Strategic Management of Qantas Airlines - Case Study Example

Running head: QANTAS AIRLINES A Case Study of Qantas Airlines Name Course Information Professor Information Date Due Executive Summary It was found that Qantas airline controls 84% domestic market share within corporate segment. International long-haul routes were making losses and required overhaul. Transformation strategy was therefore launched in 2011 with an intention to limit losses and lift the profile of Qantas. Fleet economics, alliances, dealing with loss making routes, and modernizing operations were specific sections to be transformed within five years. Cutting capital expenditure and focusing attention on competitiveness became a prime factor. Frequent flyer program, modern fleet, Q catering, and Qantas Freight Enterprise emerged as part of portfolio managed by Qantas. A recommendation for strengthening Qantas was to expand operations in markets that are productive such Asia, Africa, and Subcontinental regions. The report further discovered that airline industry faces intensive rivalry. A single move by one airline necessitated another airline to respond in a different manner. Terrorism, safety, and security issues also surfaced in the discussion on airline industry. The paper recommended that studies in terrorism should be conducted continuously in order to protect airports against attack. Table of Contents Introduction iii Introduction Founded in 1920 in Queensland, Qantas has grown locally and internationally. It is classified as the leading long distance carrier and the strongest brand in Australia. Some of the operational areas where Qantas has recorded success include safety, operation reliability, engineering, and customer service. Apart from the use of Qantas and Jetstar brand, Qantas operates Q catering. The objective of this report is to analyze internal and external environment facing Qantas and to offer recommendations based on findings. The report will begin with an assessment of external environment then proceed to discuss internal environment. The outcome will be used to outline recommendations towards improving Qantas. 1. External analysis a. Industry Qantas falls under airline industry. b. Environmental Analysis i. Economic Low returns in airlines are attributed to stiff competition. Competitors in Asia-Pacific region comprise of Virgin Australia, Malaysia airlines, Singapore Airlines, and various other establishments. All these airlines offer excellent services i.e. fleets, professional staff, good brands, and high level of customer service. The companies often compete for prices hence deploy price tactics. In terms of aircraft trend, manufacturers are now considering fuel-efficient and easy to maintain aircraft. ii. Global Globally, airline industry have not been performing well, registering a dismal profit margin of 0.3 percent. Despite the fact that the industry had improved its profits to 2.7 percent in 2007, there was downwards trend in 2008 following the global financial crisis (Belobaba, Amedeo, & Cynthia, 2009). It is important to note that besides the uncertainties in financial sector reported in 2007/2008, poor performance was contributed by factors such as earthquakes, volcanic eruption, tsunami, and other natural disasters (Hanson, 2010). Constantly fluctuating price of oil coupled with geopolitics surrounding exploitation of the product has a direct impact on airline industry. iii. Demographics Income distribution in addition to nature of population determines how an airline performs. Asia for example contains a population that has a capacity to improve performance of airline sector. iv. Political By looking at various airlines i.e. Kenya Airways and British Airways, it is apparent that they were under control by their respective governments. This control in ownership is a form of political regulation. The main rationale for such regulation was protecting consumers against exploitation. Nonetheless, this is changing as competition increase. Fred and Cox (2008) maintain that partial deregulation witnessed in United States, Asia, and European Union has really enhanced public access to air travel. High competition means that consumers will benefit from low fares, greater quality of services, and innovative products. Stable political and economic environment in Asia as well contributes to the success of airlines operating in the region. v. Technological Boyle (2009) asserts that frequent change in technology is an opportunity for airlines to shape its operation. Various airlines continue to improve service provision by capitalizing on internet technology. The most recent technological advancement is consumer review websites i.e. reviewcentre.com. The developments have allowed transparency in ticket pricing presenting consumers with an opportunity to participate more in describing their experiences. Given this scenario, airlines are now obliged to concentrate on quality of services and products offered to customers. The other element that accompanies advancement in technology is customer expectation of standard of crew services, seat pitch, meals, drinks, and entertainment while in flight. Integration made possible by a combination of internet technology, innovative software, and mobile computing will continue to change the way business is operated in airline industry. vi. Socio/cultural Previously, airlines were a preserve for the elite. This has however changed with the emergence of low cost airlines. Currently, any new entrant in the market is a low cost airline. Amongst the low cost airlines, Air Asia was rated World’s Best Low Cost. This obviously changes customer perception with respect to air travel. In terms of terrorist attacks, many airlines have improved their security details to build a positive customer perception about certain routes. Previous breach in security hampered demand for air travel given that traveller thought that it was prone to attack. c. The industry environment i. Threat of substitutes The advent of new technology has limited the number of people who travel for purposes of holding a meeting. It is now possible to hold a meeting through video conferencing instead of incurring high cost of travelling. People also utilize chats hence avoid travelling. This is a real threat to airline industry. ii. Threat