Strategic Management of Qantas Airways - Case Study Example

Strategic Management: Qantas Airways Student’s Name Institutional Affiliation Course Name & Number Date of Submission Executive Summary Australian airline industry has recorded remarkable growth in recent years amidst economic slowdown coupled with terrorist threats. This report has analyzed the Australian aviation industry with the help of PESTEL and Porter’s Five Forces model to understand the macro and industrial d\factors that affect the operations of Qantas Airways, which is Australia’s largest flagship carrier by fleet, revenue and destination served. The report has found that terrorist threats, changing consumer demographics, unionized labour market, as well as stiff competition pose a huge threat to Qantas business practices. However, the economic recovery, rising demand for vacation and holiday travel and government support create opportunity for Qantas. The report also analyzed the resources and capability of Qantas Airways using Porter’s value chain framework in which it emerged that the airline has adequate resources and capabilities that it exploits to ensure the delivery of value to customers. However, to promote growth and achieve a sustainable competitive advantage, Qantas needs to enhance security of its flights, build good relations with unions, different its products and services, and invest more on advertising and promotional campaign. Table of Contents Executive Summary 2 Table of Contents 3 1.0 Company Background 4 2.0 Environmental Analysis 4 2.1 Macro environmental Analysis 4 2.1.1 Political Factors 5 2.1.2 Economic Factors 5 2.1.3 Social Factors 6 2.1.4 Technological Factors 6 2.1.5 Legal Factors 6 2.1.6 Environmental Factors 7 3.0 Industry Analysis 7 3.1 Porters Five Forces Model 7 3.1.1 Rivalry among Existing Firms (High) 7 3.1.2 Threat of New Entrants (low) 8 3.1.3 Buyer Power (High) 8 3.1.4 Supplier Power (High) 8 3.1.5 Threat of Substitution (Medium to Low) 8 4.0 Internal Environmental Analysis 9 4.1 Porters Value Chain Analysis 9 3.1.1 Primary Activities 9 4.1.2 Supporting Activities 10 5.0 Summary of Findings 11 6.0 Conclusion 12 References 13 1.0 Company Background Qantas is an Australian flagship carrier founded in 1920 and has registered immense growth to become Australia’s largest airline in terms of fleet size and destinations covered (Riley, 2016). The Sydney-based airline operates both domestic and international passenger and cargo services. Domestically, Qantas flies to more than 20 destinations and also in over 50 international destinations across 14 nations that include New Zealand, South America, North America, Africa, Asia and Europe. As at the end of 2015, Qantas controlled more than 65% of Australian market share domestically (Riley, 2016). The airline operates approximately 5,000 flights to different destinations every week. In 2015, Qantas carried more than 49.2 million passengers making it one of the most dominant airlines in Australian aviation industry. During the first quarter of 2017, the Flying Kangaroo reported an after tax profit of $515 million down from the $688 million posted the previous year at same period. The drop in profit signifies that the Flying Kangaroo is facing some challenges that might be emerging from macro or micro environmental factors. This report begins by conducting macro and micro environmental analysis of Australian airline industry with the help of PESTEL and Porter’s Five Forces model to identify the threats and opportunities that the environmental factors present to Qantas Airways. The report will proceed to perform an internal environmental analysis of Qantas with the help of Porter’s value chain framework to evaluate the airline’s resources and capabilities. The third part of the report will be a presentation of the findings and analysis and make appropriate recommendations. The report will conclude with a summary of the take home lessons. 2.0 Environmental Analysis 2.1 Macro environmental Analysis The external environmental factors that affect Qantas in the Australian airline industry are analyzed with PESTEL tool (figure 1). PESTEL tool looks at the political, legal, social, environmental, economic and technological factors that affect the operations of an organization in a given industry (Nandakumar et al., 2010). Figure 1: PESTEL Model Source: Nandakumar et al. (2010). 2.1.1 Political Factors Australia has experienced political stability for many years and this creates a favourable condition for Qantas operations. However, the imminent threat of terrorism remains a big challenge in Australia as the country just witnessed a deadly siege in Melbourne in what has been termed an act of terrorism (Aljazeera, 2017). Terrorism threats create fear in people to travel and this affects flights (Fu et al., 2010). The Australian government also did pass the Anti-Terrorism Act 2005, which affects the operations Qantas Airways (IBSWorld, 2016). Nonetheless, has strong government support and this creates conducive operating environment for the airline. 