Jet Star - Airline Company Successful in Profitability, Minimal Costs and Attainability - Case Study Example

Case Study Report Jet Star: Qantas’ Business Level Strategy Name Institution Date Case Study Report Abstract This is a report based on the case study of “Jet star: Qantas’ Business Level Strategy”, a leading airline in growth, offering services to and from Australia and a long-haul carrier, value-based that is the largest in the world. The report illustrates the main forces of competition, reason for creation, business strategies, functional efficiencies and operational challenges. Introduction Air transport is the most expensive and fast transport compared to other forms of transport like roads and rails. According to Spurling (2010), most consumers are unable to afford to pay for flights due to the high fares involved. However, some airlines also implement policies and strategies to make these services affordable to all. Due to upcoming airlines, the airline industry is characterized by competition making each firm to diversify and make their services more attractive. Business level strategies are implemented to attain this. The customer base is determinate and fixed. Loyalty in repertoire market involves pure customer loyalty. Customer base is usually infinite and fluid. Purchasing pattern in subscription market is essential, predictable and frequently required while in repertoire market it involves less predictability and products that are non-essential, however, they are wanted. Qantas established Jet Star as a brand of the company to help it attain competitive goals in the Australian market which so far the airline attained (Achinto, 2012, p.1). The aim of Jet Star is to provide affordable airline and flying services to all even those with low incomes that did not afford flying before. This paper provides an analysis of the report on business level Strategies of Qantas based on its Jet Star subsidiary. The paper illustrates main forces of competition and reasons for its formation, compared to attainment of purpose. Qantas’ business level strategies, Jet Star’s key functional efficiencies and major future operational challenges have also been discussed. Main driving forces of competition for Qantas as per Porter’s five forces model The main driving forces for Qantas according to the Porter’s five forces model are consumers’ bargaining power, the bargaining power of suppliers, threats from new entrants, threats from substitute products and competitive rivalry within the industry. This model helps in the development of business strategy and provides a framework for analysis of the industry. Qantas, just like any other company, is facing competition from rivals in the airline industry. Other airlines such Virgin Blue are close competitors with Qantas, making it to be more aggressive so as to curb competition. Main driving forces of completion in Qantas as per Porter’s five force model: As a company and established airline organization, the three forces out of five refer to forces originating from the external environment (horizontal competition) while two forces originate from within the company (vertical competition).Threats posed to the company by new entrants, rivals who are a threat to Qantas and threats from substitutes of goods and services are forces which come from the external environment. However, the suppliers’ and consumers’ bargaining power are internal factors that can be controlled by the organization. Although airline businesses involve high start-up capital, there exists a threat of new entrants in the market posing possible competition to Qantas. According to the report on Qantas business level strategy, the company has to come up with adequate strategies to curb possible competition arising from new market entrants. According to Hill & Jones (2010), this is made possible by the increasing profitability and high returns in such markets. Barriers to entry such as patent and rights are also limited, therefore providing easy entry. Although the industry is more profitable and therefore attractive for entrants, Qantas has established customer loyalty for its brands which have been well established from experience and expertise. Virgin Blue was a new entrant in the Australian market after launching its services against Qantas (Achinto, 2012, p. 1). Threats of substitute products and services are another factor of competition for Qantas. Some customers could prefer choosing the new Virgin blue airline services which was newly launched in Australia over Qantas airline services (Achinto, 2012, p. 1). Since Virgin offered lower prices that Qantas, it was likely to increase the propensity of buyers to its substitute. Its relative price performance was good and therefore, Qantas decided to play in the same lines through differentiation. This reaction from Qantas gave rise to Jet Star. Other than Virgin blue, Compass was also a competitor offering substitute products in the budget air travel segment of the market. Ahlstrom&Bruton (2010) states that, forces of competition arising from substitute products can be dealt with by product differentiation, which Qantas took advantage of. According to Hill & Jones (2010),threats from rivals are brought about by both the existing and new entrants in the market. Sustainability in Qantas competitive advantage has given the airline an upper hand through innovation to curb such competition. Although Compass and Virgin Blue take advantage of the vacuum in the Budget air travel segment of the market, Qantas attacks it from the perspective of price sensitivity through branding (Achinto, 2012, p.1). Bargaining power of suppliers and customers has a great impact on the company’s