Australian Airline Industry Value - Example

Management Student’s Name: Instructor’s Name: Course Code & Name: University: Executive Summary The Australian airline industry as experienced a lot of transformation and dynamism in past years. The monopoly by Qantas has been challenged by emergence of Virgin Blue Holdings and Air Australia Airways. Laxity by Qantas prompted other players to cash in on its woes. Competition in the domestic market has brought about improved services. This report gives a close analysis of the major players in the airline industry in Australia which include Air Australia Airways, Virgin Blue Holdings Limited and Qantas. Expansion in the international air travel and increased need for air transport has a significance bearing on the industry in Australia. Partnership and alliances have been forged to counter competition and ensure expansion. The report gives an environmental analysis of the three carries in matrix form. It goes ahead to recap the SWOT analysis of the three airlines. The culture and leaders of the carriers have been discussed in the subsequent sections. The importance of corporate culture and the general leadership of the carriers have been captured. Decision making and communication throughout different levels appear to be a crucial part of the companies’ culture. Ethical consideration and adherence to rules and regulations has been echoed throughout. A brief recap of the report is captured in the conclusion including a projection of the profitable company in ten years to come. Table of Contents Executive summary………………………………………………………………..……………2 List of diagrams, figures, or illustration………………………………….……….…………….4 Introduction……………………………………………………………………………………..5 General and Task Environmental analysis Matrices of the companies……………………..…..6 Companies SWOT analysis..............................................................................................................10 Organizational culture of each organization…………………………..…………………………15 How the companies motivate employees…………………………….…………………………..17 Main leadership style in the companies…………………………………..………………….…..19 Conclusion and summary……………………………………………………………………….20 References………………………………………………………………..…………………..…22 List of illustrations Economic growth……………………………………………………………………………14 Australian airline industry value…………………………………………………….………16 Importance of China and India………………………………………………………………18 Introduction The airline industry has witnessed a quick transformation following the introduction of new players in the air travel market. Australian industry had for a long term experienced monopoly in the area before the introduction of other competitors. Qantas Airways has been forced to reconsider its growth strategy in order to cope with increased competition (Reynolds 2010, p. 113). Passengers have enjoyed increased growth in product quality and provision of a range of varieties. Price wars among the airlines have further expanded the benefits to passenger (Economic Insights 2012, p. 4). Expansions in the international air travel have promoted growth in the whole sector globally including Australia. The attractive Asian market has promoted alleinces and partnership being forged to take advantage of the growing market. Jetstar is a low cost carrier introduced by Qantas as a strategy of expansion. Jetstar counters the low-cost strategy employed by Virgin Blue. Air Australia Airways and Virgin Blue Holdings have also positioned themselves as low-priced options for passengers. This report analyzes the vital areas in the three carrier effort to survive in the Australia market, and expand internationally. General and Task Environmental analysis Matrices of the companies Company Environmental analysis Qantas Airways Limited Qantas Airways Limited is engaged in transportation of passengers. The Qantas Group is involved in airline related businesses besides its Jetstar and Qantas flying operations (Qantas 2011). These constitute of Airports, Qantas Engineering, Qantas Freight, Q Catering, Qantas Holiday, Qantas Defense service, and Qantas Flyer program. The main strategy of QANs is to grow profitably its flying brands, low-cost jetstar and Qantas. Qantas seek to develop and strengthen its leading positions in premium markets. Jetstar looks forward to expanding locally and penetrate leisure market internationally. QANs also possess Frequent Flyer and Freight businesses (Qantas 2011). The company’s look term strategy is restructuring of its business internationally in an effort to do away the growing losses. The strategy being used by the company is the reduction of capital intensity of the business through entering into partnerships with certain sectors’ carriers, which are not economical. The suggested arrangement to share code with British Airways on the sector in Europe is an illustration of such strategy. The growth of Jetstar in Asia is meant to persist, and it has gotten underway in an excellent manner. There are plans to introduce a premium service in Australia and another service is due for opening in Japan. QAN targets to cut cost in its business. Qantas Airways posted Net profit after tax of $241m for the half financial year ending 