SWOT Analysis of Qantas Airline - Case Study Example

Strategic Management- Individual Case Study Name Tutor’s name Course 27th September 2013 1. EXECUTIVE SUMMARY This paper reports on the analysis on the analysis of the airline industry. The case study chosen is Qantas Airline, and its operations. The report discusses both the internal and external environment of the airline industry. The central aim of this report is to identify the strategies used by management at Qantas, and relate it to strategic management. SWOT analysis is used to help in understanding the factors that affect the operations of Qantas Airline. Some of the factors mentioned here that influence the external environment includes political, economical, social cultural, environmental, and legal factors. The porter's five forces model explains the strategies that the management at Qantas could implement to remain competitive in the airline industry. The findings of the study indicate that the returns in this industry are very low. Competition has become rampant in the airline industry due to its rapid growth. However, efficient policies, and implementation of strategies by the management could help Qantas to be dominant in the market. This paper has identified various recommendations to Qantas Airline management that could help them to cope with the levels of completion. These recommendations include diversification and offering of unique products to their customers. Both the intangible and tangible resources of Qantas Airline are outlined in the paper. TABLE OF CONTENTS 1.0. EXECUTIVE SUMMARY ………………………………………………...2 2.0. INTRODUCTION …………………………………………………………. 5 2.1. Qantas Airline Overview …………………………………………....5 2.2 Importance and Scope of the Report………………………………...5 2.3 Definition of Terms…………………………………………………....5 3.0. EXTERNAL ANALYSIS………………………………………………..…..6 3.1. General environment analysis………………………………………..6 3.1.1 Political factors…………………………………………….6 3.1.2 Economic factors…………………………………………..6 3.1.3 Social cultural factors…………………………………..…7 3.1.4 Technological factors……………………………………...7 3.1.5 Environmental factors…………………………………..…7 3.1.6 Legal factors……………………………………………..…8 3.2 The Air Travel Industry Analysis: Porter's Five Model………….8 3.2.1 Threat to new entrants………………………………………8 3.2.2 Threat of Substitutes………………………………………….8 3.2.3 Bargaining Power of Suppliers……………………………….9 3.2.4. Bargaining Power of Buyers………………………………….9 3.2.5. Rivalry among the Existing Players……………………………10 3.3. The Competitive Environment…………………………………………10 3.4. Opportunities and Threats……………………………………………..10 4.0 INTERNAL ENVIRONMENT…………………………………………………11 4.1. Qantas Airline Resources: Tangible, and Intangible…………….11 4.2. Capabilities Identification………………………………………,….11 4.3. Core Competency Analysis……………………………………….…12 4.4. Value Chain Analysis………………………………………………..12 4.5. SWOT Analysis ………………………………………………………12 4.5.1. Strengths of Qantas Airline……………………………...…13 4.5.2. Weaknesses of Qantas Airline………………………………13 4.5.3. Opportunities………………………………………………....13 4.5.4. Threats………………………………………………………...13 4.6. Current strategies at Qantas Airline………………………………… 14 5.0. RECOMMENDATIONS………………………………………………………...14 5.1. Business level……………………………………………………………....14 5.2. Corporate level…………………………………………………………….15 5.3. International level………………………………………………………….15 6.0. CONCLUSION…………………………………………………………………….15 7.0 REFERENCES…………………………………………………………………...16 2.0 INTRODUCTION 2.1. Qantas Airline Overview Currently in Australia, Qantas Airline is the dominating airline that offers both domestic and international flights as its services. Queensland and Northern Territory Aerial Services Limited was the first name given to Qantas Airline after its establishment in 1920 (Queensland Tourism Industry Council, 2004). In 1935, the airline expanded, and it started offering international flights. Over the years, Qantas has substantially grown in terms of its share capital. In 1992, Qantas made a significant move by acquiring Australian airline from the government, and it was privatized. British airline acquired 25% of Qantas' shareholding. In spite of the tremendous growth by Qantas, it still faces the challenges of competition, and changes in technology (Queensland Tourism Industry Council, 2004). Profits and efficiency of services provided was not a priority of Qantas in the past. Qantas also has other operations, which include tourism, catering, and E-commerce. 2.2 Importance and Scope of the Report This report identifies the strategies that Qantas management is currently applying. It also recommends on various ways Qantas can improve the services it offers to its customers. However, the major challenge in the implementation of strategies is the availability of resources. Inadequate resources pose a great challenge to small companies that want to exp, and. This also leads to the failure of most firms. 2.3 Definition of Terms Strategic management involves the analysis of steps taken by managers in ensuring that the resources of a firm are fully utilized, and good performance achieved (Stahl & Grigsby, 1997) Managers must ensure that the goals, objectives, mission, and visions of a firm are clearly outlined. In the recent years, the world has embraced air travel making the airline industry grow rapidly. The growth of the airline industry has influenced the growth of other sectors in the economy. These sectors include world trade, and tourism. It should be noted that all airlines operate in a dynamic environment with several factors that influence their decisions. 