Marketing Macro Environment - Airline Industry in Australia - Case Study Example

AIRLINE INDUSTRY Name: Tutor: Course: Institution: Date: TABLE OF CONTENTS 1.0 Introduction……………………………………………………………………. 3 1.1 Background and Structure…………………………………………….. 3 2.0 Forces That Shape the Australian Airline Industry…………………………… 5 2.1 Marketing Macro Environment……………………………………….. 5 2.1.1 Environmental issues………………………………………... 5 2.1.2 Economic and Financial Issues……………………………… 7 2.1.3 Political issues………………………………………………. 7 2.1.4 Infrastructure Issues………………………………………….. 7 2.1.5 Social-Cultural Issues………………………………………… 8 2.2 Opportunities and Threats……………………………………………… 8 2.2.1 Opportunities……………………………………………….. 8 2.2.2 Threats………………………………………………………. 9 3.0 Segmentation of the Market………………………………………………… 10 3.1 Capacity and International, Domestic and Regional Transportation 10 3.2 The Airfares………………………………………………………… 11 3.3 The Air Fuels………………………………………………………… 12 4.0 The Domestic and International Airline Industry of Qantas Verses Virgin Australia 13 5.0 Conclusion……………………………………………………………………… 16 References…………………………………………………………………………. 17 AIRLINE INDUSTRY 1.0 Introduction The Airline industry in Australia is slowly growing and statistics show that it has faced certain challenges in the past five years. The major airlines today in terms of domestic and regional flights are the Qantas, which is the largest, followed by Virgin Australia, Jetstar and Tigerair. The airline industry being an industry like any other has experienced several factors in terms of the macro environment that has brought about various threats and opportunities (Forsyth 2005). Likewise, the individual structure and composition of each airline and the services offered contributes significantly to the decisions made and the actions taken in the course of addressing certain issues (BITRE 2012). Looking at the collective analysis of the background information, growth, and the current state of market, threats and opportunities, this paper will enable a better understanding of the state of the industry today. 1.1 Background and Structure The Australian airline industry has faced turbulent times in the past years starting from the decline of international tourism in the aftermath of the 2001 terrorist attacks on USA. In addition to this, the major wars in Iraq and Iran as well as the outbreak of diseases such as SARS (Severe Acute Respiratory Syndrome in Asia and Canada. The industry has slowly been under major restructuring from when there were only two major airlines Qantas and Ansett Australia and the entrance of Virgin blue and Impulse Airline (Forsyth 2005). Today however, it is certain that the airline industry has greatly changed and that many such as virgin Australia have improved its market share enough to offer great competition to Qantas. Looking at the internal composition of every airline in Australia, it is important to note that the structure of most is the same in terms of the facility charges, expenses, administration, passenger services, flight services, airline responsibilities and maintenance. Figure 1: Showing the overall composition of Most of the Australian Airlines. Source: Wensveen J., 2010. The Airline Industry: Trends, Challenges, Strategies. New York, USA In terms of size and growth, looking at the analysis carries out from 2015 to 2016; it is clear from the table below that there is considerable growth in terms of passengers, revenue, available seats and the trips. Table 1: Showing summary of the annual growth, 2015-2016 in the Australian industries Summary of annual RPT activity 2015 2016 Growth Total passengers carried Revenue passenger kilometers Available seats Available seat kilometers Load factor Aircraft trips 57.34 million 67.59 billion 76.81 million 88.63 billion   76.3 % 633.6 (000s   58.04 million   68.50 billion   77.43 million   89.36 billion   76.7 %  638.1 (000s)     1.2 %     1.3 % 0.8 %     0.8 %     0.4 *     0.7 % In this instance therefore, evaluating the given figures in relation to the macro environment and other forces shaping this industry will give a better analysis of the position of the Australian airline industry today. 2.0 Forces That Shape the Australian Airline Industry 2.1 Marketing Macro Environment The Macro-economic factors refer to the external and uncontrollable issues that generally affect the performances and statistics of a particular industry (BITRE 2012). In the Australian Airline industry, there are a number of factors that provide opportunity or act as threats in the course of operation (Freed 2016). The broad categories in this case include the environmental, political, economic and financial issues, infrastructural issues and social factors. Figure 4: Showing the Macro –environment sorrounding the Australian Airline Industy Source: Wensveen J., 2010. The Airline Industry: Trends, Challenges, Strategies. New York, USA 2.1.1 Environmental issues The Airline environment refers to the immediate issues within the industry that insights