Qantass International Business Class Travel Business Plan - Case Study Example

Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: EXECUTIVE SUMMARY Over years, Qantas Airline Ltd has experienced steady growth in the Airline market in Australia but due to increase in competition, domestic airline market has shrunk. Therefore, reducing sales volume and profitability of the company, to garb above trend management considers introducing Internal Business Class travel to expand its markets to cope up with increasing competition, Indonesia being target market for the pilot project then to other countries. The company wishes to increase its average annual growth by 3% and above per year, which enable company maintain stability of the shareholder wealth and maximize corporation profit, which is one of the major goals of the company stakeholders. Domestic travel is the major product of the company and therefore, management wishes to expand its product diversity in order to maintain or increase company profitability. Indonesia proved to be attractive market to introduce company’s product as a pilot. Its attractiveness composes of calm political climate, robust and stable economy that is constantly growing thus increase in disposable income of consumers, inhabitants also proved to support co-existence of both domestic and foreign Airline players. In addition, the country has adopted online marketing in both locally and foreign products and services sold in the country therefore, providing avenue to make customers aware of our product and keep reminding them. Legal rules and regulation controlling the industry proved to be lenient and did encourage foreign companies to enter since it required few basic formalities and relatively lower corporate tax rate of 30% in comparisons of other feasible markets. The company targets comprehensive population both middle and lower class business people by designing products according to classes of different prices thus enabling a range of prices in which consumer can choose from considering his budget constrain. Consequently, promotion should be intensive at early stages to inform potential customers on the availability of our services, convince them to buy and keep reminding them that our services is the only option. Sales representatives of our services in Indonesia will be chosen among the inhabitants to enhance acceptability of the products and enable great penetration into market, the sale representative should place their efforts in densely populated areas to increase scope and reduce cost of transportation. Table of Contents EXECUTIVE SUMMARY 2 1.0 SITUATION ANALYSIS 1 1.1 THE INTERNAL ENVIRONMENT 1 1.2 Political factors 2 1.3 Legal factors 2 1.4 Economic factors 3 1.5 Financial factors 4 1.6 Cultural and social factors 4 1.7 Technology factors 5 1.8 Environmental factors 5 1.9 Competitive audit 6 Virgin Australia Airline 6 Jetstar Airways Pty Ltd 6 Garuda Indonesia 6 2.0 SWOT analysis 7 3.0 Marketing objectives 8 4.0 Target markets 9 5.0 Marketing mix strategies 9 5.1 Product strategies 10 5.2 Pricing strategies 10 5.3 Promotion strategies 11 6.0 Evaluation 11 REFERENCE 12 1.0 SITUATION ANALYSIS Situational analysis is important part in our feasibility study where we considered external forces that may affect the venture into Indonesian market as a pilot project for International business class travel. These factors include political factors, legal factors, cultural and social factors, technological factors, environmental factors, financial factors and competitors. 1.1 THE INTERNAL ENVIRONMENT Qantas Airline is currently pursuing its marketing plan in pursuit of greater proportion of profits in the airline industry despite the rising competition in the industry due to liberalization of airline services in Australia. Liberalization of airline market has not greatly affected Qantas piece of domestic market since it is still dominating 80% of the total domestic airline demand (Qantas Airline, 2014). Therefore, concern is placed on international sector in order to boost its sales to offset the decrease in its revenue due to rising prices of fuel. The company launched a three year transformation strategy in order to increase its profitability base despite the downturn that affects the industry due to rising cost of operation and inflation affecting incomes of its consumers (Qantas Airline, 2014). These program milestones can be realized in its first phase of implementation (2014/2015) where on cost reduction pillar, it has realized a reduction of $165Million which contributes significantly to the profitability of the company thus enabling them to concentrate on investments and improving customer service in order to remain the only airline option to our esteemed customers. Second pillar is Right-sizing fleet and network in order to increase demand and at the same time meet demand created due to increased carrying capacity of it mode of transports this was reflected by increase in the sales of the company in 2014 half year annual results (Qantas Airline, 2014). Working existing assets harder is third pillar of transformation program in order to avoid underutilization of company’s resources. Deferring growth plans and directing capital on emergent strategies is key concern of the company in order to keep company relevant in the industry and capitalize on emergent opportunities, company annual report shows that it has reduced its planned expenditure by $1.3billion. Aligning capital expenditure to financial performance and Accelerating simplification are the pillars for the transformation program (Qantas Airline, 2014). The program has realized $204million during 2013/2014 with $900millionin the remaining period. On cost reduction, Company was able to reduce cost by 3% per unit. Above results has therefore, made Qantas on a better competitive hedge than other firms in the industry (Qantas Airline, 2014). 