31st December 2010 (Wittmer 2011, p. 1389) Ordinary activities increased revenue by ten percent to 7.59 billion, in the same period. Average yield without additions of movement of foreign exchange, grew by seven percent; demonstrating the growth in premium business after the Global Financial Crisis. The company’s capacity increased by seven percent; in respect to addition of twenty two aircraft to the fleet of the Group from December 2009 to December 2010. Earnings per share were 10.6 cents as compared to the previous year. There was no declaration of dividend (Reynolds 2010, p. 115). Qantas anticipate growing its international and domestic capacity with an addition of 4.3% to international capacity and 4.5% to domestic capacity. By June 30th the destinations of Qantas was 208 in forty six countries. During the same time, it had a fleet of two hundred and eighty three. In February of 2011, it went ahead to acquire Network Aviation Group, and 30th June 2010, it acquired Travel Software Solutions Pty Limited. Virgin Blue Holdings Limited Virgin Blue Holdings Limited (VBA) consist of three new world airline carriers which seeks to establish itself through service packages that are full that include Pacific Blue (NZ & Pacific Island), the international carrier V Australia (Australia to US), and Virgin Blue Direct Domestic (Serving Australia. Virgin also provides holiday packages through Blue holidays. Strategy VBA started its operations in Australia as a full service operator looking to offer travelers an alternative QAN, which had dominated the airline industry in the country. Nevertheless, the company has encountered hardships in the segment of leisure following the introduction of Jetstar, QAN’s low cost carrier. The focus has shifted to targeting the market’s business end. Some sectors such as the Sydney-Perth sector will ensure a growth in capacity as the airline anticipate to use wide body aircraft to target business customers. Every percentage point growth in the yields, the company observes, will pose an excellent impact on the bottom line. VBA has also come up with a virtual international network through forging alliances with other international carriers such as Etihad, Air NZ, and Singapore Airlines (Reynolds 2001, p.269) The airlines will increase traffic into and out of Australia giving a good option to business passengers and leisure seekers. VBA will cut down on cost since it will not be compelled to invest expensive aircraft. Better returns are anticipated due to lowered capital expenditure. The deal with Singapore airlines is seen as the most lucrative due to the brand image of the company in business travelers and its control in Asia (Virgin Blue Limited 2010). Virgin Blue Holdings registered a net profit after tax of $23.8m representing a decline of 62 percent for the financial year ending in December 2010. In the same period, ordinary activities revenues went up by twelve percent posting a figure of $1.69 billion. Diluted and Basic Earning per share was 1.1 cents. Net operating cash flow posted a figure of $136 million. There was no declaration of dividend in the same period. Air Australian Airways This is an Australian 100% owned company. It offers passenger services to international leisure destinations like Phuket, Honolulu, and Bali together with other domestic destination within Australia such as Brisbane, Derby, Port Hedland, and Melbourne (Datamonitor 2010). The fleet is made of A320-200 and A330-200 aircraft and on board Economy class and service business class is offered. This combines lower fares with options to passengers to purchase on board their preference selection of beverages, entertainment, and food (Wittmer 2011, p. 1388) The first new model of outstanding gold, green, and silver brand was launched in 2011. Many of the facilities in the airline were revamped to take after the new look. The airline is geared towards providing freshness in the airline industry, lower cost strategy and outstanding customer service. The airline has been given permission to operate between Australia and the USA and Australia and China. Companies SWOT analysis The SWOT analysis of the three companies in matrix formatted is outlined below; Qantas Airways Limited Virgin Blue Holdings Limited Air Australian Airways Strengths Strong backing of the government of Australia Enjoyed monopoly status in the Australian market for quite long. Strong partnership with other international carriers A reduced cost strategy Concentration of international leisure destinations Branding as a low-cost carrier Opportunity to offer high services in modern aircrafts Strategic partnering with other carriers Weaknesses Excessive concentration on the Australia and South East market Wrangles among various stakeholders Problems with its workers Absence of aggressive marketing campaign Low market growth in Australia Being a market follower in Australian market High cost of expansion Slow through in the international market Challenge of adaptability to a competitive market Inadequate funds to engage in aggressive expansion Opportunities Expansion of dominance in the Australian market Ability of diversification of products provided Provision