Philippines Orient Airways Essay

I. Case Overview Philippine Orient Airways (POA) is an airline company that focuses on domestic operations. They took part of the market share when the Company was incorporated in January 21, 1997, and formally started operations after receiving the Operator’s Permit from the Government. With granting of the 5-year Certificate of Public Convenience and Necessity (CPCN), it gave POA the approval to provide scheduled services. The contract was extended to the next 25 years upon passing of the Legislative Franchise in June 22, 1998.

This was to serve primary routes, to develop secondary routes and international destinations, for the public’s convenience. Following this was the issuance of the Air Carrier Operating Certificate (ACOC) to operate scheduled and non-scheduled flights. In order for POA to deserve these certifications, 13 of their stations utilized the online Gabriel Reservation System to enable fast, accurate and customer-friendly reservation and booking services.

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Then, followed the cutover of all stations to Departure Control System – an automated check-in system allowing efficient passenger registration and boarding. In 2002, POA already operated 11,310 flights and carried 502,000 revenue passengers. But in 2003, the numbers went down to 8,150 flights and 457,870 revenue passengers. At present, they are maintaining a fleet size of 10 aircrafts, and having 855 employees (52 pilots, 131 flight attendants and stewards, and 672 ground personnel). Vision To be a chosen global airline that surpasses world-class standards Mission

POA shall: •Deliver the first-rate customer service combining Filipino hospitality and world-class competence • Carry people and cargo at the least cost and earliest time •Provide its employees with an ideal working atmosphere •Provide its stockholders profitability and fair gain on their investments Products 1. Festival Adventures – tour packages- roundtrip airfare, hotel accommodation, daily breakfast, and roundtrip transfers. 2. Explorer Advantage – one-time availment of booklet once and be able to fly as many as 11 times before purchasing yet another ticket.

Also suitable for customers travelling in big groups. 3. Dealer’s Advantage – additional 15 kg free baggage allowance, priority service and special rates. 4. Athlete’s Advantage – for sports enthusiasts – priority service, special discounts and additional free baggage allowance ranging from 15 kg to 35 kg depending on the type of equipment the member would enroll. 5. Soaring Treasures – for frequent flyers – a tie-up with Rewards Plus. Members are credited with points for the mileage they fly and these points can be exchanged for variety of premium items. Awards/Recognitions 1.

Diamond Award for the Transportation and Travel Industry sector in the 2001 Grand Prix Customer Service Awards. 2. 3-time awardee of the Consumers Union of the Philippines as the “Most Outstanding Domestic Airline. ” Held this distinction for 2 consecutive years running. 3. On-Time Performance (OTP) of 94% in 2002. 4. 97% OTP in 2003. Current Target Market Primary Target Market Professionals belonging in the middle class who travel both for leisure and business DemographicsPsychographics •Professionals between 25-45 years old •Middle class •college degree •Urban dwellers •Travels for leisure/business Internet savvy •Travels by bus/ship on out of town trips •No frills traveler •Values convenience and safety •Loves long weekends Secondary Target Market •Travel agencies with domestic and international services, looking to grow their partner airlines Case Facts Major Carrier# of passengersseat capacitypassenger load factor POA50200096500052% SAL1379000212300065% PPA2644000367300072% Total4525000676100067% Table 1: Competitive Performance Summary for 2002 Major Carrier# of passengersseat capacitypassenger load factor POA5516505020009% dec SAL140715013790002% dec PPA281277026440006% dec Total477157045250005% dec

Table 2: Comparative Passengers Carried in 2001 and 2002 Major Carrier# of passengersseat capacitypassenger load factor POA129000096500025% dec SAL208200021230002% inc PPA4222000367300013% dec Total7594000676100011% dec Table 3: Comparative Seat Capacity Offered in 2001 and 2002 Major Carrier# of passengersseat capacitypassenger load factor 20012002 POA48%52%4% inc SAL67%65%2% dec PPA66%72%6% inc Total60%67%7% inc Table 4: Comparative Passengers Load Factors in 2001 and 2002 Major Carrier2002 POA5255. 0025% SAL6305. 0030% PPA9210. 0044% Total20770100% Table 5: Comparative Revenues from Domestic Operations 2002

