Harvard Case - Icelandair (A): An 80-Year-Old Saga
"Icelandair (A): An 80-Year-Old Saga" Harvard business case study is written by Pascual Berrone, Jordan Mitchell, Throstur Olaf Sigurjonsson. It deals with the challenges in the field of Strategy. The case study is 30 page(s) long and it was first published on : Dec 16, 2019
At Fern Fort University, we recommend Icelandair pursue a strategic transformation focused on leveraging its unique competitive advantages in sustainability, connectivity, and cultural experiences to achieve sustainable growth in the evolving global aviation market. This strategy involves a digital transformation to enhance customer experience, a product diversification strategy to expand beyond traditional air travel, and a commitment to environmental sustainability as a core value.
2. Background
Icelandair, a leading Icelandic airline, faces a challenging landscape marked by increased competition, fluctuating fuel prices, and growing environmental concerns. Despite its strong brand and established network, Icelandair needs to adapt to changing customer preferences and market dynamics. The case highlights the company's history, its unique position as a 'bridge' between Europe and North America, and its recent efforts to expand its network and enhance its customer experience.
The main protagonists of the case study are:
- Bjornolfur Thorisson: CEO of Icelandair, tasked with navigating the company through a period of significant change.
- The Board of Directors: Responsible for overseeing the company's strategic direction and ensuring its long-term viability.
- The Management Team: Responsible for implementing the company's strategic initiatives and managing its day-to-day operations.
3. Analysis of the Case Study
SWOT Analysis:
- Strengths: Strong brand recognition, unique geographic position, efficient operations, focus on sustainability, strong customer loyalty.
- Weaknesses: Limited fleet size, reliance on a single hub, susceptibility to economic fluctuations, potential for increased competition.
- Opportunities: Growing demand for travel, increasing focus on sustainability, potential for new markets and partnerships.
- Threats: Rising fuel prices, competition from low-cost carriers, economic downturns, environmental regulations.
Porter's Five Forces:
- Threat of New Entrants: Moderate, due to high capital costs and regulatory barriers.
- Bargaining Power of Buyers: Moderate, as customers have a range of choices, but Icelandair offers unique value propositions.
- Bargaining Power of Suppliers: Moderate, with potential for negotiation with aircraft manufacturers and fuel suppliers.
- Threat of Substitute Products: High, with competition from other airlines and alternative modes of transportation.
- Rivalry Among Existing Competitors: High, with increasing competition from both traditional and low-cost carriers.
Value Chain Analysis:
Icelandair's value chain consists of key activities:
- Inbound Logistics: Procurement of aircraft, fuel, and other resources.
- Operations: Flight operations, maintenance, and ground handling.
- Outbound Logistics: Delivery of passengers and cargo to their destinations.
- Marketing and Sales: Promotion of flights and ancillary services.
- Service: Customer service, baggage handling, and in-flight experience.
Business Model Innovation:
Icelandair's current business model is based on a traditional airline model, with revenue generated primarily from ticket sales and ancillary services. To achieve sustainable growth, Icelandair needs to explore business model innovation by:
- Diversifying revenue streams: Offering unique experiences, such as 'Iceland stopovers' and cultural tours, leveraging its unique location.
- Expanding into new markets: Targeting emerging markets with strong growth potential, particularly in Asia.
- Developing new products and services: Offering personalized travel packages, incorporating technology to enhance customer experience.
Corporate Governance:
Icelandair's corporate governance structure should be strengthened to ensure transparency, accountability, and ethical decision-making. This includes:
- Strengthening the Board of Directors: Appointing independent directors with relevant expertise in aviation and sustainability.
- Implementing robust risk management practices: Identifying and mitigating potential risks associated with the company's strategic initiatives.
- Promoting ethical business practices: Adhering to high standards of corporate social responsibility and environmental sustainability.
4. Recommendations
Strategic Transformation:
- Digital Transformation: Invest in technology and analytics to enhance customer experience, streamline operations, and improve efficiency. This includes developing a user-friendly website and mobile app, personalizing travel experiences, and leveraging data analytics to optimize pricing and route planning.
- Product Diversification: Expand beyond traditional air travel by offering unique experiences, such as 'Iceland stopovers' with curated tours and activities, and partnering with local businesses to provide comprehensive travel packages.
- Environmental Sustainability: Embrace sustainability as a core value and integrate it into all aspects of the business. This includes investing in fuel-efficient aircraft, reducing carbon emissions, and promoting sustainable tourism practices.