3.0. EXTERNAL ANALYSIS This report analyzes both the domestic, and international air travel industry in Australia. The external environment consists of forces outside the firm that affect the decision making process. Managers of a business have no control over these external factors (Stahl & Grigsby, 1997). These factors affect the operation of the airline industry as a whole. The PESTEL analysis is an essential tool used in understanding the external environment of any industry. 3.1. General Environment Analysis The external environment of Qantas Airline is crucial because of the changing macro environmental factors. In this section, an analysis of the external variables affecting the operations of Qantas will be carried out. 3.1.1 Political factors The growth of the airline industry has made it significant because it links all other sectors in the economy. Therefore, economic growth has become dependent on this industry. Most countries have developed airlines as part of improving its infrastructure. In Australia, the main airlines include Virgin Blue, Qantas, Jetstar, and Tiger Airways. The operations of Qantas Airline are conducted in a stable political environment. The government of Australia depends on all this airlines to acquire its imports (Fly low cost airlines.org website, 2010). This is the reason it must consider them before making any decisions. For example, the Australian government is helping Qantas airways to develop a merger with British airways. 3.1.2 Economic factors The recent financial crisis in Australia has affected the operations, and activities of the airline industry. The economic slowdown affected Qantas Airline, and it had to reduce its business travel, and transactions to other areas. This economic slowdown has caused the returns in the air travel industry to be low. 3.1.3 Social cultural factors This factor has minimal impact on the airline industry. In particular, Qantas is not facing any cultural conditions now. Australia is a developed country with improved standard of living. Qantas benefits from the social status of the people of Australia. 3.1.4 Technological factors Access to flight information, and proper customer services relate to technology in the airline industry. Qantas slowly adopted the online marketing of their products to customers. This cost the airline because Virgin Blue who adopted the technology gained a competitive advantage (Kelly, 2006). Technological changes have become part of the society, and Qantas should cope with it. Most firms that change with technology changes enjoy economies of scale. 3.1.5 Environmental factors Corporate social responsibility requires that firms conserve the environment in all means possible. Flights conserve the environment in several ways because there is no emission of smoke, and other harmful substances. However, adverse weather conditions such as heavy rainfall could affect the operations. Qantas and other airlines have had to cancel several flights because of poor weather conditions. 3.1.6 Legal factors Companies must meet all legal requirements before they are established. Some policies made by the government could affect the operations of a business. However, in Australia the government so far has not made any laws that would have a direct impact on the airline industry. 3.2 The Air Travel Industry Analysis: Porter's Five Model The airline industry is one of the most competitive industries. Michael porter's five forces model can be use to explore, and understand the level of competitions in the airline industry. This model is a tool used to evaluate the value of an industry based on the market participants. The structure of the model is based on five forces, which were identified by porter. These forces are entry of competitors, threat of substitutes, bargaining power of suppliers, bargaining power of buyers, and rivalry among the existing players (Stahl & Grigsby, 1997). 3.2.1 Threat to new entrants This refers to the probability that new firms will be established to compete in the airline industry. The implication of new entrants is that the profits shares of existing firms will decreases. Barriers to entry help participants in the market to continue enjoying their shares of profit. The cost of capital for starting an airline business is high. The cost of buying new airplanes and fuel is expensive. All these factors rules out most investors who want to invest in the airline industry. However, in Australia the cost of entry is lower today. This is because of legislation passed by the government in 1990. This legislation saw the establishment of new airlines in Australia like Virgin Blue (Kelly, 2006). The entry of Virgin Blue airline in the market cause the market share of Qantas Airline to reduce. 3.2.2 Threat of Substitutes There are several substitutes for air travel. These include road, water, and rail travel. These substitutes could cause the airline industry to report low profits because of customer switch. Factors such as money, time customer's tastes, and preferences could influence the customers to opt for substitutes of air travel. Buyers consider the cost before they decide to switch brands. Qantas has collaborated with several of its substitutes like vehicle traveler to provide better services to their customers. Consumers are usually price sensitive, and firms should have strategies to ensure they retain their customers. Qantas offers their flights in different classes depending on the fare charges. 