1.2 Political factors Political system of Indonesia is democratic headed by president elected by the people and empowered by the constitution of the land. Indonesia formed its own government in 1945 after colonization by Dutch. Democratic political system is advantageous in improving standard of living of the inhabitants since people vote depending on the manifesto that reflects public expenditure citizens consider favourable and they can afford to sustain (Zwass & Adam, 1987). The political system of Indonesian have direct influence on business environment and this is evident from the response it has been experiencing since autocratic government of president Soeharto to a democratic and decentralized government where powers were devolved to provincial government organs. Adoption of democratic government has seen the country economic growth grow at average of 4.5% since 2004. This is because of increase in foreign reserve and stabilization of economy due to attractive business opportunities, acceptability and viability of cash plays a major role in stimulation of business activities due to overthrown autocratic government of Soeharto. In conclusion, the democratic political system of Indonesia plays an active role in determining the success or failure of the business. Therefore, Indonesia shows great prospects of a business flourishing due to stable political system both internal and with foreign countries such as Australia therefore, Qantas Airline (International Business Class Travel department) concentration on Indonesia market as a pilot project will be easy due to few political constrains and turmoils. 1.3 Legal factors Indonesia legal framework is composed of civil law, customary law, and roman Dutch law since Dutch colonized them. Constitution is considered supreme and regulated by the judicial system. The highest judicial court is Supreme Court in which it deals with appeals from other lower courts and serious legal matters in the country (Zwass & Adam, 1987). Indonesian government collects tax from all corporate bodies in order to achieve its core aims of distribution and allocation of resources for the benefit of the society. Corporate tax is fixed at 30% of company’s taxable income after adding all disallowable expenses and subtracting allowable income in net income of the company. In addition, it charges Custom duty tax of 5% to imports and value added tax. The government also has to in place laws to reduce market failure caused by regulating imperfect competition, cost of information, public goods, and externalities. For example on imperfect competition, Law No.5 of 1999 sets in place laws on cartels, mergers and acquisition, administrative sanctions and restricted agreement on matters such as price fixing among the key players in the market (Zwass & Adam, 1987). Legal system of Indonesia requires each company within its jurisdiction to engage in corporate social responsibility though extend in which company contributes depends on the regions. For example, East Java requires a company to contribute 2.5% of its net profit to corporate social responsibility programs but the average contribution for the whole Indonesia ranges in 5% of net profit to corporate social responsibility and 3% to environmental conservation programs. Therefore, it should be a major concern for Qantas Airline Company to find out the real proportion it should contribute as part of implementation of Indonesian Ethical Legal Framework to avoid sanctions and cancellation of business (Zwass & Adam, 1987). 1.4 Economic factors Indonesia population is estimated to be 246.9 billion as per 2012 census taken from all its 17,508 islands. Youths form larger proportion followed by children and lastly the old, population composition gives Indonesia great advantage since dependency ratio is slightly lower thus great giving government and its inhabitant opportunity to invest and spend on development expenditure rather than recurrent expenditure. Indonesia has recorded constant growth in its gross domestic product though decline in most of countries economy in the world. It recorded GDP growth of 6.1% with average growth of 6.2% annually. The country GDP as per World Bank report of 2012 is 878 billion USD and GDP per capita of 3,556.79 USD. Improvement in country’s level of investment by 10% shows positive signals on level of business activities carried out in the region thus making it ideal to increase its concentration on business class travels to Indonesia as a pilot project in other countries. 