Growth Strategy:
- Market Penetration: Increase market share in existing markets by offering competitive pricing, enhancing customer loyalty programs, and leveraging partnerships with travel agencies and online platforms.
- Market Development: Expand into new markets with high growth potential, particularly in Asia, by establishing new routes and partnerships with local airlines.
- Product Development: Develop new products and services to meet evolving customer needs, such as personalized travel packages, customized itineraries, and premium in-flight experiences.
Strategic Alliances:
- Partnerships with airlines: Collaborate with other airlines to expand network reach and offer seamless connections.
- Partnerships with tourism operators: Partner with local tour operators to offer comprehensive travel packages and enhance customer experiences.
- Partnerships with technology companies: Collaborate with technology companies to develop innovative solutions for customer experience, operations, and sustainability.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of Icelandair's strengths, weaknesses, opportunities, and threats. They are consistent with the company's mission to provide safe, reliable, and sustainable air travel while leveraging its unique competitive advantages.
Core Competencies and Consistency with Mission:
The recommendations align with Icelandair's core competencies in operations, customer service, and sustainability. They also support the company's mission to provide safe, reliable, and sustainable air travel.
External Customers and Internal Clients:
The recommendations address the needs of both external customers and internal clients. They aim to enhance customer experience, improve employee satisfaction, and foster a culture of innovation and sustainability.
Competitors:
The recommendations consider the competitive landscape and aim to differentiate Icelandair from its competitors by leveraging its unique strengths and pursuing a sustainable growth strategy.
Attractiveness:
The recommendations are expected to generate positive financial returns, including increased revenue, improved profitability, and enhanced shareholder value.
Assumptions:
The recommendations are based on the assumption that the global aviation market will continue to grow, that customers will increasingly value sustainability, and that technology will continue to play a key role in shaping the future of travel.
6. Conclusion
Icelandair has a unique opportunity to achieve sustainable growth by leveraging its competitive advantages in sustainability, connectivity, and cultural experiences. By embracing a strategic transformation focused on digital transformation, product diversification, and environmental sustainability, Icelandair can position itself for success in the evolving global aviation market.
7. Discussion
Alternatives:
- Cost Leadership: Focus on offering the lowest fares, which could be risky in a highly competitive market.
- Mergers and Acquisitions: Acquire other airlines to expand network reach, but this could be costly and complex.
- Outsourcing: Outsource certain operations to reduce costs, but this could compromise quality and control.
Risks and Key Assumptions:
- Economic Downturn: A global economic downturn could negatively impact travel demand.
- Fuel Price Volatility: Fluctuations in fuel prices could impact profitability.
- Technological Disruption: New technologies could disrupt the aviation industry.
Options Grid:
| Option | Advantages | Disadvantages | Risk |
|---|---|---|---|
| Strategic Transformation | Sustainable growth, competitive advantage | Significant investment, potential for disruption | Moderate |
| Cost Leadership | Low fares, increased market share | Reduced profitability, potential for price wars | High |
| Mergers and Acquisitions | Expanded network, increased market power | Costly, complex, potential for integration challenges | High |
| Outsourcing | Reduced costs, increased efficiency | Loss of control, potential for quality issues | Moderate |
8. Next Steps
Timeline:
- Year 1: Implement digital transformation initiatives, enhance customer experience, and develop new products and services.
- Year 2: Expand into new markets, establish strategic alliances, and further invest in sustainability initiatives.
- Year 3: Monitor progress, adjust strategies as needed, and continue to innovate and grow.
Key Milestones:
- Launch of new website and mobile app: Q1 2024
- Introduction of 'Iceland stopovers' program: Q2 2024
- Expansion into new markets: Q3 2024
- Partnership with technology company: Q4 2024
By implementing these recommendations and taking a proactive approach to strategic planning, Icelandair can navigate the challenges and opportunities of the global aviation market and achieve sustainable growth for the next 80 years and beyond.
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Case Description
This five-part case series considers Icelandair at a couple of key inflection points in its recent history. Case A, set in early 2017 on the airline's 80th anniversary, the airline is faced to question its strategy after its impressive seven-year run of dynamic growth and solid returns comes to a somewhat abrupt end due to extreme pricing competition and upward cost pressure. The case delves into the development of the airline and its "hybrid" business model straddling between a full-service and Low-Cost Carrier (LCC) and specifically, how it competes against the new Icelandic LCC upstart, WOW Air. Students are asked to understand Icelandair's strategy and consider if any adaptations should be made in light of increasing pressure from WOW Air.
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