3.2.3 Bargaining Power of Suppliers Almost all firms depend on their suppliers for the smooth running of their business operations. According to the law of supply, suppliers are attracted by high prices in the market. Producers can exert pressure in an industry by increasing the price of their products or lowering the quality of their products. The bargaining power of producers is influenced by buyers' information, and supplier concentration in the market. The main suppliers in the airline industry are Airbus, and Boeing. By late 2012, Qantas had 308 aircrafts (Rochfort, 2009). These aircrafts place the suppliers of Qantas at a better bargaining power position from others. 3.2.4. Bargaining Power of Buyers The position of the firm in comparison to its competitors could be affected by the bargaining power of buyers. The number of customers a firm has determined the market share of that firm (Rochfort, 2009). Consumers are attracted by very low prices. Profit oriented businesses set prices that would enable a business report high profits. In the airline industry, the bargaining power of buyers is very high. Qantas Airline offers prices that are convenient to its customers. This helps in the retention of their customers (Rochfort, 2009). 3.2.5. Rivalry among the Existing Players This force describes the level of competitions among existing firms of a given industry. The cost of competition makes industries with many firms to earn low profits. High levels of competition cause those that cannot survive to fail. Cutthroat competition among firms exists in the airline industry because of the low cost nature (Rochfort, 2009). Companies that dominate the market usually strive to sweep away all the others shares. There is pricing war that exists among rivals in the airline industry. This causes the collective profits of the industry to be low. 3.3. The Competitive Environment Healthy competition is good or the growth of an industry. However, in the airline industry rivalry among competitors widens each day. Competitors in this industry fight for customers through lowering of prices for their flights (Fly low cost airlines.org website, 2010). The position of a product in the market represents the competitive position of a firm in its industry. The views about product a business offers to its customers are also important. Qantas Airline has enjoyed a large market share in the Australian airline industry for a long period. This is because of the variety, and affordable products that it offers to its customers. For example, jester is one of the competitors of Qantas Airline (Kelly, 2006). However, jester operates in different routes from those of Qantas. Product differentiation is an important strategy used by firms to maintain their market shares. Great customer relation also enables firms to gain competitive advantage in the market. 3.4. Opportunities and Threats Firms in the airline industry could consider several opportunities. Some of these opportunities include diversification, takeover of failing firms, and high seasons in the tourism industry. If these opportunities were considered by films in the airline industry, their returns would increase. In Australia, the Asia-pacific regional potential is also a great opportunity for all airlines. The Asian pacific region is expected to become the leading market, and the airlines within the region could take advantage of this opportunity. There are also several threats also posed in the airline industry. The major threat is an attack from terrorist (Gregg, 2004). The issue of insecurity in major countries is rising, and airlines are not left out. Economic instability could also threaten the financial positions of firms in the airline industry. Lack of qualified and competent pilots is also an issue in this industry. 4.0 INTERNAL ENVIRONMENT Managers have control over the internal environment of an organization. This environment is characterized by factors that are within a firm. 4.1. Qantas Airline Resources: Tangible, and Intangible Tangible resources include the physical assets owned by a firm. On the other h, and, intangible assets are invisible assets associated with an organization's operations. Qantas Airline has several intangible resources. These include goodwill, good management, and good customer relation. The value of goodwill, and other intangible assets was estimated at a value of $ 544 million in 2012 (Rochfort, 2009). Some of the tangible resources in the airline include receivables, cash and cash equivalents among other assets reported in the statement of financial position. In 2012, the net assets as reported in the statements of Qantas were $ 5.833 billion (Rochfort, 2009). This shows that the airline has adequate resources to run its operation. The level of liquidity is low, and the company is not facing any insolvency problems. 4.2. Capabilities Identification Qantas Airline has flights that fly to more than half of places in Australia. The CEO of frequent flyer, Hickey Simon enrolled about 10 million members for this program. This customer-rewarding program shows the capabilities of Qantas group. The airline also has a number of flights that fly internationally. The variety of products offered by the airline also indicates the strengths of the business. Qantas has also collaborated with Emirates so that it can reach Dubai. The expansion of the airline, and training to the staff also shows the customer rating improvements by Qantas Airline. 