Supply Chain Strategy for a

Feasibility Report Consultancy

Abstract
A study of the logistics system needed to enable the establishment of a low-cost airline in
the Australasian region.

Somlata Bispat
R2105D12186478
CONTENTS

INTRODUCTION...........................................................................................................................2

Background..................................................................................................................................2

Objectives....................................................................................................................................2

Scope............................................................................................................................................3

Method of Investigation...............................................................................................................3

PROBLEM IDENTIFICATION.....................................................................................................4

CRITICAL DISCUSSION..............................................................................................................6

APPLICATION THEORY..............................................................................................................8

CONCLUSION..............................................................................................................................12

REFERENCES..............................................................................................................................14

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INTRODUCTION
An air carrier with a comparatively low-cost structure compared to other comparable carriers and
offers inexpensive prices and rates are referred to as a low-cost carrier (LCC) as stated on the
ICAO website. Over the past three decades, Low-Cost Carriers have significantly contributed to
the expansion and growth of the aviation industry and have been credited with changing
consumer behavior.

Background
To assess the viability of setting up a supply chain to support the business initiative, Air
Australia, a firm, is planning to launch a low-cost airline to serve the Australasian market. Over
the recent decades, one of the most pervasive developments in the global airline industry has
been the fast expansion of low-cost carriers. Australia is not an exception to this trend.
Australia's low-cost airlines require accurate and reliable traveler demand predictions for their
connectivity, economic planning, design specification, and expanding investments in their fleet
as well as their associated infrastructure.

Objectives
One of the most important aspects of managing an airline is anticipating future passenger
demand. Many service providers and government regulatory bodies in the aviation sector adhere
to the International Civil Aviation Organization Manual on Air Traffic Forecasting (International
Civil Aviation Organization 2006).

Objective 1: Determining the functional requirements for Air Australia to launch a low-cost
carrier airline

 Benchmarking with others in the sector

Objective 2: Determining the structural needs for low-cost carriers

 Environment Analysis (PESTLE)

Objective 3: Determining the funding needs for the client's low-cost carrier's establishment and
operation

 Core Competencies

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Scope
The prospective expansion of China's economic and commercial sectors points to a rise in
demand for air travel throughout the Australian region.

Method of Investigation
Air Australia has found a growing chance within the aviation and travel business among the
Australasian market - rising economic, political, and social stability furthermore as anticipated
important business enlargement among and between the bulk of the region's nations support the
likelihood. This paper will look at whether this is possible after analyzing the objectives – for Air
Australia Low-Cost Carrier.

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PROBLEM IDENTIFICATION
“The global airline industry continues to grow rapidly, but consistent and robust profitability is
elusive. Measured by revenue, the industry has doubled over the past decade, from US$369
billion in 2004 to a projected $746 billion in 2014, according to the International Air Transport
Association” (IATA). Australia's aviation sector features a protracted history, and there are
presently several airlines operational domestically and internationally. Australia is an island
nation with a booming economy, therefore the role of airlines has magnified intensely.

The prospective expansion of China's economic and commercial sectors points to a rise in
demand for air travel throughout the area. Several topics must be investigated as part of any
business development to build the venture's business case. The logistics and supply chain that are
necessary to ensure the continuation of business are crucial components of the enterprise under
consideration. With its headquarters in Australia, the firm Air Australasia is putting forward a
new low-cost carrier to serve the Australasian market. Air Australasia found a growth
opportunity in the aviation and travel industry within the Australasian market, emerging
economic, political, and social stability as well as anticipated significant commercial expansion
within and between the majority of the region's nations support the possibility. The organization
has recognized significant opportunities for expansion by connecting a few important locations,
including China and the surrounding area.

Australia's culture and history have been significantly influenced by aviation over the 20th
century. Australia has always welcomed aviation, avidly embracing its ability to cover a difficult
territory, connect remote towns, and supply services that could not be provided in any other way.
Australian air transport histories typically concentrate on notable individuals' lives, forerunner
airlines' exploits, and technological improvements.

Australia's aviation industry began in the 1920s with the establishment of Qantas, which later
became the nation's flag carrier. From the middle of the 1930s to the beginning of the 1950s,
Australian National Airways (ANA) dominated the domestic airline market. Trans Australia
Airlines (TAA) took over Qantas' domestic operations in 1946 after Qantas had been
nationalized following World War II (Wikipedia). Australia's international airlines fly passengers
and products to and from many various locations across the world. Forty-nine different

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international airlines provide flights to Australia in total. Since Australia is an island, more than
90% of visitors arrive by plane. Around sixteen million travelers arrive in Australia each year on
average from all across the world. Even though - aircraft are the primary means of transportation
for passengers in Australia, ships are the primary means of transportation for freight.

