Strategy

Execute Summary This passage starts with the analysis of the strength, weakness, opportunity and threat of REXES, followed by its strategy including the key capability, the shareholders’ interest and what strategy it uses to compete with Its rivals, and lastly the balance scorecard of how REXES could be Improved. It seems that REXES Is facing a ferocious competition from Its competitors In terms of the strategic they use – mainly because of cost leadership they adopted; however, REXES still has Its own plan to achieve a good financial performance by fulfilling on-time flights and uncommon routes, based on differentiated strategy.

There are still some improvements can be achieved by performing the balance scorecard demonstrated to ultimately influence its financial performance.

2. 1 REXES Strategic Analysis – SOOT Analysis Strengths Weaknesses Market Leader: REXES has maintained a good relationship with local government and communities. So it has held a monopoly position on over 70% of its routes. In additional, there is little incentive for competitors to set up the same route as the market is not large enough. Single type fleet: REXES operates one of the world’s largest fleet of twin turboprop engine Saab 340 passenger aircraft.

This enables REXES to maximize cost efficiency in relation to maintenance, repairs and safety.

Currently, Saab 340 is the most suitable aircraft for regional operations. Flight school: REXES wholly owned and operates a flight school -Australian Airline Pilot Academy (PAPA). Therefore, REXES has an “In-house” supply of pilots. On-Time performance: REXES had excellent performance In being on-time and low cancellation rate; REXES Is the top- performing Lorene In Australia for FYI 2013. Also with a very low cancellation rate of 0. 7% for FYI 2013.

Appendix C) Fleet life: The remaining life for Saab 340 at least 15 s any issue leads to the authorities (such as CASE) halt the operations for Saab 340. REXES will no longer able to operate since lack of other type of aircraft. Limited pricing power: There are few switching costs or minimal differentiation in the airline industry. And REXES unlike other legacy airline, it doesn’t have cannot share resources or have financial support from parent company. Room for REXES to reduce ticket price is less. Incomprehension route: REXES claims itself as the largest regional airline.

But in fact, it doesn’t provide regular route for popular airports/destination in other states such as Northern Territory and Western Australia. Limitation for operations: Due to the contracted partnership with communities. REXES cannot stop operate the route even it is not profitable. Opportunities Threats Technological Advancement: Investments in innovated technology can improve efficiency of its operations. Such as launching self-bag tagging system or self- scanning system.

Rexes could avoid hiring additional employees and therefore reduce its cost and create future revenue streams.

World-class flight training school: REXES can take the opportunity to develop a world class training facilities in order to attract international cadets into the flight school. Joint Loyalty program: REXES can form partnership with other legacy airline loyalty program (such as Assimilate, Santa Frequency Flyers etc. ). To launch Joint airline mileage accumulation and redemption programs.

This can encourages travelers to travel more with REXES. On the other hand, REXES can develop Joint route or transit flight with those airlines in order to enjoy geographic expansion and more choices for customers.

Working holiday promotion: As more travelers come to Australia with a working holiday visa. Most of them choose o work in small cities. REXES can do more advertising or offers some special offers for them. Accident, disaster, terrorist: Safety is always concerned by customers.

Any serious accidents could result loss of confident from customers and will undermine reputation for REXES. Global economy uncertain and slow down of Australia economy: The global economy has yet to shake off the fallout from the crisis of 2008-2009. Global growth dropped to almost 3% in 2012. Global Economic Outlook, 2013), this may result less customer willing to travel. Furthermore, falling Australian dollar will increase the import resources cost. Increase in operations costs: Labor costs in Australia have grown at twice over the past decade.

(SMS,2013) And there are trends showing that it will keep increasing. Plus the frustration aviation fuel price, making the company hard to predict its future operating costs. Competition: legacy airline (such as Virgin Blue, Sanitarians) are supported by large parent company.

They can utilize economies of scale to put pressure on REXES. *Please see appendix A for more information about SOOT analysis. 2.