of new entrants Due to deregulation, there is a high possibility of new entrants in airline market. The likelihood of new entrants varies with existence of barriers and profits in the sector. Investments that are making profits will attract new entrants. It is important to note that high cost of investment required in an airline industry tend to drive away investors. Similarly, losses in long-haul trips registered by airlines such as Qantas are a disincentive for new entrants. iii. The power of buyers Airline industry has higher buyer given that customers have a variety of choices. Switching costs are low thus; consumers can easily opt for other providers without necessarily incurring switching costs. Now, there are many low-cost airlines. This is advantageous to consumers because they are able to go for cheaper and high quality flight. iv. Supplier power Most airlines use a single type of plane hence purchases their airlines from single supplier. Huge economies of scale in addition to expensive research and development in Boeing and Airbus are qualities that strengthen their power. Boeing for examples handles demand from many different clients. In many occasions, airlines do not have many options. This implies that supplier power is high. Airlines that have multiple suppliers i.e. Boeing and airbus will have the opportunity to negotiate for attractive deals. This presents low supplier power. v. Competitive rivalry Intensive rivalry is often visible in fare prices. When one airline takes a strategic move, it is most likely to affect operation of another airline. A situation where a major airline like British Airways reduces price would prompt another airline, say Southwest airlines to offer a better option. Some airlines offer free in-flight complimentary items to remain competitive. d. Competitive environment Clive (2009) conducted an analysis of how various companies responded to global financial crisis and the surging fuel prices. Whereas some airlines i.e. Qantas continued to increase service provision on long distance routes, Emirates and Etihad considered the financial crisis as an opportunity to strengthen their hold in routes between Australia and Europe. The other airline, which has gone against the financial meltdown, is Virgin Blue’s V Australia, which is on the way to launching routes between Australia and U.S. This is a clear indication of an intensifying competition amid low passenger demand and biting financial crisis. Qantas should therefore consider a strategy that would improve revenue instead of concentrating attractive prices to build demand. e. Opportunities and threats Bearing in mind that technologies keep changing, Qantas has an opportunity improve further service provision by enabling customers to check-in using their mobile phones. Customer service is further enhanced by allowing travellers to board their planes using barcode received after processing their tickets through mobile phones. This approach not only saves costs, but also offers clients a smooth experience. Internet-based technology presents an opportunity for airlines to inform their clients on the status of their flight in a timely manner. This is an aspect of streamlining communication, which eventually reduces costs and delays. 2. Internal analysis a. Firm’s resources, tangible and intangible Qantas has diverse portfolio. The airline operates both domestic and international routes. Domestically, the airline controls 84% market share of corporate segment. Qantas runs a frequent flyer program that was reported to grow to 8.6 million members in 2012 (Qantas, 2012). The year 2009 saw Qantas operating a passenger fleet of 224 but by 2012, the number had increased to 308 aircrafts. In a bid to renew its fleet, Qantas received 114 new aircrafts within the past three years. This indicates that the company controls attractive, efficient, and competitive fleet. Besides the capital investment, Qantas has a vibrant workforce of 33,600 employees. Safety and training standards in the company are beyond reproach (Dupont, 2005). To ensure that customers receive quality experience, Qantas launched an initiative in cabin crew and ground operations. In order to supplement on fleet and airline operation, Qantas control airport business including baggage handling, check-in, and passenger lounges. Q Catering and Snap Fresh are among the business contributing to the success of Qantas. b. Capabilities identification Qantas has been winning awards in service provision. Skytrax survey indicates that Qantas was among the top six airlines for five years but later lost the top rating. The area of service provision is a capability because the company still has an opportunity to salvage itself from the free fall. The success of domestic airline in addition to large membership in frequent flyer program further illustrates capabilities within Qantas. In an article by Kelly (2013), Qantas have registered an improvement in returns following reduction of losses in the long-haul business segment. Delicate consumer confidence and the rising cost of fuel is hampering performance of Qantas. The improvements in company performance have shifted investor confidence to the positive side. In an attempt to reduce losses emanating from long-haul category, Qantas launched two-year overhaul strategies that have culminated into massive job losses. The company is also expanding into Asian markets, where growth opportunities are available. Furthermore, Qantas has been considering the option of limiting less profitable routes of Australia-Germany. One of the motivating factors in this context is population and growth potentials. The other finding in support of improved returns is compensation that Qantas received following delayed delivery of Boeing plane. The shift in the way unused airline tickets were booked yielded an additional income of A$134 million. c. Core competency analysis In Australia, Qantas is renowned as world's principal long distance carrier and one of the strong brands in Australia. It is dubbed the spirit of Australia. This presents the company with an opportunity to increase customer base. d. Value Chain Analysis The purchase of new fleet demonstrates Qantas focus on attractive aircrafts, efficient, and competitive. Noting that some pilots in other airlines