of the lower cost services Expansion in the leisure segment of the market (Virgin Blue Limited 2010). Ability to cut down on cost Opportunity to maximize on a niche in the market Developing Asian market Signing of an open-sky agreement with America expanded air travel Threats Fuel costs that are rising Increasing cost of labour Increased competition from the low cost Air Australia Airways and Virgin Blue holdings, there are also other international competitors such as Emirates and Singapore airlines. The growth of Virgin Blue has possessed a threat to the market share of Qantas Airways (Qantas 2011). Threats in international security following 9/11 attacks in America. Competition from domestic carriers in Australia and international ones High cost of fuel Security threat in international market Slow growth in the global economy Escalating fuel cost Competition from established airlines like Qantas. Economic growth Organizational culture of each organization (300 words approx) Qantas The Board requires and maintains that Qantas management should observe the highest degree of corporate culture. Qantas has not been aggressive enough in the past. It depended on its carrier status to win over customers. The travelling passengers demonstrated their discontentment by opting to use other airlines providing superior products (Qantas 2011). The company has maintained a conservative perspective to business which has depicted absence of creativity, initiative and growth ideas (Reynolds 2010, p. 113). Positions in the company were given out not based on an individual’s expertise, but the relationship with some members of the company. The carrier has been accused of embracing incompetence and corruption at all levels. Innovativeness within the company has not been demonstrated. The performance of the airline has been declining over the years due to bad management. The stock market price has fallen considerably. Public relations in the company need to be stepped up and dynamism and in hiring of employees observed. Air Australia Airways Air Australia Airways is expanding with a lot of keenness. The airline acknowledges the lack of enough financial resources to embark in aggressive expansion plan. The airline cannot afford to make a mistake. The management team at the airline embraces opportunities and utilizes the as soon as they occur (Datamonitor 2010). Disillusioned passengers and staff have abandoned airlines line Qantas to seek services or provide services at Air Australia. Air Australia enjoys a strong support from the public. The mangers have a good rapport with the rest of the workers, and teamwork is greatly supported and witnessed. The airline depends on market intelligence before growth plans. Virgin Blue Holding Limited The company is committed to ensuring effective communication with shareholders and stipulated in its communication policy and market disclosure. The Board offers strategic guidance for the Group and necessary oversight of management (Virgin Blue Limited 2010). The independence of directors is built on their ability to put the best interest of shareholders and the company before any other interests. Consequently they are anticipated to exercise independent and objective judgment. Australian airline industry value How the companies motivate employees (300 words approx) Qantas Airways Employees are motivated by being offered competitive salaries and condition terms of service. The recruitment process is designed to be transparent, and employees are offered a chance to display their creativity (Qantas 2011). The company encourages employees to report any genuine concerns in relation to improper, unethical, or illegal conduct in situations where they may fear raising their concerns due to severe repercussions. The whistle blowing culture is encouraged. There is maternity and work leave for the employees. Virgin Blue Holdings The company adheres to the basic rights of workers and provides attractive salaries and terms of office. Growth through promotion and additional responsibilities is guaranteed. Excellent performance is recognized. Senior executives are given a chance to invest in the company through purchase of shares (Virgin Blue Limited 2010, p. 4). Contracts are renewed for excellently performing senior managers. The compensation structure is designed to attract qualified candidates, give reward to strategic objectives achievement, and attain the broader result of creation of shareholders’ value. Compensation is attractive in retaining, attracting, and motivating highly qualified employees (Datamonitor 2010). Long term and mid term incentives are included in the compensation package. Senior executives are rewarded if they exceed their financial target. Levels of compensations are reviewed each year considering overall and individual group performance. Air Australia Airways Employees are given a chance to be creative and innovative. Their ideas are incorporated in the strategic plans of the company (Datamonitor 2010). Terms of office that are attractive are also provided. Competitive remuneration is accorded, and there is an open path to growth and promotion, so long as one demonstrates responsibility and hard