2 REXES Strategic Analysis – Key Capability Analysis Capability 1: Ability to provide quality and reliable flight schedules by achieving on time performance Tangible Resources Utilized Financial: Organizational: and regularly strategies making. – Identification on opportunities and full range of potential business risks. – Review on how the strategic environment is changing and how to prevent and manage the risks.

Physical: Purchases of new aircrafts from USA and bringing the total owned Saab aircraft in the fleet, which consist of 54% of entire fleet with advantages of short take-off and landing, to 33 improve the availability of planes to customers. Technological: The acquisition of a Saab 340 Full Flight Simulator (IFS) providing an effective pilot training led to sophisticated operations on board. Intangible Resources Utilized Human: REXES Cadet Programmer is required for REXES pilots for the better performance.

The total number of REXES cadets on-line increased to 106 during this year, which provides sufficient human resources to support frequent flights. Innovation: The pad installation project extending from last year provided automatic transfer of latest engine trend data analysis to engineers and updated information of take-off and landing for pilots to have a better performance. Reputation: Ranked the best carrier in Australia according to The Bureau of infrastructure, Transport and Regional Development (BITER) Core Competency Assessment Valuable? Punctuality is important in terms of customer satisfaction.

Particularly for the business customers who have high-frequent business trip, on time departures and arrivals are significant factor. Rare? It is difficult to provide an 88% of on-time performance, compared to an average rate 83. 8% in airline industry.

Non-substitutable? REXES has its own well-developed flight training school. The training provided is emphasis on its Saab 340 aircraft and has become mature. Costly to imitate? Given to most of the routes it provides are remote such as Sydney to Broken Hills. In terms of efficiency and costs, it is hard to be substituted by other vehicles to provide similar services.

Source of sustainable competitive advantage? Key Capability 2: Ability to control costs and manage risks when competing with its Focuses on the USED fluctuation on its operations and adopt hedging policy to avoid various risks. Organizational: The group’s Productivity Committee continuing to work during the year ended with a huge savings on costs.

In terms of the collaboration with communities, they established and renewed numerous partnerships. Physical: Cost effective: REXES purchased the Saab 340 spare parts from America at a steep discount to keep the costs down.

Differentiation: REXES expanded a variety of new air services for Millard and Broken Hill, in which major of its competitors are reluctant to run because of low profit margin. Technological: Intangible Resources Utilized Six senior captains were recruited from overseas to provide in-deep experience in diverse fields. Also pilots were trained to operate small aircrafts for regional flights.

Innovation: Purchases of latest Saab 340 spare parts enabled REXES to get insight into costless and efficient technologies for innovation in future.

Reputation: REXES was conferred all the NEWS intrastate Air Transport licenses on sole right to keep operating on the routes (included Bathurst, Grafton and etc. ) for the following 5 years. Core Competency Assessment Saab 340 is designed to operate efficiently on regional airports. Enables REXES to operate regional routes where there are very little competitors.

Rare? Not all airliners can operate regional routes cost effectively and reliability without a argue fleet of specialized aircrafts and well-trained pilots. Non-substitutable? REXES held a monopoly position on more than 70% route.

There are no close substitutes since REXES face very little competition on most of the routes it operates. Costly to imitate? To operate regional routes as cost effectively and reliability as REXES requires a large fleet of specialized aircrafts. Besides, it is costly to train a pilot that can operate Saab 340 aircraft. Source of sustainable competitive advantage? 2.

3 REXES Strategic Analysis – Stakeholder Analysis Specific interests of this group Shareholder value alignment Non-management employees -Enjoyable, motivating and high-level involvement working environment. Rewards based working condition. Such as salary increase and bonus. -Provide training and career development. -Positive employee relationship and corporate culture. -Safe and healthy working environment.

Aligned: -Decreases employee turnover. -Productivity will increase due to higher employee loyalty. -Shareholders will certainly be better off if the company performances increase. Opposed: -Employees asking for higher wages as the company’s performances improved. REXES might incur higher expenses due to better employees’ working conditions.

