Introduction
The HKSAR Government is the sole owner of the Airport Authority Hong Kong (AAHK), a statutory corporation that operates following the law governing airport authorities. Hong Kong International Airport is provided, operated, developed, and maintained by AAHK, which is also permitted to engage in airport-related activities in trade, commerce, or industry (HKIA). These activities must be guided by the Ordinance and the intention to keep Hong Kong competitive as a significant hub for regional and international aviation (Cheung, 2006). AAHK must conduct its business in a way that is both prudent from a business standpoint and mindful of the efficient and secure movement of people and goods by air to function in compliance with the law.
Aviation Security Company Limited and Sky Link Passenger Services are both partially owned by AAHK Company Ltd, providing passenger services at several ports in the Pearl River Delta. In addition, AAHK maintains and runs the mainland and three airports through conjoint ventures: Zhuhai Airport, Hangzhou Xiaoshan Airport, and Shanghai International Hongqiao Airport (Cheung, 2006). In order to carry out a range of commercial operations, AAHK collaborates with airport business partners such as franchisees, licensees, and governmental bodies. Passenger, freight, airfield operations, aviation services, apron management, airport property and infrastructure management, airport safety and security, retail, and other terminal commercial activities are just a few of the activities that take place at HKIA (Loo, 2008). Therefore, the mission, vision, and strategy of AAHK are as follows; The sustainability vision of AAHK is to increase HKIA’s capacity to function and develop gains in a dynamic and challenging ecological, technological, social, and economic environment while fostering a strong sustainability culture throughout the company.
Environmental Analysis of Airport City
Since the airline industry has developed over the past few decades, almost everyone from all socioeconomic levels can travel by air for reasonably low prices. Previously, it was believed that flying was only for the wealthy (Santa, 2020). Despite the economic crises that have constrained the Asian region, including the 2008 economic crash, the Hong Kong airport city has the fastest-growing airline industry. It is the region’s top international hub for air cargo and passengers. Nearly all Asian cities and other parts of the world are connected to Hong Kong Airport City, Asia’s primary airline hub. The following is a thorough analysis of the airline market in Hong Kong using Porter’s Five Forces to provide crucial information to airlines thinking about joining the industry (Santa, 2012). Porter’s Five Forces analysis examines probable industry rivalry that a company might encounter. The competition from existing firms, the threat of new entrants, the threat of substitutes, and the negotiating power of both customers and suppliers are a few.
Competition from existing firms
Degree of differentiation; In a market where services have been reduced to commodities, competitors will mainly compete on price. As a result, any price cuts made by one player would be rapidly matched by rivals, resulting in fierce competition. The cost of a service depends on its features, benefits, and brand awareness. However, when industry participants can differentiate their goods, they know that consumers sometimes associate their products with a single cost (Goyal, 2020). The competition in the AAHK sector is less intense because firms compete based on strengths, advantages, and features. A rival might enhance features or perks instead of cutting prices in reaction to a competitor lowering prices or hiring a famous person to participate in advertising.
Threats of new entrants
A company’s competitive position will be threatened when new competitors enter an industry and start providing the same products or services. Therefore, the danger of new entrants is used to describe the prospective entrance of new companies into a market. Industries with a great danger of new competitors are less appealing because there are few entry barriers (Goyal, 2020). New competitors can quickly enter the market, outbid incumbent businesses, and take market share. Profitability decreases as more enterprises enter the market. New entrants into the airline industry pose virtually little threat to the surrounding Hong Kong airport city.
The bargaining power of suppliers
The strength of suppliers in the airline business significantly impacts Porter’s five factors in the airport city industry. Labor, aircraft, and fuel are the three leading providers in the airline industry. External variables impact these because the oil price is determined based on global changes. The second factor is airplane manufacturers, of which Boeing and Airbus are two necessary providers (Rizzetto, 2018). These suppliers, therefore, have a lot of negotiation leverage. The third component is labor, which consistently causes problems for firms owing to union politics and demands.
The bargaining power of customers
There has never been less industry competitiveness in the airport city. Customers can choose the most economical options because they can easily access schedules and prices via the online ticketing and distribution system (Rizzetto, 2018). With the entry of low-cost carriers, customers’ negotiating leverage within Porter’s five forces of the airline business has also strengthened.
The threat of substitute products or services
Passengers have the option of not flying. For transportation, they have access to automobiles, trains, and boats. However, flying is still your best bet if you have little time. We can therefore classify this force as low to medium (Rizzetto,2018). This problem has significantly impacted because taking the bus and rail for shorter distances is more economical. This aspect barely matters when traveling abroad.