Establishing a new airline to initially connect Asia and Australia while also providing cargo
service to meet the demand for more high-class travelers in the future. The perfect modern
electronic, promotional, and aviation technologies will be used in the design, construction, and
operation of the new anticipated airline to demonstrate minimal operating and marketing
expenses, maximum resource efficiency, and a high level of functionality. The recommended
airline's timely request within the anticipated market and its long-term growth, expansion, and
development would be guaranteed by taking into consideration the aforementioned objective and
subsequently allocating the airline, the personnel, and the organization to deliver a high standard
of customer service and convenience, and thereby efficiently achieving the needs, wants,
security, and safety of travelers.

This research will look into the supply chain ideas and techniques needed for airline projects.
Since this is a new initiative, it is important to realize the need for clear objectives, detailed
directions, and a plan of action. The proposed supply chain model for Airline Australasia's
supply chain should be evaluated for its viability and practicality. Additionally, it would show
the basis for and assessments of the multifunctional, interrelated effects both within and
externally to the organization.

CRITICAL DISCUSSION
The development and blending of people and various cultures have been facilitated by the recent
growth of the aviation sector. Particularly in the current era, aviation is steadily expanding.

Total traffic in June 2022 (measured in revenue passenger kilometers or RPKs) was
up 76.2% compared to June 2021, primarily propelled by the ongoing strong
recovery in international traffic. Globally, traffic is now at 70.8% of pre-crisis
levels.
Domestic traffic for June 2022 was up 5.2% compared to the year-ago period.
Strong improvements in most markets, combined with the easing of some Omicron-
related lockdown restrictions in the Chinese domestic market, contributed to the 5
result. Total June 2022 domestic traffic was at 81.4% of the June 2019 level.
International traffic rose 229.5% versus June 2021. The lifting of travel restrictions
Source: https://www.iata.org/

An affordable carrier is AN airline that does not give client services that are usually enclosed
within the rate, permitting it to charge less while providing fewer amenities. This usually implies
that neither baggage nor the meals and beverages that are provided by alternative, costlier
airlines are enclosed.

Why is it cheaper? Compared to other airlines, low-cost carriers have reduced operating costs.
These airlines provide passengers with reduced ticket costs but make up the difference by
making people pay for a variety of extras like meals, seat selection, seat selection, and luggage.

We observe the same encouraging trend of rising demand for aviation connectivity all around the
world. The business of aviation promotes freedom and improves people's quality of life. Millions
have been helped out of poverty by aviation, but for aviation to continue to provide even larger
advantages in the future, there must be enough, cheap infrastructure (IATA).

Due to the significant distances between cities and inside the country of Australia, and, because
Australia is an island all by itself, only accessible by air, the air transportation business is highly
reliant on it. It is projected that the number of tourists entering the country, especially from
China, will increase steadily, providing airlines with a sizable source of income. The client, "Air
Australasia," is trying to launch a low-cost carrier in the Australasian market and is researching
the region's fiercely competitive airline business. To help the company and its capabilities in
addition to the logistical structure needed to support the expansion of the airline, a feasibility
analysis must be developed. A feasibility analysis assesses the likelihood of the intended
project's success. As a result, the study's reputation greatly depends on its intended purpose. The
many stakeholders, including investors, financial institutions, etc., would be impacted by the
validity of the research for the related industry.

Kopp (2022) states, that strategy a business uses to turn a profit is referred to as its business
model. It includes a description of any expenses, the items or products the business plans to sell,
as well as its intended target market. Even while each airline has a unique business strategy, they
all share some traits that illustrate the general idea of a low-cost business model. The need for
tourism, aircraft manufacturing and maintenance services, petroleum product wholesaling, non-
scheduled air transport, and catering services in Australia are all factors that affect the model.

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Supply chain management - covers all procedures that convert raw materials into finished
commodities, it is the handling of the movement of goods and services. It entails the intentional
simplicity of a company's supply-side operations to optimize customer value and achieve a
competitive edge in the market. Strategic management of the supply chain through the
integration of supply chain strategy and company strategy - increases value for shareholders.
Setting up a supply chain model to support the business will be crucial after identifying the
business concept. One of the biggest obstacles the airline industry faces is supply chain
efficiency. The supply chain's viability and/or efficiency are supported by the feasibility analysis.

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APPLICATION THEORY
Benchmarking within the related sector

By comparing your company's success to that of other, comparable businesses, you may
determine whether there is a performance gap that can be filled by enhancing your performance.
Francis and Humphreys (2005) stated, “In civil aviation, benchmarking may have the potential to
- provide relevant data to meet the needs of managers and planners in a risky market
environment, offer possible solutions drawn from best practices elsewhere in the industry,
provide a way to increase efficiency through learning both within and between organizations,
facilitate effective economic and environmental regulation, and, maintain and improve industry
standards. As a result, a startup's performance is assessed in comparison to other companies in
the same sector, which necessitates a thorough analysis of the standards used by their rivals from
reputable sources.

