Strategic

Management
Case 22
MGM490 Section C

Submitted to: Group: 14

Professor Elie Chrysostome Matt Johnson

Ting Zhang
26th April, 2012 Yin Zhang
Dan Tracy
 Hong Kong Oasis Airline 12-4-26

History

 February 2005, Oasis Hong

Kong Airlines was founded

 October 26, 2006, the first flight,

flight O8 700, took off from
Hong Kong International Airport
after a 24-hour delay

 June 28, 2007, Oasis offered

non-stop service from Hong
Kong to London, and began a
Stephen H. Miller
service to Vancouver

1
Hong Kong Oasis Airline 12-4-26

History (cont.)

 The airline was voted "World’s Leading New Airline"

at the Annual World Travel Awards 2007

 April 9th 2008, Oasis's CEO Stephen Miller announced

at a press conference that the company would
cease operations after suffering an accumulated
loss of US$128 million

 The last flight, flight O8-901, departed from

Vancouver at 10:15 am and arrived at Hong Kong at
3:09pm

2
Hong Kong Oasis Airline 12-4-26

The Oasis Model

 Oasis Hong Kong Airlines offers low-cost long-haul flights

with standard service offered in traditional carriers

 Offers two classes: economy & business class while other

low-cost carrier only offer economy class

 One way route to London Gatwick (UK) & Vancouver

3
Hong Kong Oasis Airline 12-4-26

Key Strategic Issues

 Lack Airline Fleet

 Limited route selection

 Frequent fluctuation in fuel price results a high fuel cost

 Lack of hubs and connections to primary cities

 Higher operating costs than expected

4
Hong Kong Oasis Airline 12-4-26

External Analysis
• General Environment

• Industry Analysis

• Competitor Analysis

5
Hong Kong Oasis Airline 12-4-26

Demographic

Economical
Global

General
Technological Environment Political

Socio-cultural Legal

General Environment
Demographic, Economical, Political, Legal, Socio-cultural,
Technological, Global

6
Hong Kong Oasis Airline 12-4-26

Demographic Segment

 Oasis Airline’s target market focuses on frequent flyers

between Hong Kong and major cities worldwide

 Focuses on economy class passengers as well as

business class passengers

 First low-cost, long-haul carrier service in Asia.

7
Hong Kong Oasis Airline 12-4-26

Economical Segment

 Signs of global economical recession since 2007

 Rising in oil price since 2006

 Hong Kong adopts a capitalist and liberal economic

system

8
Hong Kong Oasis Airline 12-4-26

Political Segment

 A stable political environment & high public transparency

 Low tax system

 Well organized and developed transportation

infrastructure

9
Hong Kong Oasis Airline 12-4-26

Legal Segment

 Worldwide deregulation following United States

 International air traffics are regulated by bilateral air

service agreement between countries

 Different regulations in different countries

10
Hong Kong Oasis Airline 12-4-26

Socio-cultural Segment

 Higher rate of expenditure during the holidays

 Mixture of Eastern and Western culture

 Bilingual in English and Cantonese

 Many people send their children to study abroad

11
Hong Kong Oasis Airline 12-4-26

Technological segment

 Introduction of newer and more efficient aircraft

 Converting older models to freighters

 Many airline companies planned to replace the

Boeing 747-400s with Airbus’s A380, but were forced

to hold the 747-400s longer due to an unexpected 22

month delay in the Airbus’s A380 programs

12
Hong Kong Oasis Airline 12-4-26

13
Hong Kong Oasis Airline 12-4-26

14
Hong Kong Oasis Airline 12-4-26

Global Segment

 Average air fares dropped by 35%

 Major airlines settling on few major hubs as foundation for

connecting passenger and cargo traffic to other

destinations.

