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Vietnam Airlines provides an excellent case study for applying Porter's Five Forces model. Founded in 1956, it has grown to become a major player in Southeast Asian aviation. It operates a fleet of modern aircraft and serves both domestic and international routes. The airline is known for its focus on traditional Vietnamese hospitality and has partnerships with leading airlines worldwide. Let's explore how the five forces affect its competitive position. Key aspects of its operations include a commitment to safety, customer service excellence, and adapting to changing market dynamics.

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The aviation industry has high barriers to entry due to significant capital requirements, stringent regulations, and the competitive struggle to secure airport slots. Additionally, the need for specialized expertise and technology further complicates new entries. Despite these challenges, the burgeoning Vietnamese market has attracted new low-cost carriers drawn by the high growth potential and increasing demand for affordable travel options. For instance, VietJet Air has rapidly grown by offering cut-price tickets and becoming one of Vietnam's most popular low-cost carriers. Vietnam Airlines faces strategic pressures as these new entrants can leverage cost advantages and innovative service models to swiftly capture market share. Consequently, Vietnam Airlines needs to adapt by enhancing operational efficiency, maintaining strong customer retention programs, and exploring new route opportunities to preserve its competitive edge.

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Key suppliers for Vietnam Airlines include major aircraft manufacturers like Boeing and Airbus, fuel suppliers, and airport services providers. The limited number of aircraft manufacturers means that these suppliers can exert considerable bargaining power, often dictating terms and prices. For instance, Boeing and Airbus are the primary options, giving them leverage over contract negotiations. Similarly, fuel costs, which are volatile and constitute a significant portion of operating expenses, give fuel suppliers substantial leverage, as seen in fluctuating global oil prices. Airports, particularly in major hubs, also hold power due to limited landing slots and essential ground services. To manage these relationships, Vietnam Airlines can engage in long-term contracts, diversify its fuel procurement strategies, and collaborate in joint ventures or partnerships with suppliers to reduce dependency and negotiate better terms.

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Customers wield significant power in the airline industry due to the availability of numerous alternatives and the rise of online booking platforms which enable easy price comparisons and booking flexibility. With platforms like Expedia and Skyscanner, passengers can compare prices and choose between airlines. The availability of low-cost carriers like VietJet Air further amplifies this power, as passengers can choose based on price sensitivity rather than brand loyalty. Vietnam Airlines differentiates itself by ensuring superior customer service, offering a seamless travel experience, and prioritizing passenger safety. Loyalty programs like Lotusmiles help retain customers and provide insights into consumer behavior to tailor services. To counteract the power of buyers, Vietnam Airlines continually adapts its marketing strategies and strengthens its service offerings to appeal to diverse customer segments.

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For domestic routes, Vietnam Airlines faces competition from alternative transportation modes like high-speed rail, which offers cost-effective and time-efficient travel, particularly for short distances, as seen with services like the Hanoi-Hai Phong high-speed train. For international routes, the rise of video conferencing platforms like Zoom and Microsoft Teams poses a substitute for business travel, allowing companies to save on travel expenses by hosting virtual meetings. Vietnam Airlines addresses these challenges by differentiating its services through enhanced in-flight experiences, optimizing travel time through efficient routes, and targeting market segments that value in-person meetings for significant deals. It also offers promotional fares and adds value with packages that integrate flight services with land components like accommodation and tours.

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In the competitive landscape, Vietnam Airlines contends with both full-service carriers like Singapore Airlines and low-cost carriers such as VietJet Air. For example, Singapore Airlines offers premium travel experiences attracting business travelers, while VietJet Air targets budget-conscious passengers with low prices and frequent promotions. The rivalry is intensified by factors such as route networks, pricing strategies, and service differentiation. Vietnam Airlines positions itself by capitalizing on its strengths in traditional Vietnamese hospitality, strategic partnerships with global airline alliances like SkyTeam, and maintaining a balance between affordable pricing and comprehensive service offerings. Additionally, by innovating its fleet and optimizing route efficiency, Vietnam Airlines strives to enhance operational performance and competitiveness.

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Using your laptops, conduct a SWOT analysis for Vietnam Airlines based on the information provided and additional research. Present your findings in a creative infographic using tools like Canva or Piktochart.

