Company Analysis Aeroplan

CompanyAnalysis: Aeroplan

CompanyAnalysis: Aeroplan

Aeroplanis a public company or a coalition loyalty program that is owned andcontrolled by a global management firm known as Aimia. This programwas initiated in 1984 and it was intended to serve as an incentivefor the frequent flyers of Air Canada. The program was publiclytraded in 2005 when the parent firm ACE Aviation sold part (12.5 %)of its shares through the IPO, while the other portion was sold in2008. Currently, the program has attracted about 4.6 million membersglobally (Aeroplan, 2014). Aeroplan operates as a consumerdiscretionary or a marketing firm, but it specializes in the airlinereward services. Products and services offered by Aeroplan includecredit card loyalty and air mile plan. The loyal members collecttheir miles using credit cards.

Aeroplanoverview

Missionstatement

Themission of Aeroplan is to inspire loyalty and devotion among itsregistered members as well as other partners, enrich the lives ofmembers, impart a meaningful effect on the shareholders, employees,partners, and the community it serves (Pohler, 2009). Some of thecultural elements that guide Aeroplan towards the pursuance of themission include knowledge sharing, employee engagement, customercentricity, innovation, bias for action, and teamwork.

Visionstatement

Aeroplan’svision is to be identified as the world’s leading company in themanagement of loyalty, which will be accomplished by offering memberswith a full-suit of loyalty administration services in Aeroplan’sproprietary, coalition, and analytics business (Groupe Aeroplan,2010). Aeroplan pursues its vision by offering its customers with afull range of loyalty administration capabilities, but it mainlyfocuses on loyalty program design, strategy, and delivery insightand analytics campaign communication and management.

Strategicobjectives

  • The growth plan adopted by Aeroplan comprise of five strategic objectives including

  • To be recognized as Canada’s most respected and preferred loyalty brand.

  • To establish a winning network of suppliers and customer relationships.

  • To build a sustainable and strong cash flow growth.

  • To be recognized as one of the Canadian top employers.

  • To be regarded as a positive force and a leader in the community it serves.

Analysisof mission, vision, and strategic objectives

Themission statement of Aeroplan contains some of the basic componentsrequired in an appropriate mission statement. For example, thestatement signals what the business is all about to its stakeholders,including partners, employees, community, and the shareholder.However, the mission statement fails to reflect all facets of thebusiness (including the nature and range of products) and the specialniche of the company, which are the basic components of a missionstatement (Aeroplan, 2014).

Thevision statement of Aeroplan has some basic features of a goodvision. First, the vision of becoming the leading firm in loyaltymanagement is attainable. Secondly, the vision statement defines thecustomers’ needs and the range of products the company will offerto address those needs. However, the vision statement fails to definethe values of Aeroplan, which determines how customers and thegeneral public should see the organization (Dunigan, 2014).

Thestrategic objectives set by Aeroplan have four important componentsindicating that the company will increase it competitiveness in thefuture. These important components of the strategic objectivesinclude specificity, measurability, attainability, and realistic(Richards, 2014). However, Aeroplan has not provided the time framefor the achievement these strategic objectives, which means that theyare not time-bound.

Externalanalysis

Currently,Aeroplan is among the most successful loyalty management programswith more than 4 million registered and active members (Aeroplan,2014). Although Aeroplan has acquired the status of one of theestablished airline reward programs in the world, it still has anopportunity to grow further. The number of air passengers isincreasing at a rate of 5.3 % annually with a projected increase of28.5 % by the year 2016 (International Air Transport Association,2014). This means that, other factors held constant, Aeroplan has anopportunity to grow by registering more members and partners. Inaddition, the increase in the appropriation of technology to conductonline purchasing present Aeroplan with an opportunity to transactwith members using the tools availed by the modern technology.However, Aeroplan is will face the threat of stiff completion fromother players (including the Star Alliance and Air Mile program) inthe sector as well as the threat of new entrants (Bosanac,2014). Inaddition, the rapid increase in the oil prices will subject Aeroplanto the risk of losing some members as a result of a subsequentincrease in the price of air tickets (Osborne, 2010).

ExternalEnvironmental scan: Aeroplan’s PEST analysis

PESTis an analytical tool used to analyze the external macro-environmentaffecting all firms. The macro-environmental factors are beyond thecontrol of individual firms and they present significant threats tothe organization.

Politicalfactors

Thereare two major political factors that are likely to affect theoperations of Aeroplan. First, the recent increase in air passengertax is likely to reduce the number of air passengers, which will inturn reduce the number of Aeroplan members (Osborne, 2010).

Secondly,the increase in the tax of plane fuel, which is projected to increasethe cost of air transport in Canada by 148 % is likely to discourageair transport, thus reducing the Aeroplan membership and partnershipsit has enjoyment in the past (Osborne, 2010).