II. Statement of the Problem What changes/improvements should Philippine Orient Airways implement in order to regain their image increase their current market share? III. Case Objectives 1. To increase passenger load factor to 18 percentage points at the end of the 3rd year and increase volume of passengers carried to 15% 2. To improve employee-employer relationship by regaining their trust to boost their morale 3. To restore/improve public image IV. Assumptions 1. Industry average of breakeven load factor is 55% 2. Analysis of the market has been done V. Areas for Consideration

The areas/factors involved with Philippines Orient Airways are summarized below through the SWOT Analysis. SWOT Analysis STRENGTHSWEAKNESSES Standouts as it offers safety standards comparable to PPA while charging fares competitive with that of SAL. Employs the services of Liebherr Technik Phlippines. POA maintenance crew adheres to rigid standards, policies and procedures to ensure that each airplane is in excellent condition. Prices are very competitive with that of SAL, its closest contender. Both offer lower fares than market leader, PPA. Highly trained flight attendants and stewards. Hub in Cebu.

Enhanced products such as tour packages, easy-ticketing, membership and rewards programs. PPA as market leader is their sister airline sharing of best practices. Low seating capacity and Low Passenger Load Factor. Public image due to failed merger Low employee morale Net Losses Serving of notices for contract termination with accredited travelling agents. POA not serving routes of Manila-Clark-Manila, Davao-Zamboanga-Davao which SAL currently serves. OPPORTUNITIESTHREATS POA not serving routes of Manila-Clark-Manila, Davao-Zamboanga-Davao which SAL currently serves but willing to compete head-on should market conditions improve.

Holiday economics (Gloria’s Term – Policy set in 2001) – POA services more domestic routes than international. Boost tourism, as air travel market is part dependent on it. Competitors may offer POA employees better career opportunities. Economic conditions. Shrinking passenger market due to reluctancy to travel by air (SARS, 9/11 – social conditions) Fluctuating fuel prices. Table 1: SWOT Analysis STRENGTHS Safety and Maintenance POA makes sure that the safety of their passengers the top priority. To enforce this principle, they employed the services of Liebherr Technik Philippines (LTP), who is an affiliate of Liebherr Technik in Germany.

This company is the worldwide leader in aircraft maintenance, repair, and overhaul. Competitive Price Fares Despite the high quality standards that POA provide their customers, they still manage to charge competitive fare prices, which are comparable to Pan Philippine Airways (PPA) and Southern Airlines (SAL). This is to attract price-conscious customers who are targeting low air fares and still take advantage of the comforts of travelling by air. Sea travellers may now opt to take airplanes to get to their destination much quicker. Employee Trainings and Tests

Another factor that POA boast are their highly trained flight attendants and stewards that they take into the company. Before POA assigns any of their attendants and stewards on actual duty, they make sure that they get sufficient training. There are also series of tests given to them, to measure their psychological, IQ, and personality ratings. Hub in Cebu POA has implemented the operation strategy of hub and spoke, and using Cebu as their spot. Cebu is considered as the practical location to carry large number of travellers and cargos to other cities several times a day.

This is also made as an assembly point by passenger going to nearby regions in the country. Enhanced Product POA makes things easier for their customers. They provide tour packages, easy ticketing, membership and different rewards programs to satisfy customer needs and maintain market competitiveness. PPA as their Sister Airline Having Pan Philippines Airways as their sister company, POA can adapt their best practices and to provide their customers with the best service possible. They can also make improvements on lessons learned from past experiences.

There is also a possibility for sharing on resources for both companies. WEAKNESSES Poor Company Image POA’s image was tainted by the failed merger with its sister company (PPA) and rumors has been circulating that the company will fold up to bankruptcy. The company’s image is not only affected by the failed merger but also with the accident that took place on April 19, 2000 where flight 541 crashed in Davao which killed all 131 passengers aboard. Low Seating Capacity and Low Passenger Load Factor POA only has a seating capacity of 965,000 as compared to SAL’s 2,123,000 and PPA’s 3,763,000.