Benchmarking has been more frequently used by carriers for economic assessments versus
operational aspects. The International Air Transport Association (IATA), the International Civil
Aviation Organization (ICAO), the UK Civil Aviation Authority, and periodicals like Air
Transport World and Aircraft Economics are just a few of the organizations that publish reliable
sources of benchmarking data for the airline industry. To benchmark and monitor supply chain
activities for the aviation industry, it is important to estimate customer expectations, optimize
capacity, analyze demand behavior, and identify major roadblocks like service and maintenance
and logistic support.

The process will entail – planning, collection of information, analysis of data, act, and
monitoring. Including the following components - Financial Analysis, Process and performance,
Product Benchmarking, Functional Examination, and Strategy. This will allow for, specific
criteria development for various components of the business model, including how those
components interact and how important they are to overall performance. The ability to identify
benchmarks and gauge their impact on overall performance will vary depending on the airline
model. To achieve profitability and develop sustainable carriers, benchmarking in the airline
business, according to IATA, finds best practices for efficient cost management. It also helps

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businesses better understand cost drivers and trends, control operating expenses, and increase
operational efficiencies.

Environment Analysis (PESTLE)

The PESTLE analysis is one of the most popular methods for evaluating the macro-
environmental factors, which is extremely dynamic - and is utilized as a critical analysis tool for
business evaluation reasons. The environment in which a business operates has an impact, as do
situational factors that define progress status. Because of this, it is vital for businesses to
continuously examine the environment and market problems in which they perform. The
principle of supply chain management explains why policies are modified to the internal and
external environments of organizations and how this has an impact on how the supply chain
functions. Aviation-related or non-aviation-related elements are both possible in the aviation
industry. Government rules are one of the non-aviation factors. Additionally, socio-political-
economic factors are those that most affect the demand for air travel.

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 Figure 1 - PESTEL Analysis of Air Line Industry

(Source: https://www.edrawmax.com/article/airline-industry-pestel-analysis.html)

Political factor - The country's unpredictable political climate has an impact on the
air transportation sector, as it does on the majority of other industries. Changes in trade
legislation, international trade laws, political uncertainty in international markets, and taxation
are examples of this. Australia is a democratic liberal market economy. Australia has been a
global leader in implementing open-market policies that maximize the broader economic benefits
of aviation. In Australia, the national governments possess 49% of the company's stock. For the
aviation businesses to continue operating out of Australia and profit from trade treaties, this is
necessary.

Economic factor - The financial prosperity of a region is intimately linked with the businesses
there. Due to varying oil prices, international exchange rates, survival during periods of
decreasing passenger traffic (Covid-19 Pandemic), rivalry from other low-cost airlines, labor
needs, and rising operation and maintenance costs all affect the industry's profitability.

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Social factor - Any country's sociological circumstances have a significant influence on the
aviation business. The sector, especially low-cost carriers, must maintain a consistent image; it is
all about hospitality and services, and they need to pay close attention to the passengers' comfort.
It can enhance any aircraft company's professional image.

Technological factor - The development of the airline business is closely tied to the use of
technology. To provide their customers with a decent service, Air Australia must capitalize on
technical advancements. To protect the security and safety of its customers, Air Australia must
make technology investments and ongoing upgrades. Because they provide services, airlines may
constantly adopt new technological advancements to enhance their offerings. It also has to
concentrate on improving communication with the air traffic and performing routine technical
upgrades to its system. This can avoid malfunctions and other technical issues.

Legal factor - Although the legal concerns may not immediately have a lot to do with the
evolution of airline firms, they can have a significant negative impact on their operations. Since
laws are meant to be carefully followed, they have a significant impact on the airline sector.
There are legal aspects that apply to individual countries and airlines. Every rule and regulation
that affects both passengers and employees must be followed by the company. In addition, since
Air Australia will be flying abroad, they must abide by specific international legal criteria.

Environmental Factor - Its CFC emission is a massive environmental component that has raised
concerns among activists. Both the government and the airline corporations have been concerned
about it as air traveling increased over the years. To cut back on dangerous emissions, Air
Australia has to upgrade its fleet and operations. They should establish a research group to work
on developing an environmentally friendly airplane. They can also assume some business
obligations and include environmental awareness in their marketing. Taking appropriate action to
protect the environment is another option.

