There was considerable uncertainty as to whether Asian network airlines could achieve advantage directly from the external environments within which they operate, with most believing that it is difficult to do so. This confirms Rose (2012) who argued that airlines, in deregulated or at least more liberal environments, increasingly face considerable competition, with many direct consequences which undermines performance and market attractiveness. In particular, more liberal environments resulted in new market entry and heightened competition; increased importance of price as a decision-making determinant; a growing role of value-for-money; excess output; and often failing to meet the expectations of all served
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market segments. These have resulted in lower yields but also the inability to reduce costs or to increase productivity to offset it.
Given that the interview questions concerned short-haul markets and economy class, this is primarily in terms of LCCs, and all the interviewed network airlines face considerable LCC competition within their short-haul markets. Despite the difficulty in attaining advantage, they strongly believed that the competitive environment may strongly influence them in achieving advantage. This is because the degree, nature, stage of existence, and strengths of their competitors encourage them in what they do and how they do it; it acts as a tool by which to contemplate what to do, what to become, and how to achieve it. Philippine Airlines said: “It makes us think: what is the best we can do with the resources that we have?” This is somewhat aided by network airlines not growing as quickly as LCCs, often deliberately from an inability to afford growth. The shallower growth of network airlines confirms Gillen (2006), and their general inability to afford growth, partly from high debt-to-equity or poor profitability, confirms Morrell (2013), although it does vary by individual airline. Where they do grow, interviewees found that it must be strategic and worthwhile and not for the mere sake of growing. This challenges the long-held belief that network airlines are, to a certain degree, based upon ‘bigger is better’.
Hong Kong Airlines said that:
“We were two companies as one stuck in the middle. The growing competitiveness in Hong Kong meant that we had to get out of the middle of the road or we’d get run over. We had the advantage of not having to go up or down market: we could do both. They are going their way with a clear low-cost strategy, but that’s only going to work overall for the group if Hong Kong Airlines moves up by a similar distance.”
The achievement of advantage is particularly in terms of ensuring that they concentrate only on what they are effective at while maximising the strength and benefits from what their key competitors cannot realistically do or simply do not do. Thus, the interviewed airlines especially leverage their frequent flyer programmes; premium classes; core markets; develop stronger relationships with third-party distributors; especially focus on international and long- haul reach beyond the approximately four-hour range of LCCs and the passenger feed that is provided therefrom; leverage the belly-hold capacity of their aircraft to supplement passenger
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revenue; and seek to increase penetration into the higher-yielding business traveller market. That these are ultimately designed to increase revenue is interesting given the regularity with which airlines discuss the need to reduce costs and to improve efficiency and productivity in competing with LCCs. However, Wong (2003) found that longer-term responses by network airlines to LCCs are likely to involve both revenue and cost counterstrategies, although Pettus (2003) found that profitability may be achieved in any industry in crisis without cost-cutting depending upon the allocation and usage of resources and competencies. Nevertheless, Franke (2004) indicated that it is often cost reduction and productivity improvement that is mentioned.
Of all interviewees, only one mentioned the external environment influencing them to rationalise costs, and Air India said: “You have to rationalise your costs. That’s the only way for you to have an advantage versus the bigger carriers and to reduce your disadvantage versus LCCs.” This is primarily in terms of fleet uniformity; right-sizing aircraft to demand, so increasing load factors and strengthening yields; utilising aircraft on sector-lengths for which they were designed; reducing commissions paid to travel agencies; and ensuring an optimal balance of premium seats relative to demand.
How the external environment makes them respond and change may be complicated if there are objectives beyond a commercial nature. Malaysia Airlines said that, for them:
“LCCs have a large penetration but we are reacting too. We are reacting in the sense that we recognise that it’s not about load factor. It’s actually about your presence. You’re looking to command a certain percent of the market.”
Indeed, state-owned airlines, in particular, ordinarily have non-commercial objectives, and Doganis (2006) identified that these may undermine response strategy. Yet Birkinshaw et al. (2007) found that responding to LCCs should be based upon an airline’s commercial objectives and its resources and core competencies. Meanwhile, Markides (2006) acknowledged that many airlines, and firms in general, do not necessarily respond to increasing competition by strengthening their competitive advantage which undermines their ability to compete and their existence.
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6.3 What do you think the role is of internal resources in achieving competitive