it will make various such projects highly viable and profitable for the airlines. This will also create a situation of advancement for ClearSky Airways in this domain. This may require large funding which is a big deal, but not impossible for organization like ClearSky Airways. Also after making subsidiary, ClearSky Airways could mold some of its functions in such a manner that it a particular section of its subsidiary will operate only for development of ClearSky Airways in this particular segment. This will provide ClearSky Airways with an opportunity to make application of its innovations in a better and cheaper format, which is not the case for most of the other airlines and airways thus giving it an advantage over its competitors.
Advantages
Disadvantages
Some of the ideas that could prove to be highly useful for the company will not go waste just because of their economic unfeasibility.
It will provide ClearSky Airways with an alternate source of revenue that could be utilized for making improvements in the organizational functioning and increase its revenue collection.
This will require large amount to be invested in order to obtain a controlling stake in such type of organization. This may affect some of the other processes adversely.
If not utilized in an apposite manner, it will prove itself to be just a useless investment that is not making any significant impact over profitability of ClearSky Airways.
Synthesis
I would recommend that ClearSky Airways should adopt external financing measure to invest the new money into Inflight Entertainment project. But along with it ClearSky Airways will also have to cut some of its costs if it has to retain its supremacy in the market. It is one of the most effective measure that could be adopted by the airways as long term plans are not always reliable and are dependent only over past & present factual data but situation may change in future and result into highly ambiguous situations that may put decision makers into a dilemma. Also continuously rising oil prices are making the level of competition even more fierce for airways companies. Though this will not be an easy task to perform, but it could be done with suitable level of planning and anticipating competitive behavior of other companies. (Berinato, 2008)
If we concentrate ourselves at the past behavior of ClearSky Airways, we would observe that it was started from a loss of SD $12.5M and within a time span of 9 years it recorded a profit of SD $6.7M. This can further be implemented in a way that new financing should not be made in an immediate manner. Implementation should be done in a periodic manner in different phases. ClearSky Airways has 125 aircrafts with three classes, i.e. first, business, and economy. In first phase, IFE should be applied in only 20 aircrafts, and also in confined sections, i.e. first and business as they are more inclined for using such services. This will also reduce the amount of investment. This step will also make it possible that even by using WiFi service from other users like WildWiFi Company and BruceLeeSurfers LTD, which are providing internet service at expensive rate; it will be possible for ClearSky Airways to earn profit as it is also shrinking down some of its expenditure. Once it has been established, ClearSky Airways it could apply this service in other aircrafts also along with economy class. In order to gain more profit, initially first class and business class passengers could be charged more to get to the breakeven point after which profits could be earned. As it has most of its aircrafts flying in domestic regions, flights hours are not more that 120 to 150 minutes, thus the deal offered by BruceLeeSurfers is more lucrative and feasible for ClearSky Airways. For initial phase, this application will cost ClearSky Airways SD $3.3M. This is not a big amount for customer satisfaction as more than half (58%) have demanded such kind of service in a survey. Also a major section of the customers demanding such service are from premium cabin that constitute about 80% of the profit earned by the airways. This will take approximately 2 months after which these aircrafts could be brought into use on an immediate basis. When project financing feasibility was checked, it was observed, it was obtained that financing would not be a big issue as presently it is being financed by wealthy families in Singapore and Singapore government for whom lending more money will not be a big issue looking at the intensity of problem that has to be sorted out in shortest possible manner otherwise DarkSword Air will get an advantage over ClearSky Airways due to absence of one of the present day demands of the customers of airlines industry.
Also from such an analysis, if external situations remain unaltered, it will be possible for ClearSky Airways to obtain investment money in a time period of 12 to 15 months that could further be used to install such service in other aircrafts. But one important measure that has to be taken care of is that first phase installation should be made in those aircrafts that are used on the most busy routes in the domestic market such that breakeven point is achieved in minimum possible time. Also the problem of its competitor acquiring controlling stake in SurfShop will not hamper its functioning to much extent as ClearSky Airways has strayed from its initial planning to make sure that its operations are not hampered from decisions taken by its rival companies otherwise there would not had been a measure to be adopted by the company and make sure that it is able to suffice its customer need without making any wrong business decision.
There is a risk that if this decision does not result into profitability, it will make it difficult for ClearSky Airways to raise further money in future, but there are very few chances that this decision will not turn into a profitable decision as it is based over research in which a majority of its customers are wiling to utilize such type of service without any second opinion. Also those passengers from which majority of revenue come from are willing to use this service, this makes this need inevitable. Also it should not reinvest all its money in expanding this project as it will not reduce its leveraging which can be harmful in long run. Thus a proportion of earnings should be kept for diminishing the leverage of the company. If all these aspects are implemented in an orderly comportment, the above mentioned problem could be sorted out along with retaining competitive edge. There may be difficulties but they could be tackled with proper understanding of the situation and integrating appropriate data altogether.