 Worldwide competitive pressure triggered series of

privatization of flag carriers in Europe and Asian countries

15
Hong Kong Oasis Airline 12-4-26

Threat of New Bargaining Power

Entrants of Buyer

Rivalry Among
Existing
Competitors

Bargaining Power Threat of

of Supplier Substitutes

Industry Analysis
Threat of new entrants & substitutes;
Bargaining power of supplier & buyer

16
 Hong Kong Oasis Airline 12-4-26

•High barriers to •Competitive deal

entry due to high in airfare
startup cost •Many airlines to
•Low choose from
Threat of Bargaining •High
New Power of
Entrants Buyer

Rivalry Among
Existing Competitors
High

Bargaining
•Moderate Threat of Power of •High
•No other low-cost Substitutes Suppliers •Fluctuation
long-haul airlines in fuel price cause
•Many airline offer high fuel cost
different types of •Acquisition price of
services aircraft is high

17
Hong Kong Oasis Airline 12-4-26

Hong Kong Airline Industry

 Hong Kong act as a hub and connection point for air traffic
between the eastern and western world

 Over 100 airlines operate flights to about 160 locations worldwide,

 The Hong Kong International Airport handled around 40.7 million

passengers and 3.4 million tons of cargo during its first year of
operation

 Hong Kong International Airport ranked 5th busiest airport in the

world

 By 2005, airport authorities had already reported a profit of HK$1.41

billion attributable to equity shareholder. The Board of Directors
declared a dividend of HK$1 billion, payable to the HKSAR
Government

18
Hong Kong Oasis Airline 12-4-26

Operation Statistic for Hong Kong International Airport

Year Passenger Airfreight Aircraft

Movements movement movement
(tonners)

1998 28,631,000 1,628,700 163,200

1999 30,394,000 1,974,300 167,400
2000 33,374,000 2,240,600 181,900
2001 33,065,000 2,074,300 196,800
2002 34,313,000 1,637,797 206,700
2003 27,433,000 2,642,100 187,500
2004 37,142,000 3,093,900 237,300
2005 40,740,000 3,402,000 263,500
2006 44,443,000 3,580,000 280,000
2007 47,783,000 3,742,000 295,580
2008 48,582,000 3,627,000 301,000
19
Hong Kong Oasis Airline 12-4-26

Competitor Analysis
Cathy Pacific Airways, Air Hong Kong, Hong Kong Dragon Airways

20
Hong Kong Oasis Airline 12-4-26

Type of Carriers

Scheduled
Airlines

Commercial
Carriers

Feeder Charter
Airlines Airlines

21
Hong Kong Oasis Airline 12-4-26

Major Players

Hong
Kong
International

22
Hong Kong Oasis Airline 12-4-26

Cathy Pacific
 Carrier type: de facto flag carrier

 Largest airline in Hong Kong

 Reputation as best in the industry with regular & frequent

updates of seats, entertainment systems, meal options, and
other in-flight amenities
 Named “Airline of the Year” by:
Skytrax in 2003 & 2005
Air Transport World in 2006

 Two loyalty programs: the Marco Polo Club, Asia Miles

 Established large number of code-share agreements with

major carriers worldwide

23
Hong Kong Oasis Airline 12-4-26

Hong Kong Dragon Airlines

 Carrier type: flag carrier

 Headquartered in Hong Kong

 Wholly owned subsidiary of Cathy Pacific

 Had its own loyalty program: Elite

 Later merged into Marco Polo Club, Asia Miles

24
Hong Kong Oasis Airline 12-4-26

Air Hong Kong

 Operates an express freight network to 12 destinations in

nine countries, including China, Japan, Malaysia,
Philippines, Republic of China (Taiwan), Singapore, South
Korea and Thailand.