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In small groups, choose one of Vietnam Airlines' competitors (e.g., VietJet Air, Bamboo Airways). Use your iPads to research and create a short video presentation comparing their strategies using Porter's Five Forces model.

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Imagine you're the CEO of Vietnam Airlines in 2030. Write a blog post describing how you've adapted to changes in the five forces over the past decade. Consider factors like technological advancements, environmental regulations, and changing consumer behaviors.

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Create a force field analysis diagram for Vietnam Airlines' potential expansion into a new international route. List driving forces and restraining forces based on Porter's Five Forces. Use online collaboration tools like Miro or Google Jamboard to work on this as a class.

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Online Whiteboard for Realtime Collaboration | Miro Lite

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Miro Lite is a free-to-use, easy-to-share online whiteboard. No sign-up or registration is required.

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In teams, develop a new service or product for Vietnam Airlines that addresses one of the five forces. Create a pitch deck and present your idea to the class. The class will vote on the most innovative and impactful proposal.

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1. What are the five forces in Porter's model?
2. Define 'bargaining power of suppliers'.
3. What does 'threat of new entrants' mean?
4. Give an example of a substitute product in the airline industry.
5. What is meant by 'rivalry among existing competitors'?

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1. How can high capital requirements act as a barrier to entry in an industry?
2. Explain how brand loyalty can affect the bargaining power of buyers.
3. In what ways can a company reduce the bargaining power of its suppliers?
4. How might technological advancements impact the threat of substitute products?
5. Describe how government regulations can influence the intensity of rivalry in an industry.

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1. Analyze how the COVID-19 pandemic has affected each of the five forces in the airline industry.
2. Evaluate the effectiveness of Porter's Five Forces model in today's rapidly changing business environment.
3. How might the increasing focus on sustainability and environmental concerns reshape the five forces for airlines?
4. Compare and contrast the application of Porter's Five Forces in a developed market versus an emerging market like Vietnam.
5. Critically assess the potential limitations of Porter's Five Forces model in strategic decision-making for a company like Vietnam Airlines.

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As we look back on the past decade at Vietnam Airlines, the landscape of the aviation industry has transformed significantly, shaped by the five competitive forces that continuously challenge us. The threat of new entrants has increased, particularly with the rise of low-cost carriers like VietJet Air, prompting us to enhance our operational efficiency and innovate our customer retention strategies. To maintain our edge, we have explored new routes and optimized our pricing structures while leveraging our strong brand loyalty through our Lotusmiles program.

Supplier dynamics have also evolved; with a limited number of aircraft manufacturers, we have strategically entered long-term contracts and diversified our fuel procurement to mitigate volatility in fuel prices. Collaborating with key suppliers has allowed us to negotiate better terms and secure essential resources for our operations.

Consumer behavior has shifted towards greater price sensitivity and convenience, driven by the proliferation of online booking platforms. In response, we have focused on delivering exceptional customer service and creating a seamless travel experience. Our marketing strategies now prioritize personalized offerings that cater to diverse customer segments, ensuring we remain competitive in a landscape where buyers have substantial power.

Moreover, the emergence of substitutes such as high-speed rail for domestic travel and video conferencing for international business has prompted us to redefine our value proposition. We are enhancing in-flight experiences and streamlining our services to appeal to those who still value the benefits of personal interaction. Our promotional fares and integrated travel packages also cater to evolving customer preferences.

Lastly, the rivalry among existing competitors, both full-service and low-cost, remains intense. By emphasizing our unique Vietnamese hospitality and strategic partnerships with global airline alliances, we have positioned ourselves as a compelling option for travelers seeking both quality and affordability. Through continuous fleet innovation and route optimization, we strive to enhance our operational performance and competitiveness, ensuring Vietnam Airlines not only survives but thrives in this dynamic environment. Looking ahead, we are committed to navigating these challenges while embracing the opportunities that lie ahead in our mission to connect Vietnam to the world.

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1. competitive rivalry, barriers to entry, supplier power, buyer power, threat of substitutes

1. high capital requirements mean that significant initial investment will be need, which is incredibly difficult for small businesses to achieve and require extensive research, smart decisions from big firms as it can heavily damaged the retained budget and future prospect. Moreover, if the business fails to attract enough customers or generate sufficient revenue, the financial losses can be substantial, deterring potential new competitors. Securing the necessary capital can be challenging for new entrants, especially if they lack a proven track record or collateral. Investors and banks may be hesitant to provide funding due to the high risk associated with entering a capital-intensive industry.