Economicfactors

Aeroplanoperations will be affected by two major economic factors. First, theincrease in the cost of fuel at global level is continually reducingthe profitability of air transport, while increasing the cost oftravelling by air (Narowit, 2014). This is likely to reduce thenumber of Aeroplan partners and registered members.

Secondly,a sudden increase in the interest rates in Canada will increase thecost of capital (Bosanac, 2014), thus reducing Aeroplan’s capacityto grow and achieve the pre-determined objectives.

Socialfactors

Operationsof Aeroplan are affected by two social factors. First, Obesity is amajor social challenge affected al companies operating the airtransport, especially in Canada. Study shows that more than 60 % ofthe Canadian adults are either obese or overweight (EnvironmentalInitiatives Group, 2011). The practice of some airline charging theoverweight and obese passengers for two seats will discourage manyregistered members of Aeroplan.

Secondly,the issue of insecurity, especially the threats of terrorist attackis a global challenge that affects all airlines in the world. Thismeans that airlines are forced to overcharge their passengers (someof them being the members of Aeroplan) to account for the extra costof security check-up.

Technologyfactors

Theuse of online services to check-in and book for air tickets is likelyto increase with time. This is consistent with the rate of increasein the significance of online shopping across the globe.

Theuse of the modern technology to enhance communication in the airtransport sector is an ongoing process. For example, it is likelythat the number of air passengers using video conferencing to inquireabout air transport services and book tickets will continue toincrease in spite of economic challenges (Osborne, 2010).

PEST Analysis

Political Factors

Social factors

-Increase in air passenger tax

-Increase in tax on airplane fuel

-Increase in cases of obesity

-Insecurity and terrorism

Economic factors

Technology factors

-Increase in oil prices globally

-sudden increase in interest rates

-Increase in online shopping

-New communication technologies

Threemacro-environmental trends

Althoughthere are many macro-environmental trends that are likely to affectoperations of Aeroplan, there of them are more significant. The firsttrend is the increase in the government taxes charged on airpassengers (Osborne, 2010). The government’s decision to increasestaxes charged on air passengers will affect Aeroplan by discouragingpeople from using air transport, thus reducing the number ofregistered members. This is likely to reduce the threat of entry ofnew loyalty managers who might find it difficult to attract andregister members because air passengers are already decreasing.Different airlines that are partners of Aeroplan are likely tosubstitute the services of Aeroplan by encouraging their passengersto book tickets directly on their websites and reward them through aninternal loyalty reward program in order to reduce the costchallenges associated with the increase in taxes. The sudden increasein price of air tickets is likely to increase the passengers’sensitivity to prices, thus enhancing their bargaining power.However, the increase in government taxes may not have a directimpact on suppliers’ bargaining power. The increase in passengertaxes will intensify the competitive rivalry because players in theloyalty management sector will be competing for a lesser number ofair passengers.

Thesecond macro-environment trend is increase in oil prices, which is aglobal challenge (Narowit, 2014). The increase in oil prices has adirect impact on airlines and air passengers who are the majorclients of Aeroplan. This will reduces the competitiveness ofairlines and the number of air passengers, thus reducing the threatof entry of new loyalty managers. In addition, the increase in thecost of operation might result in the substitution of Aeroplanservices with the use of websites of individual airlines to managethe loyalty of their individual clients in order to reduce the costof operation. This will also increase the bargaining power of memberswho might push for lower prices following the increase in the cost ofair transport. The increase oil prices will increase sensitivity ofAeroplan to changes in the cost of operation, which will in turnincrease chances for cutting out suppliers through verticalintegration. This will reduce the bargaining power of Aeroplansuppliers. The increase in oil prices will reduce the number ofcustomers and partners following the increase in cost of operationand the price of tickets respectively. This will in turn intensifythe competitive rivalry among the players in the loyalty managementsector since they will be competing for a lesser number of airpassengers.

Thethird macro-environmental trend is the increase in appropriation ofmodern technology in loyalty management and other air transportservices. The practice of online shopping has also penetrated the airtransport sector where passengers can now book for tickets online(Osborne, 2010). Online shopping might increase the threat of entryof new loyalty management firms because it will now be easy to searchfor members and partners online compared to physical search. Inaddition, technological advancement increases the risk ofsubstitution of Aeroplan services since competitors can different theservices by integrating a high level or newer technology (such asvideo-conferencing) a head of Aeroplan. The increases the range ofavailable substitute services as a result of utilization oftechnology in the loyalty management will increase the bargainingpower of customers. The bargaining power of Aeroplan suppliers islikely to decrease following the increase in the range of technologyoptions that can be used to deliver loyalty management services. Theuse of technology is also likely to intensify competitive rivalrybecause the ease of finding members and partners online will enhancecompetitive advantage, which is a product of innovation.

