Qantas Strategic Management - Case Study Example

Qantas Strаtеgiс Маnаgеmеnt Name Institution Executive Summary Qantas is the second oldest airline operating globally. It was established in 1920 in Queensland as the Queensland and Northern Territory (QANTAS). In the report, a critical strategic analysis of the airlines is performed. From Porter’s Five Forces of the airline industry, the report revealed the opportunities and challenges experienced by various operators within the market. The analysis commenced with background of the airline and strategic goals used by the airline, which reveal that it aims to provide safe air travel services, and consequently delivering the best possible quality services to the customers. In the analysis, the corporate level strategy of the airline was analyzed in regards to expansion objectives and alliances with the other established airlines within the industry as entry strategy in the new markets. However, to achieve such, the airline would require various functional areas such as R&D, IT, marketing and sales, HRM, and finance. Based on the challenges experienced by the organization, the report recommended effective measures of achieving the required competitive advantage. The discussed strategies are differentiation and cost leadership. Qantas Strаtеgiс Маnаgеmеnt Brief Description of Qantas Airline Analysis of the airline indicates that it is a flagship airline business operating in Australia accounting for the provision of air travelling services to its potential customers. Founded in the 1920 in Queensland Australia, the business operates both domestically and internationally which makes it occupy significant market share within the Australian airline industry. Throughout the years, Qantas has been the market leader with more than 65% of the market share within the industry. The business also has a strategic alliance with different airlines across the international boundaries allowing the provision of air travelling services within the international markets (Allayannis & Weston, 2001). Globally, the business has been ranked as the second oldest airline with the success stories and reputation. When it spanned its services to Europe and North America, the business became a long distance carrier. Currently, the business has about 32,500 employees who extensively work across the globe providing different services within 44 countries with the total number of 182 destinations internationally. Qantas has major partners in Europe, The Middle East, Australia, Asia, and The Pacific (O'Brien, 2014). Qantas and Jetstar are the business’ complementary airline brands that carry passengers while the three segments are marketing, operations, and customer and commercial. Porter's Five Forces of the Airline Industry The Porter’s Five Forces is a significant tool for evaluation of the attractiveness of the industry through considering various external environment factors in which the business operates. Focusing on the airline industry in Australia, the paper aims to explore different elements of the framework. Threat of new entrants The industry requires large initial investment with a long learning curve. Besides the acquisition of high-cost assets including plane and adequately skilled staff, businesses within the industry also need to acquire the necessary permissions, acquire parking and the docking space within different airports, and adequately undertaking the marketing services to ensure that potential customers are willing to travel using new and unknown airline. In addition, there are significant exit barriers within the industry due to the stringent regulations of the governments globally. Another deterrent factor is the highly fluctuating nature of the profitability (Hanson, Ireland & Hoskisson, 2014). Nonetheless, with the available huge airline credit and marketable brand name through different businesses, companies are considering venturing into the airline industry. The airlines are available on lease and available in second hand making it easy for the new entrants to enter the industry. The industry permits starting within specific regions which most entrants into the market use as strategy to reduce the initial cost and complications associated with the investment. Bargaining Power of Suppliers Globally, there are two major airplane suppliers within the airline industry: Boeing and Airbus. Considering such limitation in the number of suppliers, the two companies have the ability of controlling the prices and hold immense suppliers. Moreover, airline fuel is supplied by few businesses. There is also limitation in the number of airports that service a particular area, which narrows the options for the airline businesses. The cost of labour is also high majorly powered by the labour unions. the inputs within the industry are extremely standardized with businesses differentiating themselves with amenities (Google Sites, 2016). With global focus on environmental sustainability, some manufacturers are trying to integrate eco-friendly services within the airlines. Within the industry, the airline businesses cannot easily switch the suppliers, which contribute to the long term contracts with the suppliers. Airlines are high capital products that make long-term agreements with favourable terms whenever they do not switch the companies. Threat of Substitutes Customers have different modes of transport to choose from: trains, boats, cars, and buses. Nonetheless, there is an associated cost of switching. Therefore, consumers might choose other transportation methods especially for short distances. Telecommunication technologies are also improving globally making people to resort on WebEx, video-conferencing, and Skype tools which are reducing the number of people within the airline travel especially those travelling for business meetings. Frequent flier programs within the industry tend to lower the threat of the substitutes considering that establishing new benefits for any airline