PESTEL ANALYSIS IN AIRPORT CITY IN HONG KONG
Political factors
Political initiatives that may hinder or enhance the operation of the aviation sector are referred to as “political challenges affecting airport cities in Hong Kong.” Given the large geographies in which many airlines operate, the commercial environment in each market typically depends on the political climate there (Rizzetto, 2018). These factors could be crucial for defending passenger rights and guaranteeing the security of airline operations. For an airline firm to thrive, the political environment must support its business activities.
Economic factors
By acting as a hub for non-aviation enterprises that produce revenue and jobs, HKIA significantly boosts Hong Kong’s economy. The four businesses that makeup Hong Kong’s core Economy financial services, tourism, trading and logistics, and professional services heavily rely on the smooth movement of people and goods made possible by the airport’s local and global networks. Airport City in Hong Kong also has a broader catalytic impact on these industries.
Social factors
The Hong Kong International Airport (HKIA) is not only a central transportation hub for the city’s citizens but also contributes to the advancement of the community through deliberate investments in the education of aviation industry professionals and the development of a platform to support the development of local technology.
Technological factors
HKIA aims to deliver a unique passenger experience and significantly boost operational efficiency by employing technology effectively and creatively. Our commitment to setting the standard for technological advancement and airport innovation is reinforced by our vision for the “Smart Airport.” The HKIA Tech novation Board was established in 2015 to foster innovation and technological advancement within HKIA (Jarach, 2017). The five critical enabling technologies that would help us fulfill our vision of a smart airport city were outlined in the HKIA Technology Roadmap, released two years later.
Environmental factors
Improvements in energy efficiency and environment conservation, fleet conversions, the installation of local low-pollution power generation facilities, or the application of renewable energy sources are essential steps airports take to remove their carbon, manage emissions and carbon footprints that are directly under their direct control (Mohammed, 2014). In some incidents, hydroelectric, solar, geothermal, or wind energy can provide a significant portion of the energy needed.
Resource and capability analysis
For instance, the sources and capabilities of airport city in Hong Kong can be analyzed using the SWOT analysis and VRIO analysis as follows;
Valuable
First, things need to be valued. A company’s resources are helpful when they enable it to gain a sustained competitive edge. Resources must be utilized to achieve goals, take advantage of opportunities, or reduce risks. They should also increase effectiveness. Even if none of an organization’s resources are thought to be helpful, it is at a disadvantage in comparison. The VRIO analysis example may be used to help the quantitative value of the product (McKenna, 2018). For instance, airport city in Hong Kong is valued since it has kept its position in the industry due to the value of and quality of services provided by it.
Rare
Resources have to be limited. A source of information is deemed unusual if it is only available to a select group of businesses. A valuable commodity can be used in the same way by all market participants if it is available to everyone. As a result, none of the players can take advantage of that resource (Mohammed, 2014). The rarity in the VRIO framework example is referred to be competitiveness or competitive fairness. Airport City might have a short-term competitive advantage if it has access to a lot of expensive and rare products.
Imitate
The Airport City Company has enough resources, which gives it a price advantage in the airline industry. Other airline businesses can imitate what Airlines is doing because they have access to enough resources. Due to their availability of the necessary tools and resources, competing airlines can easily imitate the company’s resources (Yudhistira, 2016). This implies that the company’s resources are straightforward to copy, which can reduce its level of environmental competitiveness.
Organization
The planning of the airport city ensures that its rare and valuable resources, which are difficult to duplicate, are used to their fullest extent. Its procedures and policies guarantee that the organization’s management activities are conducted in confidence. According to organizational policies, sharing of resources and information is not permitted. Consequently, it is assumed that the firm is managed effectively.
Swot analysis
A SWOT analysis is designed to make it possible to examine the benefits and drawbacks of an organization, the market and tactics it operates in in a realistic, fact-based, data-driven manner. The organization is required to maintain the analysis accuracy by gray areas or removing preconceived conceptions and focusing on real-life scenarios (Ahmed, 2006). Businesses should apply it as an option rather than a prescription. Swot analysis in airport city is applied as follows;
Strengths
The tourism industry has expanded during the last 15 years. Television, media, and movies have made people more adventurous, and they now want to travel and discover new places all over the world. The only sensible and viable mode of transportation for cross-continental travel is an airplane. According to an estimate, domestic and local tourism increased by 50%, while international tourism increased by 25%. For instance, airport city provides a special package in their sector that aids in drawing lots of customers as a result of their first-rate lodging and superior offerings.
We can all agree that the fastest form of transportation is air travel. However, in order to make aviation the safest form of transportation, engineers are focusing on research and development. Even yet, in comparison to other modalities, it is a secure alternative. The airline’s staff, including the security team, is well-versed in problem-solving techniques and has the necessary tools and equipment. The airport city industry has so maintained its availability and quickness, greatly enabling them to keep their position.