 Headquartered in Hong Kong

 Subsidiary of joint-venture between Cathy Pacific & DHL

 Cargo fleet

 Focuses on Asia market

25
Hong Kong Oasis Airline 12-4-26

Internal Analysis
• Competitive advantages

• Tangible and intangible resources

• Core competences – value chain

• Performance appraisal

26
Hong Kong Oasis Airline 12-4-26

Competitive Advantage

 Oasis marketed itself as a long-haul, low-fare carrier that

offered exceptional value with customizable options

 Oasis would only serve long-haul routes

 Offered two classes of service, targeting both economy

and business-class passengers

 Competitors offered only economy

27
 Hong Kong Oasis Airline 12-4-26

Competitive Pricing

Hong Kong—London round-trip departing on October 31,2006, and

returning on November 10, 2006 (depending on level of travel restrictions)

Cathay British Virgin

Airline Oasis
Pacific Airways Atlantic
Hong Kong - London HK$1,000 HK$5,880 ~ HK$2,250 ~ HK$5,532 ~
round-trip economy ($) HK$9,550 HK$4,525 HK$17,263
Hong Kong - London HK$6,600 HK$44,952 HK$21,350 HK$44,897 ~
round-trip business ($) HK$46,813

Cathy Pacific was 190 to 380 % more expensive than Oasis

28
Hong Kong Oasis Airline 12-4-26

Aircraft Utilization & Efficiency

 It was expected that Oasis could achieve average
aircraft utilization in excess of 15 hours per day

 Low operating unit cost on a per available

seat/kilometer basis

 Spending a large proportion of time in cruise, an aircraft

flying long-haul would have fewer takeoffs and landings
 Lower maintenance costs for the airframe and engines
 Lower fuel consumption

29
 Hong Kong Oasis Airline 12-4-26

Aircraft Utilization & Efficiency (cont.)

 Using secondary airports  Flying into hubs of major

to save on costs low-cost carriers
(EasyJet, German Wings,
 Gatwick instead of Southwest and JetBlue)
Heathrow in London
 Oasis hoped to
 Oakland instead of receive feeder traffic
San Francisco in from them and feed
California (initial plan) traffic to these carriers
 Milan in Italy and  Required interline
Cologne in Germany ticket sales, check-ins,
under consideration and baggage
(didn't follow through) transfers

30
Hong Kong Oasis Airline 12-4-26

Cargo Hub
 Hong Kong was a major air cargo hub for the Asia-Pacific
region

 Demand consistently high for cargo space

 Market prices, especially on routes to Europe and

North America were very high

 Hong Kong Air Cargo Terminals Limited

 Oasis appointed Hactl as its cargo terminal operator at

the Hong Kong International Airport to provide physical
cargo handling service.

31
Hong Kong Oasis Airline 12-4-26

Oasis Value Chain

Hong Kong Oasis Airline 12-4-26

Support Activities
Firm Infrastructure, HR Management, Technology, & Procurement

33
 Hong Kong Oasis Airline 12-4-26

Firm Infrastructure
 The airline operated on two routes, from Hong Kong to

London Gatwick Airport & Vancouver International Airport

Human Resource Management

 Chairman: Raymond Lee

 Chief Executive: Priscilla Lee

 Chief Financial Officer: Francis Wai

34
Hong Kong Oasis Airline 12-4-26

Human Resources (cont.)

 CEO: Stephen H. Miller

 Miller began Hong Kong’s Dragonair and served as

the airline’s CEO until he left when the Swire Group
bought into Dragonair in 1990.

“If we bought aircraft at the right price and the market

stayed strong, then I was sure it could work. You have to

have a feel for the business.” -Miller

 Had roughly 700 crew members in total by 2008

35
 Raymond Lee
Hong Kong Oasis Airline

& Priscilla Lee

Stephen Miller

36
 Hong Kong Oasis Airline 12-4-26

Technology
 2 Boeing 747-412

 3 Boeing 747-481

 Max cruising speed: 939 km/hr

 Cargo hold: 170.5 m3

37
 Hong Kong Oasis Airline 12-4-26

Procurement

 First two aircrafts previously owned by Singapore Airlines,

delivered September 19, 2006 and November 24, 2006.

 All Nippon Airways announced on 6 March 2007 that it

has successfully sold three Boeing 747-400s to Oasis

Growth Income and Investments Limited, for operation

by Oasis Hong Kong Airlines.