1. The COVID-19 pandemic has had a significantion impact on the aviation industry, including Vietnam Airlines.

As for competitve rivalry, the pandemic has intensified this force as airlines struggled to maintain market share amidst plummeting demand. Many airlines, including Vietnam Airlines, had to reduce their flight schedules and cut costs to survive. The competition for the reduced number of passengers became fiercer, with airlines offering significant discounts and promotions to attract travelers.

Secondly, with the fall of economic growth due to Covid-19, the barriers to entry had became higher. The significant capital required to start an airline, coupled with the financial losses experienced by existing airlines, deterred new entrants. Additionally, the uncertainty surrounding future travel demand made it a risky venture for potential new competitors.

And because demand for aviation industry had decreased, leading to a loss in bargaining power of suppliers. Aircraft manufacturers and fuel suppliers were less demanded and suppliers had to offer more favorable terms to retain business. However, essential suppliers like maintenance providers still held some power due to the necessity of their services.

In contrast, the bargaining power of buyers, in this case passengers had increases significantly. With travel restrictions and health concerns, passengers had more choices and could demand lower prices and flexible booking options. Airlines had to adapt by offering more attractive deals, flexible cancellation policies, and enhanced safety measures to reassure and attract customers.

Lastly, the threat of substitutes, such as virtual meetings and remote work, increased during the pandemic. Many businesses and individuals turned to online platforms for meetings and events, reducing the need for business travel. This shift posed a long-term challenge for airlines, including Vietnam Airlines, as they had to find ways to adapt to the changing travel landscape and promote the value of in-person interactions.

Overall, the COVID-19 pandemic has reshaped the competitive dynamics of the airline industry, forcing Vietnam Airlines to adapt its strategies to navigate the challenges and opportunities presented by the crisis.

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1. Threat of New Entry

Vietnam Airlines:

Vietnam Airlines is a long-established state-owned airline with significant capital investment, strong government support, and access to resources such as infrastructure, making it difficult for new entrants to compete directly with them. It operates both domestically and internationally, which also creates high entry barriers for new competitors.

Vietjet Air:

As a low-cost carrier (LCC), Vietjet Air has carved out its market by focusing on budget-conscious travellers, offering a no-frills service model. The threat of new entrants is somewhat moderate for Vietjet as it operates in the LCC market where the capital costs are lower compared to full-service carriers like Vietnam Airlines. However, the need for economies of scale and government regulation still keeps the threat relatively low.

2. Suppliers Power

Vietnam Airlines:

The bargaining power of suppliers, especially for fuel, aircraft (Boeing and Airbus), and maintenance, is high for Vietnam Airlines. However, being a full-service airline with long-standing relationships and larger orders with suppliers, it may have more negotiating power compared to smaller carriers.

Vietjet Air:

Vietjet, as a low-cost carrier, faces similar supplier pressures. However, since it operates with a single-type aircraft fleet (Airbus A320), it may benefit from lower maintenance and training costs. Nonetheless, like Vietnam Airlines, it remains dependent on a few major suppliers, especially for fuel and aircraft.

3. Buyer Power

Vietnam Airlines:

The bargaining power of buyers for Vietnam Airlines is moderate to high, especially with the rise of low-cost carriers like Vietjet Air offering competitive pricing. Vietnam Airlines focuses on customer loyalty with premium services, frequent flyer programs, and international routes. However, passengers can easily switch to low-cost alternatives, especially for domestic travel.

Vietjet Air:

Vietjet Air operates in a price-sensitive market, so the bargaining power of buyers is higher. Customers can quickly switch between low-cost airlines or even other modes of transportation for domestic routes. Vietjet must maintain low costs and competitive pricing to attract and retain these price-conscious travelers.

4. Threat of Substitutes

Vietnam Airlines:

The threat of substitutes, such as buses, trains, and other domestic travel modes, is relatively low for international routes but moderate for domestic routes. Vietnam Airlines' strategy of providing premium services mitigates the threat of substitution, as travelers looking for comfort and convenience are less likely to switch to other transportation methods.

Vietjet Air:

For Vietjet Air, the threat of substitutes is moderate to high, especially on short domestic routes where buses or trains offer cheaper alternatives. To counter this, Vietjet focuses on low-cost tickets and high flight frequency, ensuring that air travel remains the most convenient and efficient choice for domestic travelers.