causing the buyer to lose the miles that might have been accumulated with another airline (Morrell, P. S., Alamdari, Lu, & College of Aeronautics (Cranfield, Bedfordshire), 2000). Some transportation means could be costly compared to the plane tickets with the major cost being time. The airlines surpass other modes of transportation in every aspect: cost, service, and convenience. Bargaining Power of Customers The customers within the airline industry have low switching costs and choose their flights based on the cost and availability. Each of the airlines has niche that attract the customers. With the development of new online portals, the customers have the ability of choosing different airline tickets, flight timings, and competing on the price such as SkyScanner.com and Expedia.com. Within the industry, there are two groups of buyers: the individual flyers buying plane tickets for different reasons and are extremely diverse. Most people from the developed countries purchase plane tickets through specific airline, travel agencies, and the online portals working as intermediaries between the airlines and the flyers. These intermediaries work with multiple airlines with an aim of offering the customers the best flight possible. The low switching cost might be due to most people choosing the flight based on their destinations and cost at the time which could be some loyalty to the firms but not adequate for the high switching costs (Google Sites, 2016). Each of the customers requires critical information: provisions within the airline, timing of the flight, and various safety aspects. In addition, each airline has niche with some focusing on the cost while others focus provision of the best amenities. Generally, the bargaining power of the buyers has low threat within the industry. Intensity of Competitive Rivalry With increased profitability within the airline industry, the businesses experience time-to-time entry of the low cost carriers making the industry highly competitive. Additionally, there have been increments in the operational expenses associated with safety concerns. The availability of the low-cost carriers within the industry is the major factor that brought down the prices by a large extent resulting into declined margins (Airlines network news and Analysis, 2012). Nonetheless, the numbers of competitors have remained similar over the years due to the high fixed costs. The airline industry presents little differentiation between the loyalty programs and available choices including flyer miles and the benefits that are rarely the preferences over other factors such as the prices, routes, and flight time. The current stagnation of the industry might be due to maturity stage within the business cycle. In the long run, the number of competitors stay the same which does not seem over or under capacitated. The fixed costs within the industry are extremely high making it hard for the businesses to leave the industry considering their long-term loan agreements of staying within the business. Complexity of the products used in the airlines also heightens the level of competition. The major factor that lessens competition is brand identities of the firms. There is an equal distribution of the market since every business has its part of the market and with the low switching cost, none of the businesses have the capacity of holding the large market share. Business-Level and Corporate Strategy The analysis of the airline, Qantas, indicates that it has a wide range of corporate level strategies and business level strategies. The major strategic goals of the business can be summarized into: achieving the best efficiency within the industry through integration of simplicity in various business processes and at the same time focusing on the productivity; to be the best airline in both the low fare brands and premiums domestically and internationally. In addition, the business aims to select the appropriate routes to deliver the world’s most effective fleet flying; the major strategy has been achieving high safety in its operations through resorting to globally acceptable safety practices and reporting; and to remain highly committed towards enduring that it holds environmental conservation at bay by focusing on different environmental protection initiatives. Even though, from the strategic analysis of Qantas, it is evident that the business aims at pursuing large number of strategies both at the corporate level and business level, the corporate level of strategy of the business has been selected for the purpose of analysis in serving the international markets such as UK, US, and Asia. Such corporate level strategy for the provision of air travel services in different major market is evident in its five year plan which is to achieve higher international growth through undertaking alliances with the other international airlines including Malaysian Airline, British Airways, and South African Airways. Qantas Airways aims at pursuing high level of growth in regards to the number of routes and destinations served evident from its five year strategic plan. In addition, such corporate strategy for higher growth is majorly sought through the alliances with major airline businesses across the globe as an important method of entering into the foreign markets and expanding the scope of its operations. Implementation of the Corporate Level Strategy at Functional Levels The corporate level of the airline is to expand air travel services across the major international markets, which requires significant support level from different organizational functional levels (Mail Business Staff, 2012). In Qantas Airline, functional areas such as finance, human resource management, sales, information technology, Research and Development (R&D), and marketing play significant role in supporting the efficiency and effectiveness of the corporate level strategy. The roles played by these key organizational areas allow successful execution