Board and senior executive -Attractive compensation plans and remuneration packages. -Good personal reputation and social status. -Involve in major decision making can make them more satisfy with their role. Flexible working hour. -Better compensation plans will encourage the management to improve their performances. Opposed: -Higher expenditure for remunerations.

-Agency problem. Where the management doesn’t act in shareholder’s best interest. Customer -Reasonable price for higher quality services. More variety of choice, such as routes and flight time. Actors for customers. -More convenient way to manage their flight.

Such as online flight manage system. Aligned: -Increased customer’s loyalty as REXES satisfies their need. -Sales will be improved due to the improvement in online service. Opposed: -More resources are needed to fulfill the increasing customer expectation. Higher operating expenditures will incurred, therefore less return for shareholders. Suppliers -On time payments and Shorter repayment period -Fair and Profitable contract, which can focuses on mutual benefits.

Long-term relationship and Sustainable contracts -Low switching costs -Comply with Australian consumer law. -Build a stable relationship enhances the quality and effective cost control. Sometimes, Incentives (discounts etc. ) may be gained. Opposed: -Low switching cost is unfavorable.

Higher bargaining power exists and will lead to the higher costs incurred. -Sustainable relationship may degenerate into unprofitable long-term contracts disregarding cost-cutting opportunities by other suppliers. Community Social group: -Employment opportunities. Fair and equal in hiring workers.

Launch a major initiative (donation or fund building) to help address social disadvantage – Responsible actions for its business operations.

Environment group: -Environmental friendly operation. -Efficiency in energy saving, lower emission and recycle program. Aligned: -Showing care for community leads to increasing reputation and increase brand value. -Helps attract potential shareholders -Social contributions give rise to cash outflows and it may not benefit REXES in the short run. -Costly to continuously participant. *Please see appendix B for more information about stakeholder analysis.

. REXES Strategic Analysis – Generic business strategy REXES adopts a hybrid strategy, which combines differentiation and cost leadership approaches in its strategy to achieve sustainable competitive advantage. Differentiation: REXES holds monopoly position on most of its routes regional communities and small cities, and evidencing shows that there are less incentive for competitors (such as Santa, Virgin Blue or Jetsam) to set up the same route, as the market is not large enough to sustain more than one airline. Moreover, REXES focuses on developing new route network.

On 9 July 2012, REXES announced a commencement f new routes for the cities of Millard and Broken Hill (Annual report 2013, up.

14). Low and affordable fares. Although there are many people saying that the fares offered by REXES were too expensive, this can be explained by the public don’t have a clear perception of REXES operating costs. As said by Warwick Lodge, General Manager of Network Strategy and Sales of REXES, the cost per seat on a regional airline was typically two to three times higher than that of a low-cost carrier (BBC, 2013). This resulting REXES is unable to have same level of efficiency as larger aircraft.

Moreover, here are other costs imposed on REXES, such as council head tax and fuel prices, which making REXES a higher operating costs. In addition, REXES has already lower its operations cost by taking a cost advantage by purchasing a large amount of entire spares holdings from Pinnacle airlines. In summary, REXES is unable to operate as efficiency as other large airlines due to uncontrollable factors, so it is unfair for REXES to compare with those large airlines. But REXES has tried their best to maintain the fares at the lowest level as possible. 3. REXES Strategic Review – Supporting the regional communities Introduction: REXES is omitted giving back to the regional communities by supporting worthwhile charitable causes which are focused on helping the less fortunate.

From the view of Corporate Social Responsibility (CARS), REXES management has considered the company may pose tremendous impact on social and economic during its operations. By adopting this strategy, REXES encourages a positive impact through its activities on the stakeholders. Suitability (HIGH): It is a trend that consumers and investors are more likely to support a company that concerns about CARS.

Under this tough economic circumstance where most companies are merely concerned about their wan interest instead of the public, giving back to the society is a good way to strengthen their relationship and enhance its reputation. Feasibility (Medium): According 2013 Annual report, net increase in cash held experienced a staggering change (decrease from $24,240,000 to $883,000). It is believed that REXES is still affordable to support the regional communities with certain degree of financial support.