5. Competitive Rivalry

Vietnam Airlines:

Vietnam Airlines faces high competition, both from domestic low-cost carriers like Vietjet Air and international airlines operating in Vietnam. Its strategy focuses on premium services, international connections, and corporate clients. However, with the rise of low-cost competitors, it must continuously adapt its pricing and service offerings to remain competitive.

Vietjet Air:

Vietjet Air thrives in an intensely competitive market, with rivalry coming not only from Vietnam Airlines but also from other low-cost carriers. Vietjet focuses on aggressive pricing strategies, cost minimisation, and high-volume flights. The rivalry is especially fierce on domestic routes, where both airlines compete for market share. Vietjet's ability to maintain low operational costs is key to its success in the competitive environment.

Key Differences in Strategy:

Vietnam Airlines:

Operates as a full-service carrier, targeting business and international travelers. Its strategy focuses on service differentiation, premium offerings, and maintaining customer loyalty through quality and connections. Vietnam Airlines is also expanding its international presence and routes, emphasising partnerships with global alliances.

Vietjet Air:

A low-cost carrier focusing on cost leadership. It targets budget-conscious travellers with no-frills services and competitive pricing. Vietjet is known for its lean operations, promotional campaigns, and rapid domestic expansion, which allows it to capture a large share of the price-sensitive market.

Conclusion:

Vietnam Airlines employs a differentiation strategy to stand out in both domestic and international markets, whereas Vietjet Air focuses on a cost leadership strategy, excelling in the low-cost segment with competitive pricing and efficient operations. Both airlines must navigate similar supplier and buyer pressures but respond differently based on their market positioning and business models.

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As the CEO of Vietnam Airlines in 2030, I am proud to reflect on the transformative journey our airline has undertaken over the past decade. The aviation industry has faced unprecedented challenges and opportunities, driven by technological advancements, stringent environmental regulations, and evolving consumer behaviors. Here’s how we have adapted to these changes, guided by the five forces that shape our competitive landscape.

1. Technological Advancements

The past decade has seen rapid technological innovation, and Vietnam Airlines has been at the forefront of adopting these advancements. We have integrated cutting-edge technologies such as artificial intelligence (AI) and machine learning to enhance our operational efficiency and customer experience. AI-driven predictive maintenance has significantly reduced aircraft downtime, ensuring our fleet remains in optimal condition. Additionally, our investment in next-generation aircraft, like the Boeing 737 MAX, has allowed us to offer more fuel-efficient and environmentally friendly flights.

2. Environmental Regulations

Environmental sustainability has become a critical focus for the aviation industry. In response to increasing environmental regulations, Vietnam Airlines has committed to reducing our carbon footprint. We have implemented a comprehensive sustainability strategy that includes investing in biofuels, optimizing flight routes to reduce fuel consumption, and participating in global carbon offset programs. Our goal is to achieve net-zero carbon emissions by 2050, aligning with international climate targets1.

3. Changing Consumer Behaviors

Consumer preferences have evolved dramatically, with a growing emphasis on personalized and seamless travel experiences. To meet these expectations, we have leveraged digital transformation to enhance our customer service. Our mobile app now offers a fully integrated travel experience, from booking and check-in to in-flight entertainment and post-flight services. We have also introduced flexible ticketing options and loyalty programs tailored to the diverse needs of our passengers.

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VietJet Air, a Vietnamese low-cost carrier, has rapidly gained market share in the competitive airline industry. To understand its strategic positioning, we can analyze its strategies using Porter's Five Forces model.

High barriers to entry: The airline industry is capital-intensive, requiring significant investments in aircraft, infrastructure, and regulatory approvals.

VietJet's advantage: VietJet has leveraged its domestic market knowledge and established partnerships to overcome these barriers. Its focus on low-cost operations and efficient resource management has allowed it to compete effectively.

VietJet's strategy: VietJet has countered this by offering competitive fares, flexible booking options, and value-added services to attract and retain customers. Additionally, its focus on domestic and regional routes has provided it with a unique market niche.

VietJet's approach: VietJet has managed its supplier relationships by diversifying its sources and negotiating favorable terms. Its fleet of fuel-efficient aircraft has also helped to mitigate fuel costs.