4.3. Core Competency Analysis This is a business tool used to evaluate its employee's performance (Mayhew, 2010). Rare Valuable Costly to initiate Non-substantial Focusing on the customers by providing a variety of products No Yes Yes No Planning , and managing resources No Yes Yes No Working as a team No Yes Yes No 4.4. Value Chain Analysis Value chain enables customers to understanding the activities of a firm. The primary activities of an organization range from product creation and product distribution (Mayhew, 2010). For example, the value chain for can be represented as follows: Qantas loyalty program-QH Tours - Jetset Travel World - check-in - baggage handling - Qantas flight catering - Qantas Engineering - Qantas Airlines - Jetset (budget) - customer In 2009, Qantas city made an unexpected $ 4 million profit from its customer's reward program (Rochfort, 2009). This program allows customers to purchase flight seats from points earned at supermarkets. All the other parts of the chain made lose. Good corporate governance and strong marketing strategies enable the value chain to operate smoothly. 4.5. SWOT Analysis This involves the analysis the strengths, weaknesses, opportunities, and threats of a firm. This case analyses Qantas Airline using the SWOT model. 4.5.1. Strengths of Qantas Airline a) The firm focuses on offering quality customer services b) Strong loyalty rewarding program offered to its customers c) The firm offers a variety of products to its customers. For example, it introduced a fair price flight called Jetstar to its customers. d) Qantas covers a wide geographical area. It travels to 183 destinations, which include 57 countries in Australia, and 83 in other countries beyond borders 4.5.2. Weaknesses of Qantas Airline a) Lack of proper security policies by all airlines in the world b) Poor labor relations- Qantas has had issues with paying its engineers c) Strength of the airline is only in one market that is the domestic market 4.5.3. Opportunities a) The expansion of strategic alliances such as the flyer program is expected to attract more benefits. b) If the U.S.A. opens up the skies agreement, it will create new opportunities for growth, and healthy competition in the industry (Gregg, 2004). 4.5.4. Threats a) There is a shortage of skilled pilots in the airline industry in Australia b) Cutthroat competition in the airline industry- Qantas faces competition from other airlines such as Jetstar, which offer low cost flights services. 4.6. Current strategies at Qantas Airline The management of Qantas has implemented various strategies that would help the firm to remain competitive (Gregg, 2004). These strategies include 1. The execution of multi brand strategy, which helps to achieve domestic market dominance 2. Qantas offers training to its pilots to ensure they continue being competent 3. Qantas introduced Jetstar flight to cater for customers who cannot afford the high cost flights. 4. The procurements objective of Qantas aims at making good relations with its suppliers. 5. Qantas has a program that ensures it receives feedback from its customers. 5.0. RECOMMENDATIONS The recommendation to Qantas Airline can be divided in to three groups 5.1. Business level Qantas company could deviate from the cut of its prices by maintain good customer relation. A good customer relation helps to ensure a firm maintains its consumers. The company should also ensure it provides safety measure to its customers (Rochfort, 2009). Qantas could also offer its services in different prices do that they make them affordable to their customers. 5.2. Corporate level The firm can ensure that it employs competent staff. Corporate responsibility is also important because it enhances the image of an organization. Qantas should also have programs that would involve their customers. They should also respond to feedback given by their customers. 5.3. International level Qantas needs to study its international markets, and exploit them. It is important for the airline to rebrand its products continuously. Offering of unique products could also be a good penetrating strategy for the business. 6.0. CONCLUSION Strategic management enhances the understanding of a business, and its operations. The study of the operations of a business enables managers to work on the weakness identified from the SWOT analysis. Qantas Airline can remain competitive if it applies the recommendations in this paper. Managers should always ensure that they achieve the goals of a firm. The main goal of the firm is to maximize on the wealth of shareholders. References Fly low cost airlines.org website. (2010). Qantas Frequent Flyer membership hits 7 million. Retrieved September 23, 2010 from http://blog.flylowcostairlines.org/2010/05/04/qantas-frequent-flyer-membership-hits-7-million/ Gregg, P. (2004). ‘UBS Australian Transport Conference’. Oxford press: united States of America. Kelly, M. (2006). New Jetstar Distribution Strategy. Retrieved September 27, 2013 from http://www.traveltrends.biz/ttn16-jetstar-pays-commission/ Mayhew, B. (2010). Core Competencies Working Definition. Retrieved August 21, 2010 from http://www.brucemayhewconsulting.com/index.cfm?pagepath=&id=1866 Rochfort, P. (2009). ‘Qantas plots no frills war with Virgin’. Sydney Morning Herald: Sydney. Stahl, M. & Grigsby, D. (1997). Strategic Management: Total Quality and Global Competition. New Jersey: Blackwell Publishing. Qantas, (2012). Annual Report 2012. Retrieved September 27, 2013 from http://www.qantas.com.au/infodetail/about/investors/2008AnnualReport.pdf Queensland Tourism Industry Council 2004, ‘Queensland’s tourism industry takes off with increased flights.’ Australian Business Review: Australia. Read More