or influences the profitability of the industry. The five major issues identified in this case include; the threat of entry of new entrants, the bargaining power of the airlines’ buyers and suppliers, the already existing rivalry and the threat of substitutes. Figure showing the Five Forces Affecting Industry Profitability Source: Wensveen J., 2010. The Airline Industry: Trends, Challenges, Strategies. New York, USA The threat of new entrants in the Australian airline industry. This is one of the issues that face the existing airlines due to the availability of aircrafts today, the freedom of any airline to enter the industry and the deregulated and liberalized environment. The Bargaining powers of the Buyers and Suppliers. The leverage given to handle bargains that are favorable to either the buyer or the supplier in terms of price sensitivity or access to capital is also a major contributor in this industry. The threat of Substitutes. The improvements in telecommunications and the creation of higher speed planes also interfere with the normal operations of the industry in terms of faster services and comfort. Rivalry among the existing competitors. The larger airlines such as Qantas and Virgin Australia are continuously competing for growth, market share and customer advancement. 2.1.2 Economic and Financial Issues This department faces numerous issues that affect the performance of the airline industry as well. For instance, the issues that involves fleet management and the purchases of new aircrafts to keep up with technological advancement. The cash flow, debt payment, insurance and ability to self-finance (Pond 2016). Lastly, there are other challenges that involve the maintenance of the industry’s losses, inconsistencies, low yields on surplus funds, irrational pricing and access to capital markets. 2.1.3 Political issues The political challenges that face this industry are all based on the policies, rules and regulations that control the operations in the online industry. For starters, there are insurance policies, employment procedures, labor reforms, foreign policies, Taxation, ownership issues and insurance policies all limiting all the possible short cuts that airlines might take to advance. Failure to abide by any of these often leads to pricy legal consequences. 2.1.4 Infrastructure Issues Investing in the Aviation industry may be challenging and hence this creates an issue on its own. The airline industry is continuously growing and so is the existing demand and capacity (BITRE 2012). Issues such as congestion and delays that have been caused by poor infrastructure have reduced the credibility of numerous airlines and enabled others to succeed based on the management and financial prowess. Figure: Showing the Infrastructural relations in an Airline Industry Source: Wensveen J., 2010.The Airline Industry: Trends, Challenges, Strategies. New York, USA 2.1.5 Social-Cultural Issues This refers to the issues that relate to the daily interactions in the airline transaction. The customer care and service is one of the most important areas in ensuring the comfort and retaining ability of customers. Likewise, the mode of advertisement and other incentives that attract more customers are important play a similarly crucial role. Lastly, having the ability to regulate prices that prevent losses to the industries as well as sustain the customers is a critical issue. 2.2 Opportunities and Threats 2.2.1 Opportunities This refers to the future solutions or additions that may be considered in improving the Australian Airline Industry. These opportunities arise due to the various environmental factors and may create a certain advantage in one airline over another (Freed 2016). The opportunities in this case include: Flexibility. Due to the technological advancement in the transport sector and in particular the airline industry, it is important that the management and staff find ways to keep up with the changes and to ensure easier transactions. Building of Partnerships. The airline industry is expanding at may be easier for two airlines to combine forces and have one offer services where the other cannot ensuring efficiency and growth for both and the country. Diversification of the Business. Finding other areas that the airline industry may venture in to offer more services is a good investment package for any airline. This could work as a good financial backup Identification of cost reducing strategies. Finding ways to adopt the LCC (Low Cost Capacity) in an aeroplane in a way that prevents congestion and minimizes excessive capacity is also another opportunity created by the environmental factors. Organizational accountability. Customer focus as well as critical financial management will reduce infrastructure costs and ensure customer loyalty in the process 2.2.2 Threats These refer to future or expected challenges that may arise due to the environmental factors in the macro economy of the industry. They include; New Operating