The Growth Path of Qantas From Their Founding till the Present Day - Case Study Example

Critically analyse and evaluate the growth path of Qantas from their founding till the present day. The beginning Qantas is one of the oldest airlines in the world. The first airline in the world was DELAG, which was founded in 1909. Qantas started operations in 1920 with its first aircraft carrying one pilot and two passengers. Initially it was providing airmail services subsidised by the Australian government. Most of the airlines have relied on the government support since the very beginning. Even DELAG was assisted by the government. The milestones In 1924, Qantas introduced DH50, a four passenger aircraft which was the first commercial aircraft after the war. This was also the first year of making profit by Qantas. In 1926, Qantas produced its first aircraft DH50A. in 1927, it extended its route from Cloncurry to Normaton. This year they also imported their first aircraft. In 1928, it signed a contract with Australian Aerial Medical Service to provide care for the sick in the outback. In 1929, it started its first direct link to the coast with Charleville –Brisbane flight. This was a milestone for the airline to move from the outback service to the capital city. The second milestone came when it linked with Imperial Airways of Britain in 1931. It started by providing airmail service in connection with Imperial Airways. Later in 1934, Qantas Empire Airways was formed in which both Qantas and Imperial Airways held equal shares. This airline got many airmail contracts. In 1935 came the third mile stone when Qantas started its first overseas flight. In February this year, it operated a mail service between Darwin to Singapore. In April, it did its first overseas passenger trip to Singapore. It soon realised that international flights will require bigger aircrafts. It started acquiring bigger aircrafts. These were Short C Class Empire flying boats. It was easy to handle these boats as they required only one mooring buoy, fuelling facilities and terminal building. World War II was a major point for most of the airlines worldwide. Qantas continued its flights to Singapore. This was the Australia-England route and was very vital. When Singapore was captured, Qantas flights also stopped. It continued inland services between Brisbane and Darwin and a few Queensland routes. The Flying Boats flew between Townsville in North Queensland and Port Moresby and Milne bay in New Guinea. Later in 1943, the international link was re-established when the British Air Ministry and Imperial Airways which has now become BOAC, agreed upon the plan. These flights were between Swan River, Perth and Sri Lanka. This was a milestone in worldwide airline industry because it called for the longest non-stop passenger flight of 5,625 km over the Indian Ocean. After the war, Qantas took steps to rebuild its fleet. It acquired four long range pressurised aircraft called the Constellation. It got many other aircrafts in the same year. In 1947 came the fourth mile stone when the Australian Government acquired all the shares of Qantas and thus gained control. In 1947, it started regular weekly flights to London. In 1949, it introduced services to Hong Kong and Japan. In 1952, a fortnightly service was started to Johannesburg in South Africa. In 1953, an agreement was made to replace the British Commonwealth Pacific Airlines flight to North America by Qantas. Later Qantas absorbed it. In 1954, it started flights from Sydney to San Francisco and Vancouver twice weekly. 1954 was also the year of patriotic fervour. 1956 which was the year of XVI Olympic games in Melbourne, was an important year for the airline as it carried the Olympic flame to Darwin from Athens. It was the longest ever trip of 13,800 km. This inspired the ordering of seven Boeing 707-138 jetliners. 1957, it opened a new office in Sydney and shifted all the staff there. This year it also got some shareholding in Malayan Airways and acquired Fiji Airways. By 1958, Qantas had its presence in 23 countries. In 1959 Qantas became the first airline in the world to have seven Boeing 707-138 aircrafts. These aircrafts flew to US. Later this service was touching London via New York. Same year they also started Sydney-London flights via India. These operations encouraged them to improve their fleet. They ordered advanced model of Boeing 747B in 1967 and started a new era in the air travel industry. On 1st August 1967 the airline was named as Qantas Airways Limited. From 1971 they started operating new 747-238B Boeing aircrafts and also offered low fares. Thereafter they went on improving their fleet and air routes and were established as a prominent international air service provider. Analysis Multinational Enterprise has a very significant role in the world economic system.qantas has grown as an MNE. According to Rugman, MNEs or multinational enterprises, dominate the trade and investment of the world. Most of the MNEs build a strong home region and then expand into other regions using the overseas subsidiary networks (Rugman, 2007). It creates a win-win situation as it improves the macroeconomic infrastructure of the host country in which the foreign subsidiary of MNEs enter. Later it helps the growth of local MNE due to development of the infrastructure. Rugman quotes the Canadian scenario which was fed by the inward FDI from US till 1980s. 1980s saw emergence of Canadian owned world class MNEs. According to this theory growth of any company as a multinational gives it an edge in its own country as well as in other countries. The new definition of an MNE is a differentiated network in which many old subsidies develop from being the knowledge recipient to the source of new knowledge (Rugman & Verbeke, 2003). There are four sets of industry drivers:- customers, cost, country and compensation (Yip & Coundouriotis,1991). Customer drivers have three components: Customer requirements Distribution Uniform marketing Qantas always had the customer requirements as a base for their operations.. It started as a mail transport system. Then it expanded into ferrying other cargo. Carrying passengers was an additional source of income. It took time to catch up as air travel