Competitiveanalysis: Porter’s Five Forces

Threatof new entrants

Althoughthe loyalty management sector appears to be difficult to venture intoat a first glance, there are some factors that suggesting that newfirms can easily investment in this growing area. For example, thehigh probability of product differentiation through innovationincreases the chances for new firms to use the new technology toattract air passengers and establish partnerships with airlines witha promise different, but quality services (Osborne, 2010).

Availabilityof substitutes

Theairline rewards programs involve include the award of redeemablepoints to frequent flyers, but there are many options that individualairlines can use to reward their loyal customers. For example, anindividual airline can install its own loyalty management program andreward its clients through various options, such as additionalmillage and high travel classes. This means that loyalty programs canbe easily substituted.

Powerof supplier

Currently,loyalty management in the air transport sector is dependent on moderntechnology (such as video conferencing and online booking tools) thatcan be supplied by many technology firms (Osborne, 2010). Thisimplies that suppliers bargaining power is low and firms operating inthe loyalty management sector can acquire cheap suppliers.

Powerof buyers

Atpresent, the airline rewards programs and loyalty management sectorsin which Aeroplan operates in are highly competitive. The keycompetitors include the Star Alliance, Air Miles Program, and otherbank-affiliated loyalty plans (Bosanac, 2014). The availability ofmore options for buyers (registered members) and partners (airlines)means that the buyer’s bargaining power is high.

Competitiverivalry

Theexistence of many players in the airline reward program sector andthe ease of entry have contributed towards the competitive rivalry.Although some firms (such as Aeroplan) have established their loyaltywith many members and partners, the entry of many loyalty managementfirms will increase competition for the available airlines and airtravelers. This will in turn intensify competitive rivalry in theloyalty management sector within the air transport industry.

Attractivenessof the industry

Althoughthe industry is facing some challenges and the business is highlycompetitive, it is an attractive sector to invest in given the factthat the number of air passengers and airlines will continue toincrease instead of decreasing. Some of the key opportunitiesavailable for the companies operating in the loyalty managementsector include the ever-increasing number of airline firms and airtravelers who are potential partners and members of these firms.Although the airline reward programs have an opportunity to grow,firms operating in the sector are facing significant threats of stiffcompetition and new entrants. Some of the key success factors thatcan help the reward programs establish a competitive advantage amidstthe stiff competition include the application of the latesttechnology (such as video conferencing) to serve members andservants, giving members a large number of choices to redeem theirpoints, and recruiting more airline partners so that registeredmembers can have a wide base to select from.

Conclusion

Theairline reward program is an attractive investment sector, but withchallenges and threats for the players to death with. Aeroplan is oneof the loyalty programs that have managed to address the challengesin this sector to a point of acquiring the status of an establishedloyalty management program in the world. This success can beattributed to the management that has structured effective mission,vision, and strategic objectives for the firm. Some of the keyopportunities available for Aeroplan include a potential increase inmembership following an increase in air passengers globally and anincrease in online shopping. Aeroplan is facing the threats of stiffcompetition from other established airline reward programs and newentrants. In addition, Aeroplan and other players in the loyaltymanagement sector should be able to address challenges associatedwith economic and political factors such as an increase in taxes onair tickets and sudden increase in oil prices, which are likely todiscourage air passengers.

References

Aeroplan(2014). Earn miles. Aeroplan.Retrieved October 2, 2014, fromhttp://www3.aeroplan.com/language.do?lang=E

Bosanac,A. (2014). Customer loyalty programs turn shameless amid intensecompetition. HuffPost Business.Retrieved October 2, 2014, fromhttp://www.huffingtonpost.ca/2014/08/11/customer-loyalty-programs-competition_n_5669392.html

Dunigan,J. (2014). 4 components to include in your vision statement. Thepractical Leader.Retrieved October 2, 2014, fromhttp://thepracticalleader.com/4-components-to-include-in-your-vision-statement/

EnvironmentalInitiatives Group (2011). Activetransportation in Canada.Ontario, ON: Environmental Initiatives Group.

GroupeAeroplan (2010). GroupeAeroplan annual information form for the financial year endedDecember 31, 2010.Quebec: Aeroplan.

InternationalAir Transport Association (2014). Airlinesto welcome 3.6 billion passengers in 2016.Montreal: International Air Transport Association.

Narowit,S. (2014). Iraqcrisis could boost air fares.Toronto: The Canada Press.

Osborne,A. (2010). Recessioncut air travel demand by a quarter, finds civil aviation authority.Toronto: Telegraph Media Group Limited.

Pohler,D. (2009). AeroplanCanada becomes one of the Canada’s 50 best employers.Quebec: Aeroplan.

Richards,L. (2014). Elementsof strategic business plan objectives.Santa Monica: Demand Media.