of Qantas corporate level strategy. The finance department play significant role in allowing the business to execute successful its strategy of international expansion successfully (Dobbs, 2014). The international expansion through formation of alliances with other internationally established business entities and expansion of the routes to the new areas, which necessitates purchasing of new aircrafts by Qantas, require sufficient amount of finance. Besides the aircraft, the business requires financial resources in performing the alliances with the other organizations, which also require effective support from the organizational financial function. Human resources are important organizational assets. Even with continuously improving technology, in most cases, human resources are irreplaceable. Support from the human resource function within the organization is very important from the effective performance perspective especially in the execution of its international expansion growth strategy. The support from the human resource management would be through skilled and talented employees in performing different operations across the newly established destinations (Fickling & Wang, 2012). This means that the airline would require additional employees with adequate skills and ability of handling effectively the services in the new destinations. Qantas Airline achieves such through effective HRM functions. Marketing and sales play an important role as well within the organization. Successful execution of Qantas strategy of delivering various air travel services across the newly established markets needs adequate support from the marketing and sales functions within the organization. Marketing and sales are important considering that the services of the new routes require aggressive marketing to ensure that potential customers are aware of the new routes that the airline serves. In addition, alliances with other established airlines contributes significantly to the expansion of the business network which requires integration of aggressive marketing strategies for the promotion of its long destination air travel services (Cornwell, 2013). Qantas accomplishes positive sales through the extra efforts from the sales to develop the attractive packages for the potential customers across the newly established routes. The business is able to achieve its objectives through adequate support from the marketing and sales functions within the organization. With the changing needs of the customers, tastes and preferences, and competition, businesses are investing huge amount of resources to integrate various technological factors. To achieve such, businesses have to conduct research and development in their operations. In Qantas, the IT and R&D functions are important as they allow the business to execute successfully its corporate level strategy of higher expansion through focusing on the alliances with the other airlines. The role played by technology is important within the airline industry since the services of air travel depend entirely on technology ranging from the booking of the flights to aircrafts. The aspect of safety is important with technology having significant role in allowing the delivery of better air travel services (Yan, Fu, Oum & Wang, 2016). On the other hand, R&D functions assist in the identification of the best practices possible and technological factors that can be integrated in the delivery of high quality and safe travelling services to the customers. Therefore, it is evident that the roles played by IT and R&D functions are important as they allow successful execution of the strategy. Based on the analysis of Qantas Airline corporate and business level strategy, it is evident that various functional areas play important roles in allowing the airline execute its corporate level strategy, which is adequate expansion through alliances with the other airlines and purchasing of the new aircrafts. Proposed Strategy for Qantas Airline Qantas suffers from different weaknesses and potential threats, which do not allow it to pull ahead of the major competitors within the market in various aspects. The airline lacks adequate number of highly skilled staffs compared to the competitors, which makes it difficult to achieve the desired competitive advantage. In terms of technology and the aircrafts, that it posses, the airline still lies behind the major competitors. In addition, poor maintenance of the aircrafts is another issue that paves way for the competitors to increase their market shares. To be in a position of coping with the escalating competition and acquire competitive advantage, Qantas Airline needs to purchase more aircrafts. There is the need to recruit the highly skilled staffs and ensure advancement in the technology used. Even with such drawbacks, Qantas Airline enjoys its competitive advantage, which assists in maintaining the market share. Based on the analysis, it is clear that the airline uses the market niche strategy in maintaining the market share while looking close at its target market and ensuring adequate provision of services that are valued greatly. Qantas thrives from various practices: extra baggage allowance and hospitable services, which hold the customers, unrivalled loyalty, and patriotism feeling, which keeps the customer base steady. The airline follows the generic strategy, which is commendable. Moreover, the business uses cost focus strategy, which makes it perform well despite not being the richest airline within the market. Throughout the years, the business has targeted the niche market and has been able to work on it in maintaining a healthy share of the market. In any competitive environment, businesses have to create competitive advantages or fall. The business could achieve higher profits over the rivals in two ways: supplying identical products or services at lower cost or provision of unique products or services differentiated from the others in a bid to persuade the