Harvard Case - Fastjet: Strategy and Expansion
"Fastjet: Strategy and Expansion" Harvard business case study is written by Nicole R.D. Haggerty, James Spillane, Jocelyn Carabott, Cheryl Mok, Nicole Wiebe. It deals with the challenges in the field of Strategy. The case study is 9 page(s) long and it was first published on : Aug 23, 2018
At Fern Fort University, we recommend Fastjet adopt a multi-pronged growth strategy focusing on strategic alliances, market penetration, and product development within existing and new markets. This strategy will leverage Fastjet's core competencies in low-cost operations, technology, and strong brand recognition to achieve sustainable growth while navigating the complexities of the African aviation market.
2. Background
Fastjet, a low-cost airline founded in 2012, aimed to disrupt the African aviation industry by offering affordable air travel. The company initially focused on market penetration in Tanzania, expanding to Zimbabwe, South Africa, and Zambia. However, Fastjet faced challenges like intense competition, regulatory hurdles, and economic volatility, leading to financial losses and a need for a strategic reassessment.
The case study's main protagonists are Ed Winter, Fastjet's CEO, and the company's board of directors, who must decide on a future strategy to ensure long-term viability and profitability.
3. Analysis of the Case Study
SWOT Analysis:
Strengths:
- Low-cost model: Fastjet's focus on efficiency and cost-optimization provides a competitive advantage.
- Strong brand recognition: Fastjet has established a brand image associated with affordability and reliability.
- Experienced management team: The company boasts a team with expertise in aviation and emerging markets.
- Technology and analytics: Fastjet leverages technology for efficient operations and data-driven decision-making.
Weaknesses:
- Financial instability: Fastjet has faced financial challenges and struggled to achieve profitability.
- Limited route network: The company's network is relatively small compared to competitors.
- Dependence on external factors: Fastjet's success is heavily influenced by economic conditions and regulatory environments.
Opportunities:
- Growing African middle class: The increasing disposable income of the African population presents a significant market opportunity.
- Limited competition in certain markets: Some African countries offer less competition, allowing for market share gains.
- Technological advancements: New technologies can further optimize operations and enhance customer experience.
Threats:
- Intense competition: Established airlines and new entrants pose significant competition.
- Economic volatility: Fluctuations in oil prices and currency exchange rates impact operating costs.
- Regulatory challenges: Navigating complex and evolving regulations in different African countries can be challenging.
Porter's Five Forces:
- Threat of new entrants: High due to low barriers to entry and potential for new low-cost carriers.
- Bargaining power of buyers: Moderate, as customers have alternatives but value low fares.
- Bargaining power of suppliers: Moderate, as the airline industry relies on various suppliers.
- Threat of substitute products: Moderate, as alternative modes of transport like rail or road exist.
- Rivalry among existing competitors: High, with established airlines and other low-cost carriers vying for market share.
Value Chain Analysis:
Fastjet's value chain focuses on cost-efficiency throughout the process:
- Inbound Logistics: Efficient procurement and supply chain management.
- Operations: Streamlined operations with a focus on aircraft utilization and cost optimization.
- Outbound Logistics: Efficient baggage handling and passenger check-in processes.
- Marketing and Sales: Leveraging digital channels and partnerships for cost-effective marketing.
- Service: Providing a basic but reliable service with a focus on affordability.
Business Model Innovation:
Fastjet's initial business model focused on low-cost operations and market penetration in underserved African markets. However, the company needs to adapt its model to address the evolving competitive landscape and market dynamics.
Key Considerations:
- Strategic alliances: Partnering with other airlines to expand route networks and leverage existing infrastructure.
- Product differentiation: Offering value-added services beyond basic airfare to attract price-sensitive customers.
- Digital transformation: Utilizing technology to enhance customer experience, optimize operations, and improve efficiency.
4. Recommendations
- Strategic Alliances: Fastjet should pursue strategic alliances with established airlines in Africa and beyond. This allows for access to new markets, route expansion, and shared infrastructure, reducing operational costs and increasing market reach.
- Market Penetration: Fastjet should focus on market penetration strategies within existing markets, particularly in countries with limited competition and growing demand. This involves increasing flight frequency, expanding route networks within these countries, and leveraging targeted marketing campaigns to attract price-sensitive customers.
- Product Development: Fastjet should develop value-added services to differentiate itself from competitors and attract a wider customer base. This could include offering bundled travel packages, loyalty programs, and enhanced in-flight amenities.
- Digital Transformation: Fastjet should invest in digital transformation to enhance customer experience, optimize operations, and improve efficiency. This involves implementing online booking platforms, mobile applications, data analytics for route optimization, and online customer support.
- Strategic Planning: Fastjet needs to develop a robust strategic planning framework to guide its growth strategy. This involves conducting thorough market research, analyzing competitive landscapes, and identifying key performance indicators (KPIs) to track progress and measure success.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies: Leverage Fastjet's core competencies in low-cost operations, technology, and strong brand recognition.
- External customers: Address the needs of price-sensitive customers while offering value-added services to attract a wider audience.
- Competitors: Differentiate Fastjet from competitors through strategic alliances, product development, and digital transformation.
- Attractiveness: The recommendations are expected to improve profitability and market share, leading to a more sustainable business model.
6. Conclusion
Fastjet has the potential to succeed in the African aviation market by adopting a multi-pronged growth strategy that leverages its core competencies and addresses the evolving market dynamics. By pursuing strategic alliances, focusing on market penetration, developing value-added services, and embracing digital transformation, Fastjet can achieve sustainable growth and profitability.
7. Discussion
Alternatives not selected:
- Mergers and Acquisitions: While M&A could provide access to new markets and resources, it carries significant financial risks and integration challenges.
- Focus on niche markets: Targeting specific segments like business travelers could be lucrative but might limit growth potential.
Risks and key assumptions:
- Economic volatility: Fluctuations in oil prices and currency exchange rates could impact profitability.
- Regulatory challenges: Navigating complex and evolving regulations in different African countries could be challenging.
- Competition: Intense competition from established airlines and new entrants could hinder market share gains.
8. Next Steps
- Conduct thorough market research to identify potential partners for strategic alliances.
- Develop a detailed strategic plan outlining market penetration strategies and product development initiatives.
- Invest in digital transformation by implementing new technologies and systems.
- Monitor key performance indicators to track progress and make necessary adjustments to the strategy.
By effectively implementing these recommendations, Fastjet can navigate the complexities of the African aviation market and achieve sustainable growth, ultimately becoming a leading low-cost airline in the region.
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Case Description
In 2012, Fastjet acquired Fly540, a low-cost airline with operations in Tanzania, Kenya, Angola, and Ghana, and began operating as a low-cost carrier with the goal to become the most successful pan-African low-cost airline. Since starting operations, Fastjet had grown tremendously, achieving strong market acceptance and a reputation for reliability and punctuality. Although yield per passenger had increased over its first two years, Fastjet had continued to report operating losses due to its poorly performing operations in Kenya, Angola, and Ghana. In September 2014, Fastjet had the opportunity to expand into other African regions, and the company's chief executive officer needed to consider his options to successfully grow the company's operations.
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