An Analysis of the Impact of Industry Role Players on the Competitiveness and Profitability of an Entity in a Volatile Environment
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AN ANALYSIS OF THE IMPACT OF INDUSTRY ROLE PLAYERS ON THE COMPETITIVENESS AND PROFITABILITY OF AN ENTITY IN A VOLATILE ENVIRONMENT By MARY GORETI SHINGIRAI MULI submitted in accordance with the requirements for the degree of MASTER OF COMMERCE in the subject of BUSINESS MANAGEMENT at the UNIVERSITY OF SOUTH AFRICA SUPERVISOR: PROFESSOR RENÉ PELLISSIER SEPTEMBER 2012 i Abstract ____________________________________________________________ The airline industry has grown rapidly over the past few decades, recording a ten-fold rise in passenger numbers and a fourteen-fold increase in cargo volumes. This growth has created overwhelming value to airline passengers, employees, suppliers and the broader economy. Unfortunately, this industry has been affected by terrorism attacks, wars, revolutions, pandemic fears, earthquakes, volcanoes, failing economies and skyrocketing fuel prices all of which have negatively impacted on profitability and resulted in intense competition. Consequently, airlines have spent the last decade in survival mode having to adapt to harsh changes. Air Zimbabwe, a state-run organisation which operates in this highly regulated and turbulent industry, is faced with numerous micro and macro environmental challenges and has been purposively selected for this study. According to company statistics, the airline’s annual passenger uplifts have declined from a peak of over 1 million in the 1990s to less than 200 000 in 2011, with revenue generation declining in correlation. Whilst Air Zimbabwe has experienced depressed demand for its services, competitor airlines are recording brisk business. The aim of this study was to investigate how a struggling organisation, which operates in a turbulent environment, can improve its competitiveness and profitability by better understanding the impact of industry role players and adapting organisational strategies to industry variations. This study examined, from the point of view of the industry players themselves, the extent to which customers, suppliers, competitors, regulatory authorities, substitute products and new entrants have impacted on the competitiveness and profitability of the airline. Major findings reveal that an organisation cannot operate in isolation and be competitive or profitable, but constantly needs to analyse the industry environment in which it operates in and to amicably interact with other industry role players. The research outlines the need for competition in certain areas and cooperation in others. Key Terms: Competitiveness Profitability Strategy ii Declaration ____________________________________________________________ Student: 4237-514-2 I Mary G S Muli declare that, An analysis of the impact of industry role players on the competitiveness and profitability of an entity in a volatile environment is my own work, and that all sources I have used or quoted have been indicated and acknowledged by means of complete references. ………………………………… ……………………………… Signature Date (Mary G S Muli) iii “To Him who is able to do exceedingly, abundantly above all that we ask or think, according to the power that works in us, to Him be glory in the church by Christ Jesus to all generations, forever and ever, Amen.” Ephesians 3 verses 20 - 21 iv Acknowledgements ____________________________________________________________ “Let us not grow weary while doing good, for in due season we shall reap if we do not lose heart. Therefore, as we have opportunity, let us do good to all….” (Galatians 6: 9-10) This Masters Degree programme has been a lifelong dream whose accomplishment would not have been possible without the support and contribution of many individuals. I would therefore like to extend my heartfelt gratitude and appreciation to the following people: My Heavenly Father who included completion of this degree in his master plan for my life, thank you Lord, for your abundant blessings. My gratitude goes to my supervisor, Professor René Pellissier. Your guidance and support stretched my academic thinking as you continually offered priceless advice, invaluable lines of thought and support. Your immeasurable academic and supervisory skills sustained me throughout this research. Much appreciation goes to my fellow Air Zimbabwe colleagues and friends who offered numerous words of encouragement. To Mrs Agatha Matsekeza who persuaded me to start my first degree with UNISA in 2007, it has been a long but fruitful journey, thank you. Mr Norbert Machingauta and Mr Danny Moyo, I am grateful for your critical insights, time and patience as I constantly relied on your extensive aviation and academic experience and knowledge. I am greatly indebted to all the aviation industry employees who participated in the research. Thank you for your time and for sharing your views. Finally, my deepest gratitude goes to my friends and family for your relentless love. My mother, Patricia Choto, whose words of encouragement and prayers kept me going; and my late father, Joseph Muli, who would be so proud. To my brother Michael and cousin Chido who endured a change in schedules and lifestyles around my study programme, I am grateful for your patience, support and understanding. Thank you all for believing in me. May the Lord continue to abundantly bless you all v Table of Contents ____________________________________________________________ CHAPTER 1: INTRODUCTION AND BACKGROUND OF THE STUDY........................................... 1 1.1 Introduction ........................................................................................................... 1 1.2 Background analysis ............................................................................................. 2 1.2.1 The volatile airline industry .................................................................................... 2 1.2.2 The Zimbabwean economic environment .............................................................. 4 1.2.3 The airline industry in Zimbabwe........................................................................... 5 1.2.4 Air Zimbabwe Private Limited ............................................................................... 6 1.3 Problem statement and main research question ................................................... 7 1.4 Research objectives .............................................................................................. 9 1.4.1 Secondary objectives ............................................................................................ 9 1.5 Research constructs ............................................................................................10 1.5.1 Competitiveness ..................................................................................................10 1.5.2 Profitability ...........................................................................................................12 1.6 Research method ................................................................................................14 1.6.1 The research design ............................................................................................14 1.6.2 The sampling plan ...............................................................................................14 1.6.3 The research instrument ......................................................................................16 1.6.4 Data analysis plan ...............................................................................................16 1.7 Limitations of the study ........................................................................................17 1.8 Delimitations of the study .....................................................................................17 1.9 Significance and importance of the study .............................................................18 1.10 Chapter overview .................................................................................................18 1.11 Summary .............................................................................................................19 CHAPTER 2: THE AIR ZIMBABWE VOLATILE ENVIRONMENT ................................................ 20 2.1 Introduction ..........................................................................................................20 2.2 Deregulation of the airline industry .......................................................................20 2.3 Airline competition in Zimbabwe ..........................................................................22 2.4 Competitor analysis .............................................................................................25 2.4.1 Strategies employed by competitor airlines ..........................................................28 vi 2.5 Regulation within the airline industry ....................................................................37 2.5.1 Safety and security ..............................................................................................40 2.5.2 The environment ..................................................................................................41 2.6 Summary .............................................................................................................44 CHAPTER 3: STRATEGIES IN A VOLATILE ENVIRONMENT ..................................................... 45 3.1 Introduction ..........................................................................................................45 3.2 Porter’s five forces model.....................................................................................45