Environment. The impact of technology and the continued advancement is most likely to encourage new ways of handling airline services, such as e-commerce and the internet on the liberalization process. Rising Costs. The greater the service, the customer service, the purchase of new aircrafts and other additional futuristic decisions, the higher the costs. New Generation Airlines Verses Legacies. Competition is bound to get steeper between legacies such as Qantas when newer models and services are introduced by other airlines under better technology. Excessive Capacity. Increase in capacity to satisfy increasing demand of passengers may be an issue because an airline may have too much capacity and is forced to suffer losses Future approaches to regulatory reform. With the changes in time, advancement in technology and global operations, there is likelihood of introduction of new restricting reforms that will limit the expansion of the industry 3.0 Segmentation of the Market Market Segmentation refers to the Marketing strategy which involves the dividing of one huge target market into several subsets with the intention to meet the needs, interests and priorities of the consumers (Nancarrow, 2011). The Australian airlines like many other airlines in the industry have certain categories to which they fall and a particular target market whose interests are considered. Some of this categories include; Destination of consumers hence the Domestic, Regional and International Flights. The capacity of Passengers, this dictates the size and frequency of an airline service (BITRE 2012). The category based on the affordability of the customers, the urgency of the trip and the desired comfort and lastly the fuel costs. 3.1 Capacity and International, Domestic and Regional Transportation According to the reports carried out from 2015 to 2016, it is clear that there were 5.20 million passengers carried on Australian domestic aviation and this was a considerable increase of 2.7 per cent (BITRE 2012). In the regional flights, 4.97 million passengers were carried marking a considerable increase of 2.9 per cent from March 2015. The capacity of the airline which was measured in Available Seat Kilometres increased by2.4 per cent compared with March. This facts show that the availability of passengers tends to be slightly more that the capacity of the plane. This therefore makes the required destination one of the categories that reaches a certain target market intending to travel domestically, regionally or internationally. 3.2 The Airfares Graph Showing the Domestic air Fares at the Best Discount Source: https://bitre.gov.au/publications/ongoing/domestic_airline_activity-time_series.aspx      Every airline todays offers an option of the cheapest airfare in each class and the routes selected. Normally, the fares are only escalated if the booking is made late in time and if patient enough, it is possible to reduce fares on particular routes based on fare category (Wensveen 2010). The categories which mostly include the first class, business class and the economy show that this is yet another important segment of the airline industry in which services are based on different target markets. 3.3 Air Fuels This refers to the category whereby, airlines purchased or relied upon by a certain company are affordable of cost effective. In these categories, the more costly the fuel is, the higher the chances that the fares go up, the infrastructure and the distances are much shorter. To understand this analysis better, the report looks at the distinctive aviation fuel sales between the turbine fuel and the gasoline (Peoples 2012). It is certain that besides the cost of the fuel, there are different airlines that prefer the use of the Turbine fuel over the gasoline hence the results below. Graph Showing Aviation Turbine Fuel Sales in Australia Source: https://bitre.gov.au/publications/ongoing/domestic_airline_activity-time_series.aspx Graph Showing Gasoline Fuel Sales in Australia Source: https://bitre.gov.au/publications/ongoing/domestic_airline_activity-time_series.aspx 4. The Domestic and International Airline Industry of Qantas Verses Virgin Australia Most of these airlines offer mainly domestic, regional or international services. Some of the major challenges experienced in the industry between the years 2014-2015 however, include the high fuel costs, the personnel cutbacks in terms of passengers and the global economic woes leading to the deterioration of the Australian dollar (Wensveen 2010). In addition, there is the issue of pollution control due to climatic changes, competition from rival companies, recurring safety issues and the excessive reliance on international services than the domestic ones. Looking at the services of the airlines, the international services in particular have experienced greater growth compared to the regional and the domestic ones (BITRE 2012). This is because in the attempt to gain higher market shares, the two largest players, Qantas and