1.5 Financial factors Indonesian financial market is not as deep and broad as of other developed nation but they are working in the direction of becoming one since they are taking initiatives of diversifying its financial market by introducing derivative market and other financial instruments and controlling level of inflation since it is major cause of instability in financial market. Indonesian government is working on improving its capital by creating Stable environment, growth, and stability and increasing Bond momentum. Indonesia has received positive credit rating from three globally recognized credit rating companies. It comprises of Standard & Poor’s, Moody’s and Fitch. Standard & Poor’s gave rating of BB+ and a positive trend, Moody’s rated Baa and Fitch BBB-, moody’s and Fitch showed the country had stable financial trend and this stimulated investment due to reduced cost of borrowing and hence high profit margin from investment. On diversification, financial market provides various market instruments that include spot, forward and options. Indonesia financial market gives an ideal business environment for investors to lend and obtain funds at a low cost of borrowing thus attracting both foreign and domestic investors thus obtaining funds will be easy. (Porter, Michael E 1976). 1.6 Cultural and social factors Indonesia is one of the countries in the world with diverse ethnic and religion believes with more than 300 ethnic groups. Religious groups includes Muslims that takes largest proportion of more than 88%, protestant 6% and the remaining 6% makes up Hindu and roman catholic. Official language used in Indonesia is Indonesian used in schools, offices and any public gathering. (Soenarto, Srisuparyati and Ova Emilia, 2006) “Unity is diversity” is government motto with the aim of integrating these groups for one common goal of maintaining peace and unity in order to streamline government operation that in return boost economy of the country. Indonesia people are very conscious on the choice of words and any unpleasant word might result to conflict so for foreigners one needs to know how to communicate and interact with Indonesian people to avoid unnecessary conflict with the community. Therefore, company should consider introducing its workers on Indonesian culture before posting them. 1.7 Technology factors Indonesia is well-known heavy users of technology and it has received global recognition, technological growth attributes to government support in cutting down tax on electronics and reduction of corporate tax on companies dealing with information technology. Indonesia is the leading social media use, 20.8% of population is on twitter easing communication and enhancing advertisement. Businesses also have adopted use of business support software and websites therefore, easing communication with suppliers and customers. Indonesia is a technological hub this will ease transactions and marketing the product. Indonesia aims at laying optic fibre in all its provinces and so far it 50000KM joins its major towns of Java, Sumatra, Kalimantan and Archipelago. The presence of optic fibre connection is a great milestone to the company since it will ease communication between the parent and its subsidiaries in Indonesia giving a good reason to launch international business class travel in the country. 1.8 Environmental factors Indonesia is among the most populated countries in the world and this poses great challenge on environment since increase in population comes with congestion and poverty. Indonesia faces many challenges concerning deforestation, pollution, pouching and over-fishing due to poor policies and inadequate human resource to implement and control matters concerning environment conservation and sustenance. Though the government has put in place laws and regulation relating to environmental conservation and forming bodies to formulate and implement policies, there is still gaps that allow environmental destruction. The company therefore, on its corporate social responsibility should lay emphasis on environmental issues relating to environment to assist government and its citizens in conserving and sustain environment for future generation and as a way of paying back to the society for their support in purchasing company line of product. This will enable company to develop good rapport with the government and the citizens. (Vandegrift, G. F, Donald Timothy Reed and I. R Tasker ,1992) 1.9 Competitive audit   Core Products Facilitating Products Strengths Weaknesses Value Existing Competitors         Virgin Australia Airline -1ST Class and economy travel - cargo transport services Large market share Diversified product line Economies of scale Domestic Market saturation Capitalize on business class travels on international market Jetstar Airways Pty Ltd -Domestic Airline travels -Cargo transport services  Large market share Economies of scale Non-diversification Improve on diversification of product line and international travel class Emerging Competitors         Garuda Indonesia Domestic airline services Cargo transportation Domestic support Low cost of distribution Inadequate capital resource Limited range of products Easy to gain its market share by increasing promotions and brand development The company should therefore, take close consideration of core and facilitating services of other companies in order to develop a clear strategy to counter its competitors in the industry. The key role in competitive audit should be placed on the value that the company has over other competitors in the market for example for Virgin Australia, Qantas Airline company should concentrate on capitalization of international business class in order to gain one milestone over Virgin Australia Airline (Barney and Jay, 1991). 