survival though competition. Prices set on inputs by suppliers and presence of other substitutes will affect the cost of products and differentiation. According to the report, Qantas was able to make its services affordably available to its customers despite the existing market situation. Reason for creating Jet Star created by Qantas and attainment of its purpose The main reason for establishment of Jet Star in 2004 according to the report was to secure the company (Qantas) a share in the budget travel segment of the market in Australia and curb competition arising from Virgin Blue, its competitor. As a competitor in the Australian market, the rival company launched its services by providing low fares for air travel against Qantas. After the evacuation of Australian airlines operating on the budget air travel segment of the market, a vacuum was created in the market. Virgin Blue took advantage of this vacuum to acquire high market share by attracting customers. According to the report, two purposes were attained by the new Brand. Jet Star saved the company’s brand image from dilution of a premium full service airline and eradicated possible risk of Qantas operational losses arising from creation of direct price wars with its close rival. As a competition curbing strategy, Jet Star also applied price sensitivity strategy within Australia and through introduction of Trans-Tasman flights; it competed aggressivelybased on differentiation of price. At this point, major competitors were Air New Zealand, budget carrier Freedom Air and Virgin blue. These purposes were attainable due to the airline’s investment strengths, wide business experience, elusive association of its brands and expertise in management. According to the report, Jet Star has attained its purpose for creation by Qantas since it has matched to the competition from Virgin blue and even came out better. Growth results according to the report indicate a four-fold growth of the company since it was launched in 2004 by the half year report of 2008 (Achinto, 2012, p.3). Qantas business level strategies in operation and predicted lasting term The first business strategy employed by Qantas is the dual brand strategy to gain a higher market share. According to the report, the dual brand strategy that is to be adopted by the airline involves two flying brands with unrivalled flexibility and is considered to be the key to unlocking Qantas potential portfolio businesses. Jet Star brand has been used by the company to attain this strategy since its opening (Achinto, 2012, p.3). Brand formation occurs as a result of differentiation of products with the aim of curbing existing competition in markets among competitors. The brand performance metrics can be provided in terms of market share of brands, penetration in the market, average purchase frequency, sole loyalty, category buying rate and requirements. The strategy is expected to last for years especially when brand salience is created among customers. Brand salience involves refers to the ability of a brand to stand out among other product brands when the customer is shopping. This occurs when a customer goes shopping and they notice or have in mind the product brand. In case a given brand is strong, it is likely to have high brand salience compared to a brand which is weak. A brand that is not thought of by consumers becomes forgotten and buried where no more customers notice it (Park et al, 2010). Brand salience is different from brand attitude such that, brand attitude involves the consumers’ opinion of a given brand. The attitude is general and long-term and might be positive, negative or neutral depending on personal evaluation. Brand salience emphasizes on the first brand that a consumers remembers making it a narrow concept while brand attitude goes further to consider assessment of a given brand. Assessment of the product involves more than just quantity remembered of quality of the memory. Brand salience is also associated with most product cues which it links with the brand. Another difference is that, brand attitude is more of psychological constructs with respect to a given brand compared to brand salience (Park et al, 2010). According to the report, Jet Star indicated a 1.5% growth over the challenging universal economic environments taking a market share of 35.3% in 2009 Australian market against other brands operating in Australia. Other airlines such as the Air New Zealand which had 1.3% drop, Singapore Airlines 2.4% drop and Emirates 0.7% drop, experienced a drop in growth during that year (Achinto, 2012, p. 3). This has been a mark of efficiency for Qantas, the Umbrella Company. Focusing on getting more light buyers as opposed to focusing on heavy buyers is a good strategy. Light buyers are known to be more loyal to their brand unlike heavy buyers. According to Keiningham et al (2005), they spend a larger percent of their income on that single brand. Heavy buyers are usually conscious about the price and successively prone to deals. Attractive prices for the brand are not an assurance that they will stick to that brand, but will purchase another brand which comes up with a better deal. Marketers can get to the light buyers by reestablishing community marketing through social media which hasten buyers’ experience of buying in their physical and local communities. Marketers can also get to light buyers by getting advocates or supporters of consumers involved in solutions that the marketers device or provide. Key functional efficiencies that Jet Star appears to have achieved Jet Star has attained both operational cost efficiencies and functional efficiencies as an operating airline. The airline has attained high