38
Hong Kong Oasis Airline 12-4-26

Market Value of a Boeing 747-400

(in US$ millions)

Value (Market) Future Value

Vintage 2005 2009 2012
1989 33.9 19.5 13.7
1991 45.5 26.5 18.9
1993 56.9 33.9 24.5
1995 68.4 41.7 30.5
1997 79.9 50.0 37.1
1999 91.4 59.1 44.6
2001 103.0 68.1 52.5
2003 114.5 76.1 60.2

*Oasis fleet
First two aircrafts: Vintage 1989, purchased in 2006
Next three aircrafts: Vintage 1999-2000, purchased in 2007

39
Hong Kong Oasis Airline 12-4-26

Primary Activities
Inbound Logistics, Operations, Outbound Logistics,
Marketing & Sales, Service

40
 Hong Kong Oasis Airline

Inbound Logistics
 Two hot meals and soft drinks were
served free on both long haul routes in all classes.
 Snacks and alcoholic drinks free for business class passengers
and available to be ordered in economy.
 Free headphones, blankets and pillows distributed in all
classes, while passengers could purchase noise-canceling
headphones and amenity kits onboard.
 Each passenger had their own seat-back TV which had at
least 16 channels available, in addition of up to 12 channels
of audio, although these were not on demand.

 The 747-400 cabins were configured for

81business and 278 economy passengers
 Seat pitch of economy Oasis was 32“
 Seat pitch of business Oasis was 60’
41
Hong Kong Oasis Airline 12-4-26

Operations
 Oasis offered daily service to London

and six flights a week to Vancouver

42
 Hong Kong Oasis Airline 12-4-26

Outbound Logistics

 Oasis adopted the traditional carriers’ model and relied

on brick-and-mortar travel agents to sell tickets

 Passengers also able to buy tickets directly on company

web site or through a call center

 Four fare classes to select from

43
 Fare Types
Hong Kong Oasis Airline 12-4-26

• Available year round

• Reservation held for 72 hours before payment

Flexi Fare • Unlimited free changes to flight and date

• Changes to passenger name allowed on payment of change penalty plus fare
difference
• Refundable subject to cancellation penalty

Advance • Booked 45, 21, or 14 days in advance

Purchase • Payment must be made at time of flight confirmation

• Changes to flight, date, & passenger name allowed with penalty and fare difference
Fare • Refundable subject to cancellation penalty

• Semi Flexible fare available year round

Value Fare • Payment must be made at time of flight confirmation

• Changes to flight, date, & passenger name allowed with penalty & fare difference
• Refundable subject to cancellation policy

• Discount value fare

Hot Deal • Payment must be made at the time of flight

• Changes to flight date, and passenger name not permitted
• Non refundable
 Hong Kong Oasis Airline 12-4-26

Marketing and Sales

 October of 2006 online promotion: ‘Be The First To Fly’
 100 free flights between London & Hong Kong

 Permitting agents to register

on the firm’s site to vend tickets

 Focus groups

 Email feedback and response

http://www.youtube.com/watch?v=m
DnEXE0L8AM

45
 Hong Kong Oasis Airline 12-4-26

Marketing and Sales

 Oasis signed an agreement with Galileo GDS (a global

travel distribution system)

 Allowed Oasis' fares and inventory to be added to the

Galileo GDS to supply a platform that permits the airline
to examine online and offline total travel distribution.

 Oasis was able to sell its tickets more effectively through

Galileo's wide-ranging exposure to agent locations.

46
 Hong Kong Oasis Airline 12-4-26

Services
 Partnered with various hotels, car rental agencies,
apartments and villas for the accommodation of their
passengers

 Effectively incorporated in their website as one of the many

conveniences of travelling with Oasis Hong Kong.

 Oasis outsourced contact centre services in 2006 which

provided the carrier's customers and travel agents with sales,
general enquiries and customer service assistance

 Handling all inbound calls between 8:00 am and 8:00 pm each

day, seven days a week.

 Text after service: “Thank you, and concerns?”