Virgin Australia resorted to reducing prices in an attempt to boost their market shares over the other. Qantas remains as Australia’s largest Airline and the Virgin Australia is a close second while the other competitors in this industry include the Tigerair and the Jetstar. Figure 2: Graph showing the Annual Passengers carried on the international airline Activity from 2015 to 2016 Source: https://bitre.gov.au/publications/ongoing/domestic_airline_activity-time_series.aspx With regard to a study carried out between 2011 and 2015, the domestic market which serves over 20 million people experienced profits in the excess of Australian dollars 1 billion in the five years (Freed 2016). However, the profits slowly subsided due to the war between Virgin Australia and Qantas over the need for capacity growth. Figure 2: Graph Showing Annual Passengers carried on the domestic airline Activity from March 2015 to February 2016 Source:https://bitre.gov.au/publications/ongoing/domestic_airline_activity-time_series.aspx Qantas reduced domestic travels to up to 3.5 percent on its services and also condensed those offered by Jetstar in the first fiscal year of 2015. On the other hand, Virgin Australia took measures to grow by 2.2 percent in the smaller airlines and 8.9 percent for Tigerair in terms of capacity but well enough to reestablish the industry (Kain and Webb 2013). Despite the attempt by Qantas to meet the growth depicted by the Virgin Australia’s group, the results when measured for Australia Aviation Analysis showed Virgin Australia still on the lead. This showed that the rising rate in the Virgin Australia group is continuously fueled by Qantas attempts at capacity reductions, low fuel prices or both. Figure 3: Showing a Bar graph of the Analysis in the domestic Australia market based on airline performance measured in terms of Available Seat Kilometers (ASK): (2012-2015) Source: https://bitre.gov.au/publications/ongoing/domestic_airline_activity-time_series.aspx The graph shows clearly that Virgin Australia had a great domestic business strategy that ensured the delivery of stronger performances and also encouraged more benefits from cost cutting (Peoples 2012). This helped in the offsetting losses that have occurred in the international flights despite the cumulative impact by 2015 that showed that the growth rate which much smaller. The four major airlines therefore post the slowest growth in recent years with Qantas falling to 3.5 percent and Jetstar to 2.3 percent but with Tiger air rising to 8.9 percent and Virgin Australia by 2.2 percent (BITRE 2012). Analyzing these results, it is evident that a smaller reduction by Jetstar and a larger one by Qantas could greatly offset the margin left by Virgin Australia and Tigerair. Conclusion The analysis above shows that the Airline industry in Australia is doing fairly good although facing certain challenges and threats in the industry. The Bureau of Infrastructure, Transport and Regional Economics (BITRE), is the body responsible for the monitoring of major domestic airlines in Australia. This means that it makes sure the performance of the airline and the comfort of the consumers is well informed. Having a critical analysis in this case therefore has enabled the identification of the potential in the market, the environmental issues affecting the economy and the general airline operation in Australia to a deeper level. References Australian Government, 2016. Report on Australian airline activity(BITRE). https://bitre.gov.au/publications/ongoing/domestic_airline_activity-time_series.aspx Bureau of Infrastructure, Transport and Regional Economics (BITRE), 2012, Avline 2010–11, Canberra ACT Forsyth, P., 2005. Competition versus predation in aviation markets: a survey of experience in North America, Europe and Australia. Aldershot, Hampshire, England, Ashgate in association with the German Aviation Research S Freed J., 2016 The Australian Domestic Aviation Demand weakest in the world: IATA: http://www.smh.com.au/business/aviation/australian-domestic-aviation-demand-weakest-in-world-iata-20160204-gmm8nq.html#ixzz48wxUowTF Kain, J. and Webb, R., 2013. Turbulent Times: Australian Airline Industry Issues 2003. Information and Research Services, Department of the Parliamentary Library. Nancarrow, D., 2011. Australia gets a new budget airline. The Sydney Morning Herald. Peoples, J., 2012. Pricing behaviour and non-price characteristics in the airline industry. Bingley, Emerald. http://www.myilibrary.com?id=340646. Pond S., 2016. Guardian, Sustainable Business. Australian biofuels could transform airline industry and create jobs. http://www.theguardian.com/sustainable-business/2016/apr/21/australian-biofuels-could-transform-airline-industry-and-create-jobs Senator, S.S.F.F.F., 2007. for Victoria, 2007.,–Family First Dissenting Report: Inquiry into the Qantas Sale (Keep Jetstar Australian). Amendment Bill. Wensveen J.,2010. The Airline Industry: Trends, Challenges, Strategies. New York, USA Read More