Consistency (Medium): Supporting the regional communities is contrary to part of low-cost strategy.

Low-cost strategy focuses on lowering down the unnecessary expense as far as possible. Meanwhile, although enhancing CARS would gain a higher recognition from society, it will also incur higher expenses. On the other hand, closer relationship with regional communities is consistent with differentiation strategy. Shareholder Implication: By contributing to regional communities, REXES is able to strengthen the relationship with regional communities, which consolidates its differentiation strategy on keeping competitors from entering this market.

With increasingly concerned the importance of CARS, supporting regional communities can earn a higher reputation. Moreover, better reputation can capture more loyal customers as they agree on what REXES does. Furthermore, it will attract revenue in long run. Therefore, the shareholder value is increased. 3. 2 REXES Strategic Review – Treating staff members as part of REXES Family Introduction: For organizations, human capital is always the most valuable intangible asset.

As such, REXES intends to treat its staff members as a part of family.

By doing this, REXES management would like all staff members fell supportive and work at a harmony atmosphere. Moreover, it could build up their sense of belonging, creating an environment that removes barriers, showing respect and proud of them. Suitability (HIGH): It is a trend that customers has increased their expectation and harder be satisfied. Therefore, better services provided can generate more revenue. Better services very dependable on a crew with sense of honor and responsible attitude, which is closely related to the way a company treats its staff members.

Feasibility (HIGH): REXES has a strong cash flow for the current financial position, which enables REXES to spend more on demodulating activities. The existence of share incentives Lana and share gift plans could enhance employee’s sense of belonging. Furthermore, apart from monetary incentives, management adopted a more humankind management. Consistency (Medium): Improved Job satisfaction is consistent with employee expectations for better work environment. Hence, better services provided by employees would give customers an adorable flight experience. This is consistent with differentiation strategy.

Besides, this strategy doesn’t have effect on cost leadership strategy. Shareholders Implication: Treating employees as part of family enhances their sense of belonging and inspires them to take more susceptibilities work, this could result improvement of services quality. Since REXES operates in a service-oriented industry, the better services delivered to customers, the more customers feel satisfied. All of these capture customers’ loyalty and therefore increases the shareholder value. 4.

1 REXES Corporate Balance Scorecard – Strategy Map Finance Internal Business Process 4. REXES Corporate Balance Scorecard Objective Measure Target Initiative – Increase Profit – Increase Revenue – Reduce Cost -Balanced Scorecard – % Change in Profit / Sales/ Operating Cost – ROE – Sales increase >5% – Operating cost decrease >5% reliable service – Attract new customers and increase retention rate – Exclusive online shopping experience – On-time flight performance – Increase reputation – Reduce prices – % of satisfied customers by survey – % Increase in number of new customers – % Increase in online shopping transactions – % change in ticket price – Customers satisfaction rate >90% – No. F customers increase >5% than previous year – Online shopping transaction rate 10% higher than last year – 2. 5% more in on-time departure – 10% of prices lower than last year – provide more accurate and timely information to customers on flight status. Such as SMS notification service. – Adopt CRM system to evaluate customer’s preference.

– Lower operating cost by more skilled employees.

Internal business process – Refine brand image – Improve customer flight experience – Improve online flight management system – Advanced Machinery – Use renewable energy and recycle the wastes – Fast ground turnaround – % of clicks in Rexes online search compared to last year – % of flights’ satisfaction evaluated by customers – % Decrease in check-in time – % Decrease in operating expenses – Ground turnaround of every flight – 20% of clicks higher than last year of satisfaction each flight rated – Managers random inspections. Less 10% of time used on check-in and registered luggage – less 10% operating expenses less than last year – No more than half hour inspecting time – Improve employees’ performance and enhance advertising on convenience, safety and ease of Rexes flights – Launching new technologies such as self-bag tagging system or self-scanning system to reduce check-in and registered time – Adopt low- carbon materials to reduce fuel used Learning and Growth – Increase Employee Training – Develop a Performance Based Culture