are paid meagre salary, Qantas pays well the officers (Qantas, 2013). This adds value to nature of service provided to the customers. Maintenance staff is also well trained to avoid accidents that have catastrophic effect on the company. e. Weakness The main weakness is underperformance within international long haul routes. Plans to overhaul will automatically affect returns. Secondly, rating with respect to customer service has been deteriorating, which then affects customer perception about the company. f. SWOT analysis Internal Strength Good brand “ the spirit of Autralia Excellent slots at airport Well trained staff Good new aeroplane Reputation as the safest airline in the world Qantas hubs in Sydney and Melbourne making Oneworld frequent flyer organization Balanced board with experience stretching into commercial and political experience Weakness Pulling out from long haul routes while other airlines stabilises Poor performance in rating Expensive marketing and salary paid to the people Closure of Cairns catering Low share price rendering the company a possible target for takeover External Opportunities Population and income growth in Asian and subcontinental market Technology to ease ticketing and movement Deregulated market Stabilising political and economic systems across Africa Domestic travels between main cities for meetings and holidays Threats Emergence of chat and video conferencing has reduced travel Terrorism Fierce competition with over 620 airlines operating in 2009 Also number of airlines ordering Boeing is increasing Some of the Airlines competing with Qantas in Asia Pacific region are Virgin Australia, Malaysia Airlines, British Airways, Emirates, and Cathay Pacific Malaysia, Singapore, and Cathay Pacific are frequent price winners in surveys pertaining to travel quality g. Current strategies Qantas launched a transformation strategy in 2011 that was believed to change how the company operates in the international arena. Fleet economics, stepping up alliances, pulling out of loss making routes, and modernizing operations are some of the areas falling under the 5-year transformation strategy. The company will cut 2012/13 capital expenditure by $400 million and refocus their attention on competitiveness. The slash will be attained by rescheduling delivery of Airbus A380s that was supposed to be delivered early 2013 (Qantas Corporate Communication, 2012). To maximize profits in the domestic market, Qantas, Jetstar and QantasLink are facing upgrades. By modernizing and consolidating catering operations in addition to streamlining heavy maintenance and bringing in innovative engineering services, Qantas will realize the goal of increasing productivity and competitiveness. 3. Recommendations Expand operation in productive Asia market Asia airlines should not only focus on domestic market but venture into the fast growing Asian market. When the domestic markets are saturated with entry of low-cost airlines, it is crucial for an organisation to consider expansion into new markets. Entry into new markets can enable it acquire some market share as well as increase its bottom line. Allocate financial resources for research and development An effective management that overcomes competition is that which allocates enough resources and money in creating value and research on consumer dynamics. Consumer needs keep changing and to meet them at the point of their need, studies must be conducted on a continuous basis. Adopt an Innovative culture The management at all times should encourage creativity and innovation. This will see them avail unique products, add on special features to the existing services, and produce valuable brands. Continuously study terrorism to improve safety and security In an international level, terrorism can really paralyse operation of airline business. Countries that are hit by terrorist often experience decline in tourist and investors. This directly affects passenger travel in a particular destination. It is therefore necessary for Qantas to study terrorism and dynamics in terrorist tactics. Recently, there was a terror attack in Westgate shopping mall in Kenya. Despite being well guarded, terrorist were able to infiltrate the mall killing more than 60 people. This should be a learning experience for Qantas. 4. Conclusion After analysing both internal and external environment, it became obvious that airline industry faces high level of competitive rivalry. Global financial crisis in addition to fuel prices affected most airlines companies. To counter the adverse conditions, some airlines decide to pull out from some routes. Qantas ought to focus attention on fast growing economies in Africa, Asia, and subcontinental regions. The other major element that emerged from the study was terrorism. Extensive research on terrorism is indispensible in order to make airports safe and productive. References Belobaba, P., Amedeo, O., & Cynthia, B. (2009).The Global Airline Industry. New York: John Wiley & Sons. Boyle, R. (2009). Technological trends and their impact on the airline industry. Air Transport IT Review - Issue 1. Retrieved from http://www.sita.aero/content/inflight-mobile-services-take. Clive, D. (2009, April 15). Brutal competition leaves Qantas swinging. The Age. Retrieved from http://www.theage.com.au/travel/travel-news/brutal-competition- leaves-qantas-swinging-20090414-a69a.html. Dupont. (2005) Changing the Culture of an Australian Icon. Retrieved from http://safety.dupont.com. Fred, S. L., & Cox, B. (2008). Airline Deregulation. Retrieved from http://www.econlib.org/library/Enc/AirlineDeregulation.html. Hanson, D.J et al. (2010). Strategic management: competitiveness and globalization. Melbourne: Thomson Learning. Kelly, R. (2013, August 29). Qantas Spins Loss into Profit. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB1000142412788732400930457904159245835316 8.html. Qantas. (2013). The Qantas Story. Retrieved from http://www.qantas.com.au/travel/airlines/history/global/en. Qantas. (2012). Qantas Annual Report 2012. Retrieved from http://www.qantas.com.au/travel/airlines/investors-annual-reports/global/en. Qantas Corporate Communication. (2012).Qantas Group strategy update. Retrieved from http://www.qantas.com.au/travel/airlines/media-releases/may- 2012/5393a/global/en. Read More