Strategic options

Discussion in 'Growing and Managing a Business' started by Retired Account, Apr 12, 2010.

  1. Retired Account

    Retired Account
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    Hello!

    I am writing an assignment about JAL Japan airlines, which declared bankruptcy in January 2010 (insolvency).

    I have to do a SWOT, PESTLE analysis and choose three strategic options

    In general, what would make sense for a company having not enough money?
    - Diversification makes imo no sense, what about cost leadership?

    Best regards

    Arthur
     
  2. Fergal

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    Hi Arthur, welcome to our business forum. I understood that JAL was being bailed out by the Japanese government, do you know if that has happened yet? A government bail out would seem like the best option for it.

    Other options might include;
    1. Selling all or part of of the company
    2. Converting debt to equity
    3. A rights issue to take in more funding
    4. Or closing / liquidating the company, if nothing can save it.
    Does that help you, or is there anything else we can help with?
     
  3. seanstevens

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    A little background on JAL:

    Holding company is called: Japan Airlines Corporation

    Operations through subsidiaries: air transportation, travel services, hotel and resort operations, card and lease operations, trading and other airline-related business.

    Business Segments: Air Transportation Business, Airline-Related Business, Travel Services Business, Credit Card and Leasing Services Business, other Businesses.

    Jan 2010: announcement that it and its two subs, Japan Airlines International Co., Ltd. and JAL CAPITAL CO.,LTD, filed for bankruptcy protection to Enterprise Turnaround Initiative Corporation of Japan.

    They have also filed for Corporate reorg proceedings to the Tokyo District Court.

    A couple of financial facts that highlights some issues:

    In the 6 months to 30-Sep-09 its Operating Income was a loss of 107m Yen, the same period in 2008 was a profit of 41bn Yen.

    In the 6 months to 30-Sep-09 its Net cash from Operations was a huge loss of 40bn yen compared to a gain of 90bn Yen the previous year.

    If a business is struggling for cash then it needs to reduce its overheads (spending; usually by way of staff reductions, expense savings on things such as travel and entertainment) and increase its profitable sales (fire sales such as low prices to increase take up of an offer and give you more market penetration etc).
     
  4. Retired Account

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    Good morning all!

    Thank you very much for your contribution.

    I have the two annual reports in front of me but I cannot really figure out what the reason was for this drop of operating income and net cash..

    - Is it the drop in business passenger demand, and fuel prices? Does this have SUCH an impact?

    As I already mentioned, I have to make a PESTLE/5 Forces analysis of JAL = SWOT and then figure out 3 strategic options?

    What strategy would make sense for them in their actual situation? (Ansoff/Porter)

    Porter:
    - Cost leadership makes no sense = New terminal (Haneda airport) where they could focus their international flights. (landing fees are expensive) cost leadership is used by low cost carriers, which JAL is not. However, JAL could set up a low cost carrier subsidiary which operates domestically with cost leadership and the international flights will be handled by JAL itself

    - Differentiation, ? I do not know how they could differate themself for example from Singapore airlines (competitor)

    - Focus?

    Ansoff:
    - Market penetration, steal market share from domestic competitor ANA Airlines
    - Market development, should they really go into new markets, should not they just focus on that what they offer and reduce this costs?
    - Product development
    - Diversification, it seems to me was the reason of the bankrupcy, card services hotels, travel services.

    What could you suggest me?

    Thank you very much for your inputs and help!
     
  5. seanstevens

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    Massively. Drop in passengers means less money coming in whereas the fuel price rises means more money going out... dangerous situation.

    JAL had / have a few problems; They were flying too many routes that were not making any profit. Each aircraft has a limit of number of passengers + price they pay for the ticket to make it a profitable flight. They had too many routes that were not meeting this line and losses can quickly increase.

    When they filed for protection it was estimated that their debts were 2.3 Trillion Yen!!