work. Main leadership style in the companies Qantas The board convenes seven formal meeting every year which approves and reviews financial plan and strategy for the financial year that follows. Any other required meetings are convened as demanded. The Board organizes meetings with the Executive management to discuss matters of strategic significance (Wasserman & Faust 1994, p. 67). The head office has to be situated in Australia, and two thirds of the directors are required to be citizens of Australia. The chairman has to come from Australia. The company’s ownership is limited to a maximum of forty nine percent. The Board is in charge of reviewing and setting the strategic path of Qantas and monitoring implementation process (Qantas, 2011). Accountancy and control systems are overseen by the board. The external auditor has to attend the annual general meeting and is available to answer questions. Virgin Blue Holdings Limited The Board is mandated to offer strategic guidance for the Group and management’s effective oversight. The board has come up with a control framework and a set of delegations of authority and procedures to the Chief Executive officer and other senior people in the management (Virgin Blue Limited 2010, p. 3). The Board has the power to remove the chief executive officer or review his performance. The Board sets the path financial objectives and strategies. The chief executive office is paid all his dues before dismissal. A detailed framework of risk management is designed by the Board. Air Australia Airways Air Australia experiences innovative and strategic leadership. Communication in all level of management is encouraged. The Board of directors convenes meeting and approves and reviews the financial plans and strategy of the senior executives (Datamonitor 2010, p. 5). The company enhances effective and quick decision making through its structures. Annual general meetings are convened every year and important information passed to the shareholders and stakeholders. Effective leadership has ensured quick growth of the company. Conclusion and summary Evidently there are increased efforts in the Australian major airlines to expand and increase their market share. The world economic meltdown has not hampered the aggressive expansion strategies laid down by the companies. All the three carriers have increased connectivity of domestic cities in Australia and also they have opened up for partnership with international carriers like Etihad and Singapore Airlines. Sidney is the major connecting Australian hub. During the period from 2007 to 2010 Brisbane gained centrality in Air Network in Australia. This can be attributed to presence of long distances in Queensland; flights destined to smaller places within Queensland have to be connected through Brisbane. Melbourne Air Network is not as concentrated as that of Sidney. Deregulation has played an important role in air carriers’ network composition. Increase in network efficiency has been witnessed after deregulation increasing connectivity. Given an opportunity to invest $1000 in a period of ten years, the best company to invest is Virgin Blue airline which has demonstrated an aggressive strategy growth. It has give competition to Qantas and its growth has been tremendous in the past years as compared to Qantas. Air Australia has not yet established itself as a formidable force in the Australia market and it may take a while before blossoming fully. The high costs of investment play as barriers to entry in the air transport industry. Despite the launch of the Qantas subsidiary Jetstar, the airline has not been as profitable as anticipated, in the past years it has recorded losses. The elaborate structure in Virgin Blue and the aggressive nature of their growth will encourage any investor to invest in it. In ten years to come the stocks at Virgin blue are anticipated to be valued at higher prince as compared to Qantas. Qantas has little options for expansions and conservative nature of leadership present at the company may derail its growth vision. This report depicts the strong side and the weak side of three domestic carriers in the Australian Airline industry. Increased competition will be expected to mount in coming years and each carrier focuses on a growth strategy. List of References Datamonitor 2010, Airlines in Australia, Datamonitor Asia Pacific, Sidney. Economic Insights 2012, The Big Issues for 2012, CommSec. Qantas 2011, Qantas annual report, 2011. Reynolds, FA 2010, “Characterization of airline networks: A North American and European comparison.” Journal of Air Transport Management, Vol. 16, No. 3, pp. 109-120. Reynolds, F A 2001, “Traffic distribution in low-cost and full-service carrier networks in the US air transportation market.” Journal of Air Transport Management, Vol. 7, No. 5, pp. 265-275. Virgin Blue Limited 2010, Virgin Blue Limited Annual report, 2010. Wasserman, S & Faust, K 1994, Social network analysis: Methods and applications, Cambridge University Press, Cambridge. Wittmer, A 2011, Comparing Airline Network Structure: The case of Australia, Institute of Public service and Tourism, Unoversity of St. Gallen, Switzerland. Read More