Harvard Case - All Nippon Airways: Are Dual Business Models Sustainable?
"All Nippon Airways: Are Dual Business Models Sustainable?" Harvard business case study is written by Wiboon Kittilaksanawong, Elise Perrin. It deals with the challenges in the field of General Management. The case study is 13 page(s) long and it was first published on : Jan 29, 2016
At Fern Fort University, we recommend that All Nippon Airways (ANA) carefully assess the sustainability of its dual business model, focusing on optimizing its core airline operations while strategically managing its subsidiary ventures. This approach involves a combination of streamlining, strategic partnerships, and targeted investments to ensure long-term success and profitability.
2. Background
This case study focuses on All Nippon Airways (ANA), a major Japanese airline facing the challenge of managing a dual business model. ANA's core business is air transportation, but it also operates a diverse range of subsidiaries, including a hotel chain, a travel agency, and a ground handling service. The case explores the potential benefits and risks of this diversification strategy, particularly in light of the competitive and volatile nature of the aviation industry.
The main protagonists in the case are:
- Shinya Katano: ANA's CEO, who must navigate the complex challenges of managing a dual business model.
- ANA's Board of Directors: They must evaluate the strategic direction of the company and make decisions regarding resource allocation and investment.
- ANA's subsidiary managers: They are responsible for the performance of their respective businesses and must work collaboratively with the core airline operations.
3. Analysis of the Case Study
To analyze ANA's situation, we can utilize a combination of frameworks:
Strategic Analysis:
- Porter's Five Forces: The aviation industry is characterized by intense competition, high entry barriers, powerful suppliers (aircraft manufacturers), and price-sensitive customers. This suggests a need for strong cost management and differentiation strategies.
- SWOT Analysis: ANA possesses strengths like strong brand recognition, a robust network, and operational efficiency. However, it faces weaknesses like dependence on international travel and potential conflicts between its core business and subsidiaries. Opportunities include expanding into emerging markets and leveraging technology for improved customer service. Threats include economic downturns, fuel price fluctuations, and increased competition from low-cost carriers.
- Competitive Advantage: ANA's competitive advantage lies in its strong brand, operational excellence, and extensive network. To maintain this advantage, it needs to focus on innovation, customer experience, and cost optimization.
Financial Analysis:
- Profitability: ANA's financial performance is influenced by factors like fuel prices, passenger demand, and competition. Evaluating the profitability of its subsidiaries and their contribution to the overall financial health of the company is crucial.
- Resource Allocation: ANA needs to carefully allocate resources between its core airline operations and subsidiary ventures, ensuring that each receives adequate funding to achieve its objectives.
Operational Analysis:
- Efficiency: ANA's operational efficiency is critical to its success. This includes factors like fuel consumption, aircraft utilization, and ground handling operations.
- Innovation: ANA needs to invest in technological advancements and operational improvements to enhance efficiency and customer experience.
Marketing Analysis:
- Brand Management: ANA's strong brand equity needs to be leveraged across all its business units to ensure consistent messaging and customer loyalty.
- Customer Segmentation: Understanding the needs and preferences of different customer segments is crucial for tailoring marketing strategies and product offerings.
4. Recommendations
ANA should implement the following recommendations to ensure the sustainability of its dual business model:
1. Streamline Subsidiary Operations:
- Focus on Core Competencies: ANA should prioritize subsidiaries that align with its core competencies and contribute to its overall strategic goals. This may involve divesting or restructuring non-core businesses.
- Strategic Partnerships: For subsidiaries that are not core but offer valuable services, ANA should explore strategic partnerships with other companies to leverage their expertise and reduce operational costs.
- Performance Evaluation: ANA should implement a rigorous performance evaluation system for its subsidiaries, measuring their profitability, market share, and contribution to the overall business.
2. Optimize Core Airline Operations:
- Cost Optimization: ANA should continuously strive to reduce operational costs through fuel efficiency initiatives, optimized aircraft utilization, and efficient ground handling processes.
- Innovation and Technology: Invest in technology and innovation to improve customer experience, enhance operational efficiency, and develop new revenue streams. This includes exploring AI and machine learning for data-driven decision making, personalized customer service, and automated processes.
- Strategic Alliances: Partner with other airlines to expand its network, share resources, and access new markets.
3. Enhance Corporate Governance:
- Clear Strategy: ANA should develop a clear and concise strategy for its dual business model, outlining the objectives, roles, and responsibilities of each subsidiary.
- Transparency and Accountability: Ensure transparency and accountability across all business units, with clear performance metrics and reporting mechanisms.
- Board Oversight: The board should actively oversee the performance of the subsidiaries and ensure that they are contributing to the overall success of the company.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Mission: The recommendations focus on strengthening ANA's core competencies in air transportation while ensuring that subsidiaries align with its overall mission and strategic goals.
- External Customers and Internal Clients: The recommendations aim to enhance customer experience and satisfaction across all business units, while also fostering collaboration and communication between the core airline operations and subsidiaries.
- Competitors: The recommendations address the competitive pressures in the aviation industry by focusing on cost optimization, innovation, and strategic partnerships.
- Attractiveness: The recommendations are expected to improve ANA's financial performance by streamlining operations, enhancing efficiency, and generating new revenue streams.
6. Conclusion
ANA's dual business model can be sustainable if it carefully manages its subsidiaries, ensuring they align with its core competencies and contribute to its overall strategic goals. By focusing on operational efficiency, innovation, and strategic partnerships, ANA can maintain its competitive advantage and achieve long-term profitability.
7. Discussion
Alternatives:
- Complete divestiture of subsidiaries: This would simplify ANA's operations but could lead to a loss of potential revenue and strategic opportunities.
- Maintaining the current model without significant changes: This could lead to inefficiencies and potential conflicts between the core business and subsidiaries.
Risks:
- Economic downturn: A decline in global travel demand could significantly impact ANA's revenue and profitability.
- Fuel price volatility: Fluctuations in fuel prices can significantly impact operating costs and profitability.
- Competition from low-cost carriers: The rise of low-cost carriers could put pressure on ANA's pricing and market share.
Key Assumptions:
- Continued growth in air travel demand: The recommendations assume that global air travel demand will continue to grow in the long term.
- Technological advancements: The recommendations rely on the continued development and adoption of technology to enhance efficiency and customer experience.
- Effective implementation: The success of the recommendations depends on their effective implementation and ongoing monitoring.
8. Next Steps
- Conduct a comprehensive review of subsidiary performance: This review should assess the profitability, market share, and strategic alignment of each subsidiary.
- Develop a clear strategy for each subsidiary: This strategy should outline the subsidiary's objectives, target market, and competitive advantage.
- Implement performance evaluation metrics: Establish clear performance metrics for each subsidiary, including profitability, customer satisfaction, and contribution to the overall business.
- Invest in technology and innovation: Allocate resources to develop and implement technology solutions that enhance efficiency, improve customer experience, and generate new revenue streams.
- Monitor progress and make adjustments as needed: Continuously monitor the performance of the subsidiaries and make adjustments to the strategy as needed to ensure long-term sustainability.
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Case Description
In 2012, All Nippon Airways diversified into Japan's emerging low-cost carrier market by launching two new low-cost carriers: Peach Aviation and AirAsia Japan. After one year, Peach Aviation experienced financial losses and operations failures; after two years, the company announced cancellation of many flights. The second carrier, AirAsia Japan, ended its operations in 2013, and was later restructured as Vanilla Air, a wholly-owned subsidiary of All Nippon Airways. Why was a highly successful flag and legacy carrier unable to successfully run a low-cost carrier in Japan?
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