Their seating capacity represents 14. 27% of the whole seating capacity of the 3 major players. Even at full capacity they can only take a maximum of 14. 27% of the market assuming that other players will also be at full seating capacity. Its passenger load factor (PLF) is also very low as at 52% compared to its peers and industry. On the number of passenger carried in 2002, which is 502,000, only represents 10. 52% of the total travellers or market. Low Employee Morale Due to the failed merger with Pan Philippine Airways and rumours of POA heading into bankruptcy, employees were not sure of the company’s direction.

With employees having low morale, there is a tendency that the quality of their service will be affected and may reflect on how they will serve their customers. Net Losses POA have started to experience the impact of the decrease of their market share. Because of their market share going down, the company have incurred significant net losses, which may also affect further improvements and sustainability. Cut ties with Travel Agents Having expectations of POA of progress with the merger with PPA, with its ultimate goal to cut costs and greater efficiency by identifying tasks, they anticipated to have combined sales.

POA terminated its existing ties with accredited travel agents. OPPORTUNITIES Improved Market Conditions The market condition is gradually improving in 2003 as it just came from two major incidents, first is the 9/11 terrorist attack in the US in 2001, and the second is the effect of SARS on the first half of the year. Tourist both local and foreigners are starting to fly and travel again. Long holidays are approaching which gives the people a chance to travel and heads back home to their provinces. Holiday Economics R. A. 492 or the so called holiday economics, seeks to “rationalize” the celebration of the national holidays in the Philippines. The new law makes majority of the holidays “movable” to Mondays. This new law will boost local tourism which is normally enjoyed mostly by foreigners. This means that there will be more long-weekends that will give local people a chance to travel. Government Aggressive Campaign for Tourism The government is aggressively campaigning to boost Philippine tourism to other countries especially in Korea, China, USA, and Europe.

This campaign will result to more tourists coming in to visit the country, which will then result to increase number of passengers that will bring them to local destinations. THREATS Pirating of POA Skilled Employees POA employees are having low morale with the current status of the company. They may have tendencies to take job offers from other airline companies who need their assistance. The employees may even leave POA and look for a job that they think is going to be more stable. Economic Conditions In 2002, the Philippine economy grew by 4. 6% as compared to 2001’s 3. 4%.

The growth was robust but it was also the year of a record budget deficit. The country was burdened by the public sectors debt equal to more than 100% of GDP. The unemployment was also at its peak at 10. 2% leaving more people wandering on the streets without disposable income. The economy just came from mild recession in 2001 brought by dot com bubble, 9/11 attack, and SARS. Shrinking Passenger Market There can be disasters that may occur and also diseases, which may lessen the number of travellers. Examples are the 9/11 tragedy and the SARS outbreak. When problems like these occur, people will most likely refrain from flying out.

This will also cause less revenue and can result to net losses. Fluctuating Fuel Prices Fuel is one of the major costs spent by airline companies. If prices suddenly go up, it will greatly affect POA and other company’s profit. The increase in fuel prices cannot be easily passed on to passengers as it will significantly increase the air fares. If the air fare is high, most passengers may not afford it and may defer their travel when the prices go down. The result would be less people would be willing to pay high prices, and this will negatively affects POA’s profit. VI. Alternative Courses of Action

For our Alternative Courses of Action, we present the following: ACA #1: Re-brand the company to improve its image and remove the tainted impression from the market brought by failed merger. Pros -POA can have the chance to make the right changes with their old processes and remove the impression of people with their old company -They may get back the trust of their customers Cons -A lot of re-processing and re-organization effort would needs to be done -Some employees may not be able to adjust to new cultures that will be introduced to the organization – There are a lot of uncertainties that may arise

ACA #2: Design and implement an aggressive marketing program (low budget fares, e-ticketing, flight packages) to earn back the loss market and to increase net profit. Pros -Attracting frequent fliers to fly with POA instead of SAL or PPA -Attracting new customers that previously cannot afford to fly such as those who travel by sea or land. -Market share may increase significantly because more people from the lower class can now afford to fly. In effect, POA will generate more revenue and have more leverage on introducing new things to the market to improve the current customer service being provided. Introducing e-ticketing will make it more convenient for customers to book flights and reduce cost by eliminating the use of paper, in turn reducing waste and protect the environment. -The utilization of their aircraft will improve and their PLF would also improve. Cons -POA will need to initially spend more to fund the program. Given the uncertainty of their cash flow, any additional expenses may further impact their liquidity. -The program would be expensive and still does not guarantee success as competitors may launch the same aggressive program to counter POA to protect their market share.