VietJet's position: VietJet has reinforced its position by offering competitive fares and convenient schedules, making air travel more accessible to a wider range of customers.

High rivalry: The Vietnamese airline market is highly competitive, with multiple players including Vietnam Airlines, Bamboo Airways, and other low-cost carriers.

VietJet's competitive advantage: VietJet has differentiated itself by focusing on low-cost operations, efficient route network optimization, and innovative marketing strategies. Its strong brand recognition and customer loyalty have also helped it to maintain its market position.

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Lower level

3.  Threat of entry means the ease with which other firms can join the industry and compete with existing businesses. This threat of entry is greatest when: economies of scale are low in the industry, and the technology needed to enter the industry is relatively cheap.

Intermediate level

3. Companies can reduce bargaining power of suppliers by diversifying supplier base. They can avoid reliance on a single supplier by sourcing from multiple vendors. This reduces dependency and increases competition among suppliers.

Higher level

3. Threat of new entrants: Stricter environmental regulations may raise entry barriers, making it more challenging for new airlines to enter the market. However, a growing demand for sustainable travel could encourage new entrants with environmentally friendly practices.

Bargaining Power of Suppliers: Suppliers of environmentally friendly technology may gain more power as airlines seek to reduce their carbon footprints. This could lead to higher costs for airlines that need to invest in greener alternatives.

Bargaining Power of Buyers: Customers are increasingly prioritising sustainability, which gives them more power. Airlines that do not adopt sustainable practices may lose market share to those that offer greener options, prompting airlines to enhance their sustainability efforts.

Threat of Substitutes: As sustainability becomes a key concern, alternatives to flying such as high-speed trains may become more attractive to environmentally conscious travellers, increasing the threat of substitutes.

Industry Rivalry: Competition among airlines may intensify as they differentiate themselves through sustainability initiatives. Airlines that successfully implement eco-friendly practices may gain a competitive advantage.

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Anh Kiet

I am the CEO of Vietnam Airlines, and I will now reflect on how Vietnam Airlines has been adapting to changes in the five forces over the past decade.

1. Barriers to entry:

Since the barriers of entrance into the commercial airlines industry has always been high thanks to capital requirements, and tight safety regulations imposed on airlines, which discourages smaller startups to select air travel as a first venture, we have not been under any threat of new competition. Because of this, no changes in the pricing, marketing, or other competitive strategies were made.

2. Power of buyers:

Customers in the airline industry have historically had significant bargaining power due to the numerous suppliers of commercial air travel like VietJet, or Bamboo Airways. The increasing popularity of internet-booked ticketing services have made it easier for consumers to obtain information in terms of pricing, which made comparisons between firms even easier. While we cannot and aren't willing to compete with VietJet in terms of prices, our brand loyalty have always stayed high. To maintain our brand loyalty through these times, we have increased the availability of our loyalty program, and increased the amount of perks that our customers receive with the program.

3. Power of suppliers

In the airlines industry, there have only been 2 major suppliers of commercial airplanes: Boeing and Airbus. While we have been purchasing our airplanes from Airbus, we still had some power of choice, in case our costs become too high. However, in recent years, Boeing has suffered substantial damage to their brand image, since the release of the 737 Max commercial airplane. To be specific, there were huge quality control issues, which caused several crashes, and more recently, an emergency hatch has fallen off mid flight due to a faulty hinge. As a result, Vietnam Airlines now has no choice but to stick to Airbus as our sole supplier of aircrafts, due to concerns about Boeing's quality control of theirs. We are not willing to compromise the safety or overall experience of our customers in order to save costs, as it will also cause substantial damage to our brand image. As for how we've adapted to the increase in the bargaining power of Airbus, we have reduced costs in terms of fuel, in anticipation of any price increase in their products that will lead to an increase of our costs. However, we are aware that this will temporarily reduce the availability of our flights.

4. Threats of substitute products:

Thanks to rapid technological advancements in terms of transportation in Vietnam, there has been a growth in popularity of high-speed trains, and we predict that, at this rate, in a few years, those trains will be able to travel longer distances faster than even airplanes, making domestic flights less appealing in terms of cost and convenience.

However, in terms of international destinations, we predict that the demand for international flights will stay relatively constant and higher than any other alternatives.

The action we've decided to take in anticipation of more efficient domestic train travel was to work with airports around the country in an attempt to speed up waiting times for passengers.