profitability levels while reducing operational costs. According to the report, a swift expansion initiative employed by Jet Star was successful and ensured that the subsidiary costs were lower compared to its rival’s Virgin Blue. This was attained by use of secondary airports more frequently as they could. Another way was exploring routes with insufficient service that no other airlines had served before and use of user pay approach introduced for services within the flight and for Mcalls (Achinto, 2012, p. 2). This particular service was meant to increase convenience for customers and boost their loyalty. According to the report, reduces costs and increased profitability were attained through continual flight to as many destinations as possible and avoiding any technical barriers. Lower packing costs and maintenance charges in airlines offering cheaper packing services in the secondary airports also helped in cutting costs when the flights are not flying and are packed. Maximization of the aircraft ensured high profits. Since the market that Jet Star operates in is a repertoire kind of market, consumer loyalty is important. A Repertoire market is a market where by its buyers has a range of products from which they can choose and purchase while a subscription market involves predictability which is vital for estimating or setting forecasts of revenues and behavior characteristics like repeat purchasing. Customer relations management programs and issuing of loyalty cards is appropriate and easily implemented in such a market. Lower flying fares introduced by the Qantas subsidiary increased market base and market share, realizing more profitability while incurring lesser costs. There are also differences in brand performance metrics between subscription market and repertoire market. The concept of customer loyalty in subscription market involves customer retention and renewal of contract, and some customers might be loyal, however, not by choice. (Kolb, 2005). Major operational challenges that Jet Star is likely to face in the near future A major operational challenge f Jet Star subsidiary airline is based on its pricing strategy, cost efficiencies and its inability or reluctance to deal with consumer complaints as they occur. Since it is the price leader and has attracted most of its customers because of this factor, Jet Star has to maintain its position so as to stay in competition. The future is likely to be characterized by new entrants who might offer lower prices. In the struggle to maintain its position as the price leader, the company might treat basic services as alternatives and charge fewer fees on them than required. This is inappropriate and Jet Star must be careful since by doing this, it might lose to its competitors (Achinto, 2012, p. 5). Another challenge is adequate response framework. The company should respond to complaints like the case of flight cancellation in Sydney airport where customers were stranded and the airline’s personnel did not respond effectively. Although they provide cheaper services, quality must also be considered for its survival in the market. One of the markets being targeted by Jet Star is the lower and medium income earners that could not afford normal flying rates. Getting to the lower level involves production of services or other products involve employing adequate technology in production of affordable services or products. These approaches to improving Pyramid markets differ from each other. It is about creating affordable services that will allow everyone so enjoy a company’s facilities offered. Conclusion Jet Star is an example of successful airlines worldwide, being a subsidiary of a main airline Qantas. The airline has reported success in profitability, minimal costs and mainly, attainability of the Parent company purpose for its creation. This purpose was to explore the Australian market which it has so far attained. It is evident that operating in an airline industry exposes the subsidiary company to forces of competition both within and outside the company as the Porter’s five force model illustrates. For Jet Star to attain its purpose, formulation of strategies was necessary to maximize returns and cut on expenses. Double branding was an appropriate strategy for the brand. Through the years, the company has attained functional efficiencies through profitability. However, just like any other company, the subsidiary is also exposed to challenges in the future in terms of its operations and profit levels. References Spurling, D. J. (2010). Introduction to transport economics: Demand, cost, pricing, and adoption. Boca Raton, FL: Universal-Publishers. Hill, C. W. L., & Jones, G. R. (2010). Strategic management theory: An integrated approach. Boston, MA: Houghton Mifflin. Ahlstrom, D., &Bruton, G. D. (2010). International management: Strategy and culture in the emerging world. Australia: South-Western Cengage Learning. Park, C. W., Maclnnis, D. J., Priester, J., Eisingerich, A. B and Lacobucci, D. (2010).Brand attachment and brand attitude strength: Conceptual and empirical differentiation of two critical brand equity drivers. American Marketing Association: journal of marketing. Keiningham, T. L., Vavra, T. G., &Aksoy, L. (2005). Loyalty Myths Hyped Strategies That Will Put You Out of Business--and Proven Tactics That Really Work. Hoboken, John Wiley & Sons. Kolb, B. M. (2005). Marketing for cultural organizations: new strategies for attracting audiences to classical music, dance, museums, theatre & opera. London, Thomson Learning. Achinto, R. (2012). Case studies to strategic management: Jet Star: Qantas business level strategy. John Wiley and sons Australia Ltd Read More