2.0 SWOT analysis Strengths 1. Quality service provision 2. Readily accessible and reliable services 3. Price friendly product ranges 4. Convenient booking (Online flight booking). 5. Domestic acceptability of Qantas in domestic market (80% of total domestic travels). Weakness 1. Saturation of domestic market 2. Incurring High operation cost due to rise in fuel prices 3. Inflation rates affecting esteemed customers spending on airline travel. Opportunities 1. Population growth 2. Urbanization and economic growth 3. Modernization of aeroplanes and operation in cost cutting 4. Technology evolution Threats 1. Rivals economies of scale 2. Market saturation 3. Competitor product range and diversification The company should optimize its strength in order to achieve its objectives by ensuring that they maintain or improve their airline standards. In addition, it should find strategies of reducing or mitigating the weakness it faces in order to improve its competitiveness in the airline industry for example reducing company cost of operation in order to reduce prices to favour the dropping customer purchasing power and lastly, venture into international market and diversify its product line in solving saturation of domestic market (Barney and Jay, 1991). The marketing department of the company needs to actively involve itself in studying market opportunities and capitalize on them before other competitors for the company to remain relevant and leading Airline in Australian for example technology advancement as a way of reducing cost of operation to the customers and offering its esteemed customers services at favourable prices. Company strategies should include early minimization of effects caused by threats to the industry and company itself which include study of competitor’s strategies and economies of scale (Barney and Jay, 1991). 3.0 Marketing objectives Marketing objective are goals a company sets to achieve between a given span of time, it is important for the company to set specific, measurable, achievable, realistic, and time bound objectives (SMART principle). (Kotler, Philip, 1986) Market is segmented geographically and further segmented using other basis. The objective of the company is to gain 20% of the Indonesian market share by the mid of 2016 before launching its International Business Class Travel product line in other countries. The aim venturing into Indonesian market is to make return as stated by (Kotler, Philip, 1986) that 'prime objective of making investments in any business is to obtain satisfactory return on capital invested,’ therefore, the company aims to achieve return on capital of 8% by the end of 2016 and further grow steadily at the rate of 0.5% annually. The strategy behind profit growth is improving its airline network. The company aims that by the end of 2015 it will be able to use almost 50% of competitor’s distribution channels to boost its sale due to curiosity of the customer to try new product. Product price is fixed twice that is during periods first phase (2015/2016) and second phase (2016/2017). In first phase, the price will be reduced by 10% in order to stimulate demand by attracting potential customers to experience company’s product. During second phase, price will be increased by 12% form phase one prices since projected demand exceeds supply and due to its attractive first class services. During transition between the two periods will charge the normal prices as in the marketing mix. Company aims to improve its product promotion as the product life cycle evolve since as the product gain market share their will be increase in competition and to reduce the effect company will set 20% of the revenue in promotion and improving company’s public relations sector. In addition, the company aims at least to feature in five Medias as a form of publicity of company’s product that will boost sales (Barney and Jay, 1991). Increase in level of sales according to profit growth will be a major goal in brand development since the new consumers will prefer our product to our competitor’s product. The company aims to be rated among the top airline service provider according to Indonesia analyst. This will increase confidence and lure potential consumer to buy company’s product and therefore, contributing to profit growth objective. 