ACA #3: Expand operations to cater to other untapped locations and be the first one to offer flights to that location. Pros -POA will be the only player, thus monopolize the market to that location -POA can be the first to get the market share for customers who want to fly the new destination -POA being the first to offer the flight to that location will create a good brand image and will result to passenger loyalty. -Customers who avail of this new destination may decide to also book their other destinations with POA Cons Number of passengers may be low as it is a new destination -POA may need to initially subsidize the unfilled flights or unutilized seating capacity -Additional expenses for POA setting up the flight to that location. ACA #4: Improve existing programs and benefits for employees. Pros -Happy employees will give quality service which in turn results to satisfied and happy customer. -Happy customers will patronage the airline, more repeat customers. -Happy employees reflects good service, each employee would be a marketing agent for the company. Offer discounts to employees and their immediate family. Employees to give feedback on their travel experience as an input to the marketing department. Cons -Improving the benefit of the employees or their compensation packages need further financing and increase their operating cost. ACA #5: Re-build or re-establish relationship with travel agents. Pros -Booking flights with POA will become easier and more accessible through travel agents. -Travel agents could bring more passengers as more and more travellers prefer to use travel agents as one stop shop on their travel needs. As a result POA will be able to regain the lost opportunity or flights that the travel agents booked with SAL instead of POA. -Market share will gradually increase. -Minimal cost and the fastest to implement Cons -Will not address the low company morale issue ACA #6: Combination of ACA #2, ACA #4, and ACA #5 Pros -POA will be able to cater internal and external customers -ACA #5 is the fastest and cheapest to implement. Cons -This will need a large amount of investment -Multiple action items to implement. VII. Conclusion and Recommendation

With the current situation of Philippine Orient Airways, our Group analyzed different ways on how to improve their current state and regain their market share. Having an airline company would entail an enormous amount of capital and continuous flow of money is a must, in order to sustain their people and the business itself. After numerous discussions, our Group decided to take ACA#6 as our action. ACA #6 has the combination of ACA #2, ACA #4, and ACA #5. With the combination of these three ACAs, we believe that POA has a better chance to bounce back with their decrease in market problem and improve the morale of their employees.

VIII. Implementation Plan Please see the attachment for the Implementation Plan in Appendix A. IX. References Kotler, P. , Keller K. L. (2009). Marketing Management (13th Ed). Singapore: Pearson Education South Asia Pte Ltd. Tourists spend more nights in the Philippines than in other ASEAN Countries http://www. nscb. gov. ph/factsheet/pdf03/fs3_08. asp The evolution of the Philippine Air Industry http://www. aerlines. nl/issue_36/36_Manuela_Evolution_Philippine_Airline_Indus try. pdf SARS, war stall airline’s recovery http://www. travelsmart. et/article/105175/ Anti-poverty? How about Pro-middle class? http://www. nscb. gov. ph/headlines/StatsSpeak/2007/121007_rav_poverty. asp Trends and characteristics of the middle-income class in the Philippines: Is its expanding or shrinking? http://www. nscb. gov. ph/ncs/10thNCS/papers/contributed%20papers/cps-12/cps12-01. pdf 3 ways of looking at the income distribution of the Philippines-2006 updates http://makuhari. wordpress. com/2007/08/13/3-ways-of-looking-at-the-income-distribution-of-the-philippines/ Strategic Directions for ASEAN airlines in a Globalizing World.

The emergence of low cost carriers in South East Asia http://www. aseansec. org/aadcp/repsf/docs/04-008-FinalLCCs. pdf Pinoy middle class before the crisis http://www. nscb. gov. ph/headlines/StatsSpeak/2009/060809_rav_middleclass. asp Understanding the domestic VFR travel market in the Philippines http://www. nscb. gov. ph/ncs/10thNCS/papers/invited%20papers/ips-11/ips11-02. pdf Status of the development of the Philippine Tourism Satellite Account (PTSA) http://www. nscb. gov. ph/stats/ptsa/NSCB_StatusoftheDevelopmentofthePTSA. pdf


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