Core Competencies

The assets and skills that make up a company's competitive advantages are its core
competencies. “The idea of core competencies was first proposed in the 1990s as a new way to
judge business managers compared to how they were judged in the 1980s” (Twin, 2002). The
following are crucial key skills for Air Australia’s continued success: social media, channel mix,

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analytics, revenue creativity, and consistency. Establishing a social media brand allows airlines
to access the digitally-connected passenger, and this allows for the use of a combination of
features that can be installed by the company to influence consumers to purchase its products.

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 “Air Australasia is anxious to ensure that they have a thorough examination
of the challenges that will inform the supply chain requirements to run their
business since they are aware of the very competitive nature of the current
airline sector”.

CONCLUSION
As Australia's preferred low-cost carrier at the moment, Jetstar faces competition from Bonza for
the first time since Tiger Airways' shut down in March 2020. Before Bonza's announcement,
regional routes in Australia were currently served by Rex Regional Express, Skytrans, and
Qantaslink (Stewart, 2022). As a result of this, Air Australia will have to elevate its service to
win over customers.

Supply chain management is a fundamental element in any company's operations. Air Australia
will need to look at supply chain management as a crucial component. Globally, there is a vast
supply chain. Understanding the approach and concepts of supply chain management is crucial to
comprehending how this structure supports the performance of major multinational
organizations, ongoing expansion, cooperation, interaction, and sourcing.

Through benchmarking, specific criteria are developed for various components of the business
model, including how those components interact and how important they are to overall
performance. The ability to identify benchmarks and gauge their impact on overall performance
will change depending on the airline system. The airline industry's supply chain is the secret to
lowering operating expenses. Essentially, how well an organization implements supply chain
strategies determines the profitability of the firm. The supply chain is under pressure from low-
cost carriers and cost-cutting measures. By calculating quantity, value, and time, benchmarking
assesses how well the company's supply chain is performing. Benchmarking creates a precise
measurement of the effectiveness of the supply chain process and helps create a strong base for
an organization's success. Supply chain benchmarking helps to identify pertinent performance
and adjust processes to maintain competitiveness. Additionally, it imparts a distinctive
understanding of company activity, views, opportunities, and shortcomings.

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The adoption of a supply chain strategy depends on the internal and external environments of a
firm. Current business variables have an impact on how a business controls its operations and
engages with its supply chain partners. Environmental analysis is a procedure to find all the
internal and external factors that can influence an organization's success. It is a strategic tool. In
the analysis, the potential level of threat or opportunity is assessed. Later on, these assessments
are used in the decision-making process. Additionally, it links organizational environment and
tactics. The PESTLE technique will be used in the study to conduct an environmental analysis.
PESTLE analysis is used, based on the industry to examine any critical external adjustments. The
assessments offer a clear picture of elements including income, profitability, and business
success it is the evaluation of your business you ought to carry out.

When applying particular supply chain management principles and interpretations to the airline
industry, we conclude that only an efficient supply chain can contribute to all of the elements of
a supply chain process and aid in the growth of a business. The airline industry, like other
industries, depends on the support of supply chains to operate its business. Fundamentally,
supply chains present a chance for a competitive advantage in a difficult economic climate.
Business enterprises should control every aspect of the supply chain to maintain their
competitiveness in international marketplaces. Companies that do not use well-designed supply
chain management approaches may find it difficult to compete in the specific industry.

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REFERENCES
A. C. Fernando (2012). Business Ethics and Corporate Governance, Second Edition. Pearson
India

Aviation in Australia. Available at:

Francis, G, & Humphreys, I 2005, Benchmarking In Civil Aviation, Emerald Publishing Limited,
Bradford. Available from: ProQuest Ebook Central. [24 August 2022].

ICAO Economic Development. Low Cost Carriers (LCCs) [online]. Available at:
https://www.icao.int/sustainability/Pages/Low-Cost-Carriers.aspx (Accessed: August 18, 2022).

International Air Transport Association. Available at: https://www.iata.org/ (Accessed: August

International Civil Aviation Organization 2006, Manual on air traffic forecasting, 3rd edn,
Document 8991, AT/722/3, ICAO, Montreal.

Kopp. C. M. (2022). What Is a Business Model? Available at:

Kubr, M (ed.) 2002, Management Consulting: A Guide to the Profession, International Labour
Office, Washington. Available from: ProQuest Ebook Central. [8 August 2022].

Stewart, S. (2022) Australia's new low-cost airline Bonza unveils 25 new routes. Available at:
https://www.escape.com.au/news/australias-new-lowcost-airline-bonza-unveils-25-new-routes/
news-story/1913c1a71b3dd106f71124bc31406267 (Accessed: August 26, 2022)

Twin, A. (2002) Core Competencies Definition. Investopedia. Available at:

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