47
 Hong Kong Oasis Airline 12-4-26

Performance Appraisal
 Annual World Travel Awards 2007

 "World’s Leading New Airline”

 "Asia's Leading Budget/No Frills Airline"

 Centre for Asia Pacific Aviation of Australia

 “New Airline of the Year”

 World Low Cost Airline Congress Awards 2007, held in London

 "Best New Service”

 "Best Business Class Carrier"

48
Hong Kong Oasis Airline 12-4-26

“Soaring cost of fuel and a decision to

buy aircraft instead of renting them led
to the demise of the budget carrier”
-R. Lee

Main Problem

Rising operating cost and

inability
to forecast economic climate
 Solution 1
Hong Kong Oasis Airline 12-4-26

Embark on the next phases of expansion with rented aircrafts

Advantages: Disadvantages:

 A lease arrangement may  Ownership of an aircraft

be more flexible than will generally give you the
purchase of an aircraft. right to depreciate it for
tax purposes (only interest
 Shorter-term commitments deductible)
without the risks &
responsibilities of aircraft  If possible to sustain, it is
ownership more viable to own the
aircraft over long -term
 Expense on Income
Statement

Rental Cost per Month (in US$ thousands)

Vintage 2005
1989-1995 360-490
1996-2002 470-865
50
 Solution 2
Hong Kong Oasis Airline 12-4-26

Participate in oil hedging to safeguard

against potential fuel price increases
Advantages: Disadvantages:

 Maintain the low-cost  Unusual divergence in the

fares being offered to trends of crude oil and jet
passengers and sustain fuel make it difficult to
business profitability predict values
 Reduces the vulnerability  Lack of experience can
to major market lead to inaccurate
fluctuations and may forecasting and
minimize long-term fuel methodology
prices during some periods
 Possible request of a
 Potentially eliminate the premium payment based
need to seek on the hedging method
supplemental funding due used
to price fluctuations.
51
 Solution 3
Hong Kong Oasis Airline 12-4-26

Better utilization of partner investments and opportunities

Advantages: Disadvantages:

 Expand network and  Less control over

increase capital management decisions
and business strategies,
 Expand into potential
market  Conflict of objective
interest among partner
 Restructuring and that can potentially leads
strengthening the to interruption of business
organization by having and bad reputation
access to partners
strategies and  Dissatisfaction among
technologies current staffs

52
Hong Kong Oasis Airline 12-4-26

Relevant Facts

 The Hong Kong SAR Government had granted

Oasis licenses to operate to cities including San
Francisco, Chicago, Cologne, Berlin, Milan and
Sydney

 Oasis secured a USD30 million investment from the

Funds’ under management of Value Partners
Limited and its affiliates

 Hainan Airlines parent HNA Group's rescue bid

failed after it discovered that Lee, who held about
60 % of Oasis, had pledged his shares as
collateral for a personal loan

53
 Hong Kong Oasis Airline 12-4-26

Optimal Solution
Solution 3
Better utilization of partner investments and opportunities

Access to:

 Investment capitals & larger customer network

 Partner’s investment which allow expansion into different

cities

 Partner’s aircrafts and technology

54
Hong Kong Oasis Airline 12-4-26

Implementation

Short - Term Long - Term

 Accept rescue bid from  Re-evaluate hedging
Hainan Airline and methodology based on
investment from Value experiences from other
Partners Limited successful companies

 Refinance by selling 2  Implement their five-year

newer aircraft models and plan for expansions into
using Invested funds other major cities

 Rent aircrafts for short-term

operations

55
Hong Kong Oasis Airline 12-4-26

Discussion Questions

1. Will Oasis be able to re-gain its competitiveness as a

low-cost, long-haul operators?

2. Should Oasis consider adopting different business

models other than just the low-cost long-haul?

3. Did Stephen Miller’s experience in the industry help the

Oasis’s business model?

4. If Oasis had excepted the rescue bid and principle

investment offers, could they have prevented
liquidation of the company in 2008?

56
Hong Kong Oasis Airline 12-4-26

What was That’s all Folks!

I thinking?

57