    It is expected that they will need to cut about 15,000 staff members (30% of their workforce) in the next couple of years and they will also need to sell all but the transport businesses to even stand a chance of surviving. They will also be cutting around 30-40 of their routes.

    So, yes, they were trying to be involved in too many things, possibly trying to grow too quickly on things they were not expert in and trying to compete with companies that it was not advisable to compete against. You can not compete with Singapore airlines (example only) on quality, you cannot compete against RyanAir (example only) on price.. You have to understand your place in the market before you try to compete. Once you understand your own place in the market, then you can see how you can compete with others.
     
  6. Fergal

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    Arthur, it's difficult to say which strategy would be best for the company, without having an in-depth knowledge of the business and the industry it operates in. At first look however, I would suggest that the best strategy in this instance would be Market Penetration. A severe recession coupled with huge losses don't make the ideal conditions for developing new products or new markets. Now would seem to be the time for making the most of what they already have.
     
  7. Retired Account

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    Yes in my opinion market penetration would make sense with a consolidation strategy.
    I am going to write now a part of the assignment.

    Thank you very much for your contributions

    Arthur
     
  8. Fergal

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    Always a pleasure Arthur. Good luck with your assignment and please post back to let us know how you get on or if you have any further business questions. Also it would be great if you used your knowledge to answer some questions posted by other members.
     
  9. elids1979

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    Hi
    for some reason, I think business schools really like the flight industry, as an mba student in tel aviv i encountered about 4 courses that had to do with analysis of delta airlines in comparison to south west.
    Some basic additions to the swot analysis
    the flight industry all over the world is in a mess, even without the recession, something in the business model of flight companies doesnt seem to work properly
    the recession makes it even worse, since flying is often considered as a luxury (travelling etc) so downturns even affect this industry more than the other industries that are dealing with commodities with a basically low elasticity of demand
    one more point about the flight industry, a great weakness , is the power in the hands of employees, the strike threat that essentially can destroy a company that got paid and now has to supply the product, makes it very common to see employees earning alot more than they deserve, and alot of excess workforce that you cant fire becuase the union will shut you down.
    goodluck on the work.
     
  10. Fergal

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    Anyone looking at the airline industry could do worse than have a look at how successful Ryan Air have been, with their low cost model. Ryan Air's growth in recent years has been phenomenal. Plenty of people criticise their low cost model, but airline customers are voting with their feet and travelling with them, in great numbers.

    Ryan Air replicated a lot of the low cost business model implemented by Southwest Airlines.

    Interesting you should say that, when I was studying management and marketing in college most of our case studies were based on major companies such as Proctor and Gamble. How much more practical the course would have been, if the lecturers paid a bit more attention to small growing companies.
     
  11. Retired Account

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    Strategic issues

    Hello all!

    U lala, I made an external and internal analysis of JAL.
    Now in the assignment it is mentioned: I should now identify the main S W O and Ts of JAL. Which is the SWOT I have already done.

    But additionally to the SWOT in question 2 they are asking for: Identify and discuss 3 key strategic issues that JAL faces.

    I do not really understand what they mean with strategic issues! Is it meant that I should have 3 "things" for each S, W, O T? What are strategic issues excactly??

    Thanks for your help!

    Arthur
     
  12. Fergal

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    Arthur, strategic issues are issues that impact on the future direction and planning of the company. For JAL strategic issues could be, changes in oil prices, the impact of environmental laws and restrictions and the global recession.

    I hope that helps, please let us know if you need more information or have further questions.
     
  13. Retired Account

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    Thank you Fergal!

    So in other words. I should identify and discuss the Three major issues of the Swot analysis. That could be one issue which is a strenghts of JAL and has a major influence for the future of JAL. Or an issue could be a threat like the maybe new co2 laws for airplanes.

    And most probably if I have to develop later on also 3 strategies then they should mention or at least be related to this issues. Right?
     
  14. Fergal

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    That sounds about right to me Arthur. However, it might be no harm to clarify that understanding with your tutor, before completing the assignment.
     

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