Philippine Orient Airways (POA) is a domestic airline that commenced operations in 1997. With the government's approval and the granting of a Certificate of Public Convenience and Necessity (CPCN) for 5 years, POA was able to provide scheduled services, which was later expanded to primary routes, secondary routes, and international destinations for the public's convenience. The Legislative Franchise in June 1998 extended their contract for the next 25 years. In order to maintain certification, POA installed the Gabriel Reservation System in 13 stations to ensure fast, accurate, and customer-friendly reservation and booking services. Additionally, the airline implemented an automated check-in system called the Departure Control System for efficient passenger registration and boarding. In 2002, POA had operated 11,310 flights and carried 502,000 revenue passengers. Unfortunately, these numbers declined in 2003 with 8,150 flights operated and 457,870 revenue passengers carried.The airline
...currently operates with a fleet of 10 aircraft and employs 855 people (52 pilots, 131 flight attendants and stewards, and 672 ground personnel). Its vision is to become a renowned global airline that exceeds world-class standards, while its mission includes providing exceptional customer service that combines Filipino hospitality with world-class expertise, transporting people and cargo at the lowest cost and shortest time possible, creating a favorable work environment for its employees, and ensuring profitability for its shareholders. The airline offers various products, including tour packages (Festival Adventures), a booklet with multiple flights (Explorer Advantage), additional baggage allowance and special rates (Dealer's Advantage), priority service and free baggage allowance for sports enthusiasts (Athlete's Advantage), and reward points for frequent flyers (Soaring Treasures). The airline has received multiple awards and recognition for its services.
In the 200
Grand Prix Customer Service Awards, the Transportation and Travel Industry sector received the Diamond Award. The Consumers Union of the Philippines awarded the airline three times as the “Most Outstanding Domestic Airline,” for two consecutive years. The airline had a 94% on-time performance rate in 2002 and a 97% on-time performance rate in 2003.
The current target market for the company includes professionals from the middle class who travel for both business and leisure. These individuals are typically between the ages of 25-45, hold a college degree, and reside in urban areas. They are internet-savvy, often travel by bus or ship on out-of-town trips, and value convenience and safety over luxury. The company's secondary target market includes travel agencies that offer domestic and international services and are looking to expand their partner airlines.
Additionally, Table 1 provides a summary of competitive performance data for the year 2002, including the major carrier's number of passengers, seat capacity, and passenger load factor. Tables 2-4 offer comparisons of passenger data, seat capacity, and load factors between the years 2001 and 2002 for the major carrier. In 2002, POA carried 5255 passengers with a load factor of 25%, SAL carried 6305 passengers with a load factor of 30%, and PPA carried 9210 passengers with a load factor of 6%.In Table 5, the comparative revenues from domestic operations in 2002 were 44% which equates to 20770100%. The statement of the problem is about what changes/improvements Philippine Orient Airways should implement in order to regain their image and increase their current market share. The case objectives are to increase the passenger load factor to 18 percentage points by the end of the
3rd year and increase the volume of passengers carried by 15%. Also, to improve employee-employer relationships by regaining their trust to boost their morale and restore/improve public image. Assumptions include an industry average breakeven load factor of 55%, and an analysis of the market has been done. The areas for consideration are summarized through the SWOT analysis which involves strengths such as safety standards comparable to PPA while charging fares competitive with that of SAL. Weaknesses include being a follower in the market, but they offer enhanced products such as tour packages, easy-ticketing, membership and rewards programs. There are also highly trained flight attendants and stewards, a hub in Cebu, and they are affiliated with PPA as they are their sister airline which allows for sharing of best practices.POA currently faces challenges such as low seating capacity, low passenger load factor, and a negative public image caused by a failed merger. Additionally, the airline is experiencing low employee morale and net losses. They have also served notices for contract termination with accredited traveling agents.
One opportunity for POA is the potential boost to tourism through holiday economics, which aims to increase air travel in domestic routes. However, there are threats such as economic conditions, fluctuating fuel prices, and a shrinking passenger market due to social conditions like SARS and 9/11.
In terms of strengths, POA prioritizes the safety of their passengers by employing the services of Liebherr Technik Philippines for aircraft maintenance, repair, and overhaul. They also provide competitive fare prices similar to other airlines like PPA and SAL.POA caters to price-conscious customers who desire affordable air fares without sacrificing the comforts of air travel.
In addition to air travel, sea travelers can now opt for airplanes for faster and more efficient transport. The company prides itself on their highly trained flight attendants and stewards who undergo sufficient training and various tests to assess their psychological, IQ, and personality ratings before being assigned to actual duty. POA strategically uses the hub and spoke operation strategy, with Cebu as their designated hub for transporting large numbers of travelers and cargos to various cities numerous times a day. Cebu also serves as a gathering point for passengers traveling to nearby regions in the country. To enhance customer satisfaction and maintain market competitiveness, POA offers tour packages, easy ticketing, membership, and various rewards programs. As a sister airline of Pan Philippines Airways, POA can adopt best practices and improve on past experiences to provide their customers with the best service possible.
