“The Scandinavian Airline System (SAS) has used different strategies, which have helped it to overcome challenges that it encountered in 1980s. It faced various threats especially from the environment of aviation. The major threat was high competition from other popular airlines, which led to the decline of profit of the airline. The company began a new management in Jan Carlzon, where it was completely restructured. Because of this exercise of restructuring, the company grew steadily through integration that was vertical with the credit card, hotel, and the catering sector of the industry of aviation. This paper intends to give a case analysis of an approach of vertical integration, focusing on Scandinavian Airline System (SAS) case study.
Strategic analyses entail the use of a myriad of tools like SWOT and PEST. SWOT analysis, which mostly relies on prioritized external and internal factors helps in the identification, alleviation and implementation of risks. Further, it helps in the identification of project’s weaknesses and strengths (internal factors), risks and avenues (external factors) with the sole purpose of achieving the set objectives. PEST analysis on the other hand relies predominantly on the technological, socio-economic and political attributes linked to an organization’s development like tax and tax policies, inflation rates, population size and the adoption of the modern day technologies in business operations all which can either strengthen an organization or weaken it (Downey, 2007).
After the Second World War, the Scandinavian Airlines System began to operate. The shareholders of the company aimed at controlling the air travels across all the continents. However, it experienced many challenges, which included competition in the market place. In 19081, there were several changes with the management of the company which led the improvement of the airline (Coase, R. 1993b). As a result of vertical integration, SAS has become the largest airline system in the region of Scandinavian. This group is an organization that is large within which the operation of SAS takes place. SAS owns many hotels, airlines, and air travel services. Carzon participated to a great extent in bring out the company out of the challenges it was facing in 1998. He realized that the tread of the market at that time were very competitive. To help the airline remain in the market, therefore, proper management strategies head to be applied (Alamdari, & Morrell, 1997).
In the aviation industry, vertical integration is the merger of different companies that offer products and services in similar path such as hotels, airlines, and travel agents in the same path. As a strategy in strategic management, the aim of vertical integration is to achieve quality products, services, and increase the profit. Vertical integration is applied as a strategy is as a result of it known advantages. The cost of transaction in the airline is reduced. In addition, this strategy is preferred by airlines to help them monopolize the market in aviation. Furthermore, the vertical integration airline has a system of controlling the quality of products and services, and this helps companies to offer quality services. However, vertical integration has some disadvantages. In the airline industry, vertical integration may lead to the high cost of organization due to its complex structure of the organization (Andersson, & Bateman, 2000).
The SAS went through vertical integration in 1998, where it acquired travel companies, which included travel agents, hotels, airlines, and ground services. This helps the airline to grow steadily in terms of passenger traffic, and revenue. This airline, therefore, become a major service provider in the in the global market. The importance of vertical integration was realized in 1988 by SAS. It is argued that the challenges faced in structuring airlines were as a result of disturbances from the government. In order to improve decision making, the vertical integration was motivated. The motivation also aimed at increasing the efficiency of daily operations of the airlines. Additionally, the airline route system had some problems that require urgent attention…”
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