Weaknesses
A high spoiling rate causes the travelers to miss their flights. If the customers missed their flight and had to rebook at full price, the business would suffer a loss. When compared to other forms of transportation, the spoiling rates for airlines are relatively high. The airline companies give each of its customers a reminder call or message before every trip. In order to assure that everyone is present and to lower the loss rate, this is done. In addition, the aviation industry is growing more and more competitive. During the off-seasons, small airline companies must reduce the cost of the flight (Ahmed, 2006). Therefore, it becomes necessary for the larger businesses to lower the fare as well in order to continue luring customers. If they didn’t reduce their expenses, customers would choose the less expensive smaller airlines, which would cause the larger airline company to lose market share.
Opportunities
Use technology to reduce costs: The aviation industry should make investments in various technical stages. Although the cost may first seem excessive, it would lower ancillary costs in the long run. For instance, by connecting the business with clients via a website and a smartphone, spoilage would be reduced. a centrally located program that unites management, departments, and staff members so that everyone can comprehend their unique activities and how they could influence how well others work. Investment in technology would eliminate delays and spoilage rates.
Threats
Global Economic Crisis: Every nation is experiencing economic decline. Fewer employment is available, and a lot of people are working for the minimum wage. People only use airplanes for business travel, despite the fact that the tourism industry is in decline. People are traveling less and less for fun and adventure due to a lack of money. The aviation sector must keep costs as low as possible in current conditions. This is the only strategy for surviving the current economic crisis.
Strategic Formulation; BCG matrix
Application of BCG matrix to analyze airline industry in airport city of Hong Kong, The Boston Consulting Group BCG Matrix model, which offers data on market share, potential, and product quality, can help airlines think about their goods and make decisions. The investment level for the airlines’ product might also be estimated, for example in the Question Mark stage. BCG also aids airlines in monitoring and controlling their product life cycles because no product has an unlimited shelf life (Guță, 2017). Simply said, airlines may conduct wise business decisions by employing the BCG matrix.
Question Mark
This product has a question mark next to it because its future is still up in the air, yet it is one that is expanding swiftly. During this phase, the airline must make significant investments and practice patience because, despite high demand, the product may initially only provide modest returns due to a small market share. The product, however, has the potential to develop into a Star product if it wins a larger share of the market. Considerable thought must be paid to question marks in order to determine if the investment necessary to grow market share is worthwhile.
Star
The star product is referred to as having the highest market growth and market share. The Star product produces more income and uses more of it to maintain market share in the face of the market’s rapid expansion. There are currently five flights each day; the Hong Kong route to Bangkok is one excellent illustration of the spectacular output from the four daily flights to Bangkok (Fajariansyah, 2021). In order to maintain market share and turn a route like this one into a Cash Cow Product, airlines must continue to make significant advertising investments.
Cash Cow
A “cash cow product” is anything that generates significant revenues for airlines while maintaining a significant market share. As the market reaches a mature level, it is quickly getting saturated. Given that it generates more revenue than it costs to operate, the route is currently a gold mine for airlines. The Cash Cow product, however, could become a Dog product if it is not maintained (Fajariansyah, 2021). Airlines like the airport city in Hong Kong have a small investment to infuse and accelerate market growth in order to maintain their market share and revenues and prevent their route from becoming a dog product.
Dog
Dog products are ones with low market share and extremely slow market expansion. Airline yield is either extremely low or the route at a loss. It is recommended that airlines cease or end service on the route, and that the funds intended to run the Dog route instead be used for the Question Mark or Star routes. When market penetration by Airport City and AAHK causes market share to become saturated, the operation is discontinued because the route no longer generates revenue for the airline.
Conclusion and Recommendation
Airlines can determine whether their product is a Question Mark, Star, Cash Cow, or Dog using the BCG matrix approach. To help airlines make wise decisions, it is a wonderful technique to identify the product based on specific BCG criteria. In fact, BCG helps airlines manage their expenses and income. Airlines may ensure their survival in the current cutthroat sector by using the BCG matrix as a reliable comparison tool. Theoretically, airports will benefit from an accessible and connected network since they will be more competitively beneficial than other nearby airports serving the same region. A competitive position helps an airport grow passenger and freight traffic, which boosts productivity and helps it gain market share. Regional airports are less impacted by the increasing traffic, which has a greater impact on the commercial earnings of larger airports. However, well-connected airports can boost both the effectiveness of the American air network and the development of local businesses. Because of this, increasing air connection through RD projects is often thought of as the standard for modern airports.
Therefore, increasing air connection has been found to have a beneficial and considerable impact on an airport’s competitiveness and appeal, as well as the local economy where the airport is located. The benefits and effectiveness of route development projects, however, aren’t always clear. An empirical study demonstrates the dynamic interaction between airport route development initiatives and performance measurements. strategically, Airport City may update the Town Hall to raise the top limit or demolish a number of existing structures to free some citizens if this parameter reaches its maximum value. Utilizing some of the buildings you get as rewards by completing special deals may increase your maximum population.
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