In addition to potential sharing of resources by the two companies, POA faces several weaknesses, including a poor company image. This image has been tainted by the failed merger with its sister company PPA and rumors that POA will go bankrupt. The company's image has also been affected by the April 19, 2000 accident where flight 541 crashed in Davao, killing all 131 passengers aboard. POA's low seating capacity (965,000 compared to SAL's 2,123,000 and PPA's 3,763,000) represents only 14.27% of the market; even at full capacity, POA can only serve a maximum of 14.27% of the market assuming competitors are also at full capacity. Additionally, POA's passenger load factor (PLF) is very low at 52%, compared to its peers and industry. In 2002, POA only carried 502,000 passengers, representing just 10.52%
of the total travelers or market. Finally, due to the failed merger with Pan Philippine Airways and rumors of bankruptcy, employee morale is low. This could potentially affect service quality and customer experience.
POA has suffered significant net losses due to a decrease in their market share, potentially hindering their sustainability and progress. To address this issue, they have terminated their ties with accredited travel agents as part of their goal to cut costs and increase efficiency through a merger with PPA. However, there are opportunities for improvement as the market conditions are gradually improving after major incidents like the 9/11 terrorist attack and the effect of SARS. With long holidays approaching, there is a chance for locals and foreigners to travel again. Furthermore, the implementation of holiday economics appears promising in boosting local tourism by providing more long weekends for people to travel.The Philippine government is aggressively campaigning for tourism in other countries such as Korea, China, USA and Europe to increase the number of tourists visiting the country. This will result in an increase of passengers traveling to local destinations. However, there are threats such as the pirating of POA skilled employees who may leave the company for more stable job offers from other airlines due to low morale. The Philippine economy grew by 4.6% in 2002, but it was also the year of a record budget deficit and high unemployment rate. Disasters and diseases such as the 9/11 tragedy and SARS outbreak may also lead to a shrinking passenger market as people may refrain from traveling.
Fluctuating fuel prices can greatly impact an airline company's profit as it is one of their
major costs. If fuel prices suddenly increase, it cannot easily be passed on to passengers through increased air fares as this may lead to a decrease in willing and able customers. This will result in less revenue and may even cause net losses for companies such as POA. In light of this, Alternative Courses of Action have been proposed. ACA #1 suggests re-branding the company to remove the negative impression left by a failed merger and to improve their image with customers. Despite potential benefits, this could require a lot of effort in re-organization and may cause some employees to struggle with new culture shifts. ACA #2 suggests implementing an aggressive marketing program that includes low budget fares, e-ticketing, and flight packages to regain lost market and increase net profit.
Benefits of Introducing E-Ticketing and Attracting New Customers:
Introducing e-ticketing will reduce costs and improve convenience for customers, while also protecting the environment by reducing paper waste. Additionally, by attracting new customers who previously couldn't afford to fly, such as those who travel by sea or land, POA may significantly increase its market share and generate more revenue. This increased revenue will enable the company to introduce new improvements to the current customer service being provided and improve the utilization of their aircraft.
Potential Drawbacks:
While there are numerous benefits to this program, POA will need to initially spend more money to fund it. Given the uncertainty of cash flow, any additional expenses may further impact their liquidity. Furthermore, even with these investments, there is no guarantee that competitors won't launch similar programs to counter POA's efforts and protect their market share.
Expanding Operations to Untapped Locations:
If POA were to
expand operations to previously untapped locations, they could become the only provider in that area, monopolizing the market. As the first company to offer flights to that location, POA would also be able to capture an entirely new customer base, potentially creating brand customer loyalty in the process.
Overall, while implementing either program may require initial investments, each has significant potential for long-term success and strategic advantages.Customers who choose the new POA destination may additionally reserve other destinations with POA. The number of passengers may initially be low for this new location, and it may require POA to subsidize unfilled flights or unutilized seating capacity, as well as additional expenses for setting up the flights. To improve existing programs and benefits for employees (ACA #4), happy employees can offer quality service leading to satisfied customers who patronize the airline repeatedly. Happy employees reflect well on the company and could be an asset to marketing efforts. POA can offer discounts to employees and their immediate family, and gather feedback from employees on their travel experience for input to the marketing department. However, improving employee compensation packages would require additional financing and increase operating costs. To re-establish relationships with travel agents (ACA #5), booking flights with POA will be more accessible through travel agents, who can bring in more passengers as customers prefer using travel agents as a one-stop-shop for their travel needs. By doing so, POA will regain lost opportunities that were booked with SAL instead of POA, leading to a gradual increase in market share.The fastest and most cost-effective solution under consideration is ACA #5, however, it will not resolve low company morale. Alternatively, ACA
#6 merges ACA #2, ACA #4, and ACA #5. Implementing this ACA will have multiple action items and a large investment requirement. Despite this, POA will be better equipped to serve internal and external customers under ACA #6. After careful analysis of different ways to improve POA's current standing and regain market share, our group recommends implementing ACA #6. This approach combines three ACAs and provides POA with the best chance to recover from their decrease in market share issues while improving employee morale.