customers to pay premium prices exceeding the additional cost of the differentiation. Cost leadership strategy is important for the business in taking the advantages of the cost; therefore, it is important that it structures and effectively exploits the resources. The highest expense in the Qantas Airline is the fuel cost as it accounts for more than 25% of the total organizational expenses. In the year 2011 and 2012, the total cost of fuel rose from $593 million to $4.22 billion. To reduce the influence of the fuel prices, Qantas uses several strategies including hedging, shortening the jet fuel supply chain fuel conservation, asset in the fuel economy aircraft, improved technology in the flying methods, the navigation approach, and passing the fuel surcharges in ticketing. Currently, there are many low cost airways emerging globally, which the business could employ (Grant, 2013). Qantas could offer cheaper prices of gaining the customers. The aim of Jetster is to reach lower price compared to the competitors to ensure that the business designs to adapt other strategies such as partnership in dealing with the major competitors. Qantas might as well take advantage of the cost through increasing the passenger load factor, reduction in the cost fuel, and in-flight consumption, and customer entertainment. Differentiation is another strategy that Qantas might use. The strategy goes beyond the products and services and embraces the relationship between the suppliers and the customers. Qantas could apply two differentiation methods: tangible and intangible. Through complementary services, the business has been able to provide in flight entertainment with full option on every international flight. In addition, Qantas Club lounges has full necessary facilities provided to the members. The business provides premier prices with full service options while serving the customers. For instance, Qantas creates a unique experience to the members such as bringing Chef Heston Blumenthal in meeting the food and wine. Consequently, the customers feel superior while perceiving the products and services of the business. Differentiation strategy offers Qantas he opportunity of improving the value of the product to the customers (Dennis, 2012). Within the Hub Airport, Qantas managed to develop an Airport terminal consolidation project with the aim of reducing the minimum connection times, supporting the international network alliance strategy, underpinning Sydney as the major Qantas hub, and ensuring long term price and infrastructure safety. Such strategy increases differentiation of the product and seamless end-to-end experience of the customers. The major priority of Qantas aviation firm is safety, which makes it the leader of safety aviation industry. In every two years, the business is subject to International Air Transport Association (IATA) and Operational Safety Audit Certification (International Air Transport Association, 2013). Conclusion The strategic analysis of Qantas Airline revealed that it is the most popular airline in Australia and has through the years focused on rapid expansion in the international markets. The vision, mission, and values indicates that the business is highly focused towards attaining high safety and level of growth within its airline services through offering premium qualities in the air travel services to the customers. In addition, the business is also pursuing rapid strategy for the achievement of high growth within the domestic and international markets. For the analysis, the study undertook analysis of the corporate business strategy with focus on the rapid expansion and management in the air travelling services through performing the alliance with properly established businesses within international markets. This strategy also forms the basis of organizational entry into the market. Such strategies have been able to necessitate the airline to purchase the airlines to perform its expansion activities successfully. Based on the analysis, it is important that the business receive adequate support from different functional areas to support the implementation process of the strategy including finance function, human resource management, IT and Research and Development (R&D), and marketing and sales. Through adequate support from such functional areas, the airline would execute successfully its corporate business strategy. References Airlines network news and Analysis. (2012). Australian international traffic growing strongly but Qantas is losing market share; US and Indonesia see biggest gains | anna.aero. Retrieved January 3, 2017, from http://www.anna.aero/2010/04/20/australian-international-traffic-growing-strongly Allayannis, G., & Weston, J. P. (2001). The Use of Foreign Currency Derivatives and Firm Market Value. Review of Financial Studies, 14(1), 243-276. Cornwell, A. (2013). Emirates and Qantas to hit competition in Australia and New Zealand | GulfNews.com. Retrieved January 3, 2017, from http://gulfnews.com/business/aviation/emirates-and-qantas-to-hit-competition-in-australia-and-new-zeaLand-1.1221392 Dennis, A. (2012). 'Is Qantas the dying kangaroo?', Herald Sun. Retrieved January 3, 2017, from www.heraldsun.com.auttravel/australia/is-qantas-the-dying-kangaroo/story-e6frfhbf-1226392614457 E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45. Fickling, D., & Wang, J. (2012). 'Qantas, China Eastern Plan Cheap Flights for Asia Middle'. Retrieved January 3, 2017, from www.bLoomberg.cominews/2012-03-25/qantas-plans-hong-kong-budget-airline-with-china-eastern.html Google Sites. (2016). Porter's Five Forces - Airline Industry Analysis. Retrieved January 3, 2017, from https://sites.google.com/site/admn703ai/the-team Grant, R. M. (2013). Contemporary strategy analysis (8th ed.). New York, NY: John WiLey & Sons. 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The Effects of Mergers on Airline Performance and Social Welfare. Advances in Airline Economics, 4(3), 131-159.      Read More