was considered low on safety and high in price. But later on it grew. Here we can the distribution drivers or the ‘pull’ and ‘push’ marketing. Initially Qantas may have used the push marketing but later it resorted to pull marketing. Being an airline industry it never had any problem related to ‘uniform marketing’ as it has global acceptance. Cost drivers are: . new product development . scale economies . transportation costs As new product development was also a major factor, they continued to build aircrafts that could carry both cargo and passengers. World War II was a major event in the field of airline industry. It started research into development of the aircrafts. This was done mainly for the purpose of war but later it extended to commercial purpose also. Constellation was the product of these developments. These developments increased the speed of crossing oceans and continents by air. This encouraged long haul flights as well as the preference of people to travel by air in comparison to ships and trains. The presence of scale economies helps firms to achieve high volume sales. By 1950, there were more developments in the design of the aircraft with focus on increasing the comfort and capacity of the flights. By 1959, jet services were introduced. These services helped in enabling faster cross-country flights. Transportation costs can help or prevent an industry from becoming global. For Qantas, the most important aspect was the performance of the aircraft for long haul flights. Due to its geographical position, this was an important factor for planning any international expansion. Country drivers are: . trade policies . technical standards . cultural and regulatory barriers Trade policies are country specific. When Qantas started its first international coalition with Imperial Airways, it had two advantages in its favour- Australia being a British Colony, the coalition was easy and providing an extension to the Imperial Airways by servicing inland destinations within Australia. This was easier than starting an independent international flight across the ocean which would have needed both technical and commercial viability. Technical standards encourage globalization. Regular up gradation of its fleet has been a regular feature with Qantas’s strategy starting from Flying Boat to Catalinas, Boeings and jets. Cultural and institutional barriers never created a roadblock for Qantas and their good service record earned them their reputation. Competitive drivers can be sub-divided as: . competitive interdependence . new entry competition The progress of Qantas is linked with competitive interdependence. Like all other airlines it also started as airmail service. Passenger carrying was started as a medical service for flying in the doctors to the outback. The other growth factors came in as the designs of the aircraft improved. Its alliance with Imperial Airways has been a major milestone in its international growth. There are many advantages of alliances like: - improved access to facilities and technology and more importantly expertise. It also adds to the credibility and helps in diversification into new markets. Qantas got all these advantages by its alliance with Imperial Airways. Qantas has taken new entry competition in a positive way. It made alliances with some and acquired some. It also started new services in response to competition. Low cost Jetstar was such an example in response to Virginia Blue in 2001. Porter Diamond Model Another model given by Porter is the Diamond Model which defines the competitive advantages of nations. So far it has been considered that the factors that affect the competitive advantage are land, location, natural resources, labour and local population size. According to Porter, these are passive factors as they can not be changed much. A sustained industrial growth can not be built over these factors. The competitive advantage comes from interlinking of four advanced factors- 1. Firm Strategy, structure and Rivalry 2. Demand conditions 3. Related Supporting Industries 4. Factor conditions The main point that Porter emphasizes is that the key factors for production are not inherited but they are created. These are skilled labour, capital and infrastructure. He calls them the specialized factors. Qantas structured its fleet and corporate strategies according to its growth and looking at other competitors. They used firm strategy, structure and rivalry to their advantage According to Porter the general factors like unskilled labour and raw materials are accessible to any company but it can not give him a sustained competitive advantage where as acquiring the specialized factors requires investment which may not be possible for other firms. This is what gives a competitive advantage to the firm. In response to the demand conditions, they started with airmail, flying doctor, national and international passenger flights. Porter Diamond Model also emphasizes the role of government in this scenario. The government helped Qantas to develop related infrastructure. A major milestone for them was when the government took over the shares of Qantas and took control. Government’s involvement provided them with the required investment capability for procuring the specialized factors. When we put the Porter Diamond Model in context of Australia, we find the composition of Australian population a motivating factor for internationalization. Majority of Australian population is due to the British Colony and many other immigrants. Summary As we can see from the above discussion, the progress of Qantas has been a step by step journey that has eliminated possible risks and generated the required investment capabilities. The first milestone, move from the outback service to the capital city in 1926, shows the ambition of the company to grow which was also in sync with the worldwide trend. The second milestone, link with Imperial Airways of Britain in 1931, shows the path to internationalization through alliance. This led to the third milestone, mail service between Darwin to Singapore, due to the advantages of alliance. And the fourth milestone, Australian Government acquiring all the shares of Qantas, gave them the foundation of solid growth. All along this path they constantly acquired newer and better aircrafts that kept them on the forefront. This helped them in successful internationalization. Reference: Boyd, L., Brief History of the U.S. Airline Industry, URL: http://scriptorium.lib.duke.edu/adaccess/ A project of the Duke University, Accessed on December 17th 2007. Diamond Model – Porter on Nations, http://www.valuebasedmanagement.net/methods_porter_diamond_model.html Accessed on December 17th 2007 Porter, M, Diamond Model and Clusters, www.12manage.com/methods_porter_diamond_model.html Accessed on December 17th 2007 Qantas Homepage, http://www.qantas.com.au/info/about/history/details16 Accessed on December 17th 2007 Qantas annual reports, http://www.qantas.com.au/info/about/investors/annualReports Accessed on December 17th 2007 Eldad, B.Y., 2005, The Evolution of the US Airline Industry, Theory, Strategy and Policy, Series: studies in industrial organizations , Vol. 25 Frith, K. T., and Mueller, B., 2003, Advertising and societies: global issues Hansson T., Ringbeck , J. Franke, M., 2003, Flight for survival: a new business model for the airline industry. Roll, M., 2006, Asian Brand Strategy. Rugman, A.M., 2007, Multinational Enterprise for Emerging Markets. http://www.g7.utoronto.ca/conferences/2007/rugman2007.pdf Rugman, A.M. and Verbeke, A. ,2003, ‘Extending the Theory of the Multinational Enterprise: Internalization and Strategic Management Perspectives’. Trott, P, 2005, Innovation Management and New Product Development Verbeke, A., James J., Wenlong , 2007, A note on strategic renewal and corporate venturing in the subsidiaries of multinational enterprises. Enterpreneurship:Theory and Practice. July 2007. Appendices:- 1. Source: Corporate Partnering: A How-To Handbook, an executive's guide to key partnering practices, http://www.corporate-partnering.com/info/strategic-alliances-advantages-and-disadvantages.htm The Advantages and Disadvantages* of Partnerings and Alliances * all partnerings are different, each with its own unique advantages and disadvantages Advantages of Partnerings and Alliances Improved Cash Flow Reduced Overhead Improved Access to Capital Obtain Capital Credibility Access to Facilities and Technology Access to Expertise Ability to Keep the Company Small More Products to Sell Innovative Products Creative People Speed and Flexibility in Delivering New Products Ability to Hedge Your Own R&D Effort Less Costly than Buying a Company Cost Savings Product Distribution Diversification into New Markets Manufacturing Capability Reduced Risk Knowledge and Know-how Avoid Need to Reinvent What Has Been Invented Elsewhere The Shoring up of Weak Areas in the Company Strengthened Relationships with Key Suppliers or Customers Ability to Move Quickly Ability to Stay Focused on Core Competence     Disadvantages of Partnerings and Alliances Sharing of Future Profits Foreclosure of Other Opportunities Barriers to Future Financing Opportunities Distractions Creating a Competitor or a Potential Competitor Unexpected Disappointments and Headaches from Your Partner 2. External triggers to the internationalisation process Globalisation Localisation Market drivers Market drivers . Customer requirements: homogeneous . Customer requirements: heterogeneous customer needs worldwide, enabling the customer needs, with strong local industry to standardise products to all preferences. major markets. . Distribution: distribution channels are . Distribution: existence of a global specific to a local market. distribution channel operating at a . Marketing: key elements of the marketing worldwide level. mix need to managed on a local basis . Marketing: homogeneous nature of reflecting different brand names, market marketing mix allows common approach position, etc. and brand names to be used to serve all major markets. Cost drivers Cost drivers . New product development: significant . New product development: insignificant research and development costs to be research and development costs. recouped. . Scale economies: any potential . Scale economies: economies of scale are economies of scale can be achieved highly significant and require volume through servicing the local market. Small- output. scale producers are not at a significant . Transport costs: high value to weight cost disadvantage when compared to ratio means that transport costs do not large rivals. discourage centralised production on a . Transport costs: low value to weight ratio worldwide basis. results in transport costs requiring demand to be met from locally based production units. Country drivers Country drivers . Trade policies: insignificant national trade . Trade policies: nationalistic trade policies barriers. prevent imported products being able to . Technical standards: international compete with locally produced goods. technical standards accepted in all major . Technical standards: divergence of markets. national standards prevent product . Cultural and institutional norms: these are standardisation. not an impediment to global marketing. . Cultural and institutional norms: these vary country by country. Competitive drivers Competitive drivers . Competitive interdependence: principal . Competitive interdependence: product- markets are strongly interlinked. Firms market in one country does not affect the need to operate in all major markets. firm's compe!itive stance in another. . Entry of new competitors: international . Entry of new competitors: entry has not competitors have entered the local taken place. market. Summary Summary Industry has globalised, requiring firms to Industry remains localised, with locally operate on a worldwide basis in order to focused firms being able to compete on reduce costs and improve their competitive equal terms with companies with basis. international scope and scale. 3. Summary of industry drivers for the consumer electronics industry over the next five years High Med I Low Industry drivers Low Med I High Customer drivers Customer requirements Distribution I Marketing Cost drivers New product development Scale economies Transport costs Country drivers Trade policies Technical standards Cultural/regulatory barriers Competitive drivers Competitive interdependence Entry of new competitors Read More