4.0 Target markets The target market is established in four ways, which includes geographic regions, demographic, psychographic, and behavioural segmentation but the most effective method used is geographic and demographic segmentation (Buckley, Peter and Mark, 1996). On demographic segmentation, the company should target urban areas residence due to high population and congestion hence it is easy and cheap to promote product by use of billboards and posters since many people will see the advertisement than in rural areas where peoples residents is scattered (Buckley, Peter and Mark, 1996). This strategy proved effective in introduction stage of the product, but it should spread to rural areas as product demand grows and at mature stage, the product must have reached most parts of Indonesia. Other target market basing on geographic segmentation is along the ocean shores since almost 96% of Indonesia citizens live within a radius of 100KM from ocean shores. 5.0 Marketing mix strategies Marketing mix is one the important factors one should consider before entering any market since it determines acceptability and success of product in the market. A good market mix should take into consideration the 4Ps; it includes product, price, place, and promotion (Kotler, Philip, 1986). The decision should be based on the following principles, 5.1 Product strategies Trademark and patent right is considered an asset to any company even before commencement of business and one can obtain funds easily from investors due security of idea from other competitors. Therefore, the company needs to register its trademark and obtain patent right on its business ideas instantly to avoid being adopted by any other competitor (Buckley, Peter and Mark, 1996). Trademark is extended for 10 years after registration, the process takes one year to complete. Directorate General for Intellectual Property Rights at Ministry of Justice and Human Rights of Indonesia registers trademark for companies. The product company wishes to introduce to the Indonesian market is International Business Class travel to Indonesia. The Indonesian trade regulation requires to be conformed in order to enhance smooth operation in Indonesian market for example having their brochures written in Bahasa language failure to meet this regulation will lead to automatic disqualification. The company will use its parent company, product brand and trademark since it does not conflict with any Indonesia company since it will borrow reputation and therefore, enhance market growth and market share development. The strategy proved effective since most of Indonesia citizens often travel to Australia hence they will easily relate the product with Australian based company and those few will help in evangelizing about company’s product since it is rated the best in Australian Airline market. 5.2 Pricing strategies Targeted consumers are price sensitive, pricing of the product therefore, should be done carefully in order to put the product in a competitive platform at the same time avoiding “price wars” with competitors. The company should consider using penetration pricing to attract new customers, it will be impractical to use skimming product pricing since consumers are price sensitive therefore, affects demand of the product (Gillespie & Andrew, n.d). The price should vary with quality of service for example, offer variety of services in order to suite different economic classes of business people. Psychological selling needs to be adopted by reduction of product price by $0.2 from the existing competitor’s price, it proves to be effective strategy since the consumers are price sensitive hence swayed by little price alteration. The cost incurred in investment is transferred to final consumer in proportion of ¾ of the total cost during introduction, remaining cost is borne by the company. However, at maturity stage the full amount will be transferred to consumer as part of the price since cost reduces as the product grows. The above strategy should not be final since market trend keeps on changing and might consider using emergent strategies where need be. 5.3 Promotion strategies It should be acknowledged that Indonesian airline market have existing domestic and foreign competitors therefore, it important to develop a good promotional strategy to lure consumers to try Qantas Airline. It should therefore adopt both above the line and below the line plan. The two strategies need to be mixed well in order to achieve optimal results in influencing consumers in the market (Unknown, 2013). Since introducing new product in new market, the company should developed semi-annual promotional plan for the product to get right influence in the market. The semi-annual promotional plan is summarized below for two years, Promotion summary Period Strategy 1st Social media advertising for example twitter and facebook Demonstration of unique features of product on crowded places such as institutions and in public occasion 2nd Print media. for example, Posters and bill boards in strategic place Publishing product review on journals and newspapers 6.0 Evaluation Evaluation is the most important part on any decision made in order to find cost effectiveness of the decision. The management should therefore, evaluate effectiveness of decision through analysis of the proportion of profits contributed by International Business Class Travel department. 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