2.1.2 Economic Factors The economic conditions of a country have a profound impact on the performance of an organization and the same applies to Qantas whose performance is affected by Australian economic condition. Australia’s economy has been recording sluggish growth since the recent global financial crisis. Despite this, the economy has been on the growth path having recorded 2.5% growth in 2016 while the country’s DGP per capita has also increased to US$47,389 during the same year (Heritage, 2017). The prevailing positive growth implies an increasing purchasing power of Australians population which is good for the airline companies as it means that the amount of disposable income to spend on flights is increasing. At the same time, the growth of economy means that Australia is become more attractive for business investments, thus translating to increased flight opportunities. Moreover, the growth of the economy, coupled with peace enjoyed in Australia makes the country attractive for tourists, thus translating to business opportunity for Qantas. Nonetheless, Australia experiences high unemployment rates at 6.3% (Heritage, 2017), which is bad for Qantas that depends mainly on the middle income earners with the ability to pay for flights, be it business, executive or economy class. Additionally, the rising jet fuel prices pose a threat to Qantas’ business growth. 2.1.3 Social Factors The operations of Qantas are affected by social trends in Australia. In recent years, there has been a growing trend towards holidays and vacations by Australians who go for holidays locally and in international destination (Euromonitor International, 2014). This creates opportunity for Qantas to fly people to holiday destinations locally and internationally. International tourists arriving in Australia has also been increasing due to economic growth and this also creates immense opportunity for Qantas. Nonetheless, the 9/11 terrorist attacks has created fear among many passengers who still remember the event and this is impacting negatively on the aviation industry and Qantas in particular. Additionally, the aging Australian population is impacting negatively on Australian aviation industry as this demographic trend is resulting in a decline in demand for air flight by this segment of the population. Additionally, Australia has strong unionized labour market and this creates a greater bargaining power for employees, which implies high salaries for the workers, which reduces Qantas ability to control its wage bill (Euromonitor International, 2016). 2.1.4 Technological Factors Technological developments that have emerged in recent years have had massive impact on Qantas. The development and propagation of the Internet has created opportunity for Qantas to introduce ticketless travel as the airline has created an online platform, where passengers from any part of the world can purchase the tickets online without having to go queue for a ticket. The social media is another technological innovation that has had a positive impact on Qantas (Euromonitor International, 2014).The flying Kangaroo has invested in various social media platforms, including Facebook, Twitter, LinkedIn, Instagram and Pinterest that it uses to engage with customers and for brand promotion. However, the developments of technologies, such as Skype and Videoconferencing technologies impacts negatively on the airline industry as they give people the platform to engage with people virtually and this reduces the demand for flights (Euromonitor International, (2014). 2.1.5 Legal Factors Australia introduced carbon tax in 2012, which had serious ramifications on Qantas and the rest of the players as airlines had to pay high fines for exceeding the emission limits. The operations of Qantas is also affected by the Global Environmental policies on emission coupled with deregulation of international routes impacts Qantas operations and the same applies to Anti-Terrorism Act 2005 that Qantas must comply with to operate (IBSWorld, 2016). 2.1.6 Environmental Factors Australia has active environmental pressure group that pushes companies to adopt sustainable programs to reduce emission (Gillen & Gados, 2008). Australia being a signatory to global environmental talks has introduced policies, such as Direct Action Plan that require companies to reduce their emission (Euromonitor International, 2016). Additionally, passengers have become more environment conscious and want to fly sustainable airlines and this means that Qantas has to cut its emission and promote sustainability to attract passengers. 3.0 Industry Analysis 3.1 Porters Five Forces Model Porter’s Five Forces model is a strategic analysis tool developed by Michael Porter (1979). The model helps managers analyze and understand a company’s competitive position relative to other players in the industry (Wright, 1987; Porter, 2008). Figure 2: Porter’s Five Forces Model Source: Porter (2008). 3.1.1 Rivalry among Existing Firms (High) The Australian airline industry is characterized by fierce competition among the existing players. Currently, Qantas is threatened by the stiff competition it faces from many large and well-established airlines that operate in Australia, including Ryanair, Virgin Australia, British Airways and Singapore airline just to name but a few (Euromonitor International, 2016). Competition among these companies is based mainly on price and service quality. 3.1.2 Threat of New Entrants (low) The airline industry is characterized by high entry barriers that make it difficult for new firms to enter the industry (IBSWorld, 2016). The high entry barrier is created by the high capital requirements to start and run an airline. The existing large brands, such as Qantas have also created a strong barrier to new entrants because they not only enjoy brand loyalty, but also cost advantage due to economies of scale. 3.1.3 Buyer Power (High) Passengers have high bargaining power over prices in the Australian airline industry. This is because of the price-based preferences. Currently, there are many airline service providers that customers can choose from and this gives them powers to bargain over prices (Euromonitor International, 2016). The wide availability of technologies, especially the Internet provides passengers with opportunity to make price and service comparisons for different companies which helps them arrive at the final decision. Moreover, there is low switching cost associated with moving from one airline to another, thus high buyer bargaining powers. 3.1.4 Supplier Power (High) The airline industry is associated with strong supplier power. Qantas relies on two suppliers for its aircrafts, namely Airbus and Boeing (IBSWorld, 2016). As such, the fact that there are few suppliers of aircrafts means that the two suppliers have the powers to dictate terms and prices as they so wish because Qantas has less choice to switch to. Besides, switching cost is also so high, thus giving Boeing and Airbus substantial bargaining powers (Euromonitor International, 2016). Additionally, Australia has a strong labour union and this gives employees strong bargaining powers over salaries and employment terms. Moreover, the fact that Qantas depend on global oil suppliers, such as OPEC means the company has less powers over oil prices for its jets. 3.1.5 Threat of Substitution (Medium to Low) The threat of substitution is weak, especially in the long-haul category because of a lack of a direct substitute. Perhaps the possible but indirect substitutes for long-haul segment are Skype and videoconferencing technology (Euromonitor International, 2017). The threat is medium especially in the short-haul segments because of the existence of close substitutes to air flights, including trains, buses, ship and motorcycles. 4.0 Internal Environmental Analysis 4.1 Porters Value Chain Analysis Porter’s value chain is a strategic model used to analyze the activities performed by a firm to ensure the delivery of value to the customers (Ensign, 2001). Value chain model consists of primary and supporting activities (figure 3). This model is useful for analysing a firm’s resources and capabilities. Figure 3: Porter’s Value Chain Model Source: Ensign (2001). 3.1.1 Primary Activities Inbound Logistics: Qantas flies more than 118 fleets of Boeing and Airbus aircrafts to more than 20 domestic and 50 international destinations in over 14 countries (Riley, 2016). The airline operates over 5,000 flights on a weekly basis to different destinations across the globe. Qantas entered low-cost market after acquiring Jetstar and this has enabled it to lower its cost and fare for passengers. The airline also spends a lot on fuel to ensure quality service delivery to customers round the clock. Additionally, Qantas has been increasing its investment in new technologies to reduce weight and environmental impacts (Riley, 2016). Operations: Qantas perform different operational processes to ensure value delivery to the market. On a weekly basis, the airline operates more than 5,000 flights (Riley, 2016). Qantas also operates both bricks and motor and online ticketing services. Additionally, Qantas perform operations that include safe baggage management, flight and weather monitoring, as well as onboard restaurant, car rental and lounge facilities. Outbound Logistics: Outbound logistics demotes activities involving collecting, storing and distribution of products or services to end users (Ensign, 2001). Qantas outbound logistics include the provision of baggage system to customers. Other outbound logistics include car rental services from airport to passenger destination. The airline also provides hotel and lounge reservations for their clients for those wishing to have the airline make reservations on their behalf. Marketing and Sales: Qantas has developed a variety of programs for promoting advertising its brand to the targeted audience. The Frequent Flyer program is one of the loyalty programs that the airline has been using to promote its brand. The company also engages in sponsorship programs, as was the case in 2010, where Qantas branded its Boeing 747 with the words, Come Play to promote the Football Federation Australia (FFA). The airline also uses social media, such as Facebook, Twitter and Instagram for promoting its brand. 4.1.2 Supporting Activities Firm Infrastructure: Qantas has strong brand awareness and reputation coupled with government support. The airline also has different departments that work in collaboration to ensure the delivery of quality products and services to customers, including financer department, human resource, procurement and technology department (Riley, 2016). Human Resources: Qantas has about 28,622 employees as at 2016. To ensure the satisfaction of customers, Qantas hires highly skilled employees who are then taken through induction and training to enhance their skills. The airline is one of the few airlines with their own training facilities for crew (Whyte & Lohmann, 2015). The airline also ensures that its crew are highly motivated by providing them with attractive remuneration and benefits. Technology: Qantas has invested heavily in the latest technology to enhance the efficiency with which services are delivered to customers. Qantas has an online reservation and ticketing platform that allows customers to book tickets and make reservations from any part of the world. The airline also recently launched its Internet-capable Boeing 737-800 that allows passengers to enjoy free internet on board. Qantas also uses technology to detect and counteract turbulence (Whalley & Sun, 2017). Moreover, the airline has invested heavily on social media and mobile apps. Procurement: Qantas has over 118 fleets of aircrafts all of which are sourced from Boeing and Airbus. Qantas sources its airplanes from the two suppliers because they are known for quality aircraft design and manufacturing. Qantas has also partnered with T giants, such as IBM for its IT infrastructure; Fujitsu for end-user computing; Amadeus for management of passenger software, Mahindra Satyam for application management and Tata for consulting services (Coyne, 2013). 5.0 Summary of Findings The external analysis indicates that Qantas operations are affected by a number of macro and micro environmental factors. The main political factor affecting Qantas is the terrorist threat. Whenever there is a terror threat or alert, passengers avoid travelling on flight as a safety measure and this affects Qantas Airways passenger numbers and bottom line. The analysis also shows that the performance of Qantas is affected the prevailing economic conditions as the company has been experiencing decline in revenue because whenever there is a slowdown in economic growth or recession, this affects passenger purchasing power, thus resulting in low travel rate. Nonetheless, the analysis shows that the Australian economic is currently recording a positive growth at the rate of 2.5% and is expected to continue into the future and this results in increased in middle income earners and increased demand for travels which translates to good business for Qantas. Nevertheless, high unemployment rate remains a threat for Australian airlines. Socially, the growing holiday and vacation travels create opportunity for Qantas growth. However, the aging Australian population is a threat to the airline industry. The increased environmental pressure coupled with tighter environmental laws threatens Qantas success. Australian workers are also unionized which gives employees greater bargaining powers. Additionally, the micro environmental analysis shows that Qantas faces stiff competition from rival firms, such as Singapore Airways, British Airways, Virgin Australia and Ryanair among others. Additionally, the internal analysis shows that Qantas has adequate resources and capabilities that it uses to deliver value to customers, including strong infrastructure, HRM, technology, marketing and sales, as well as procurement efficiency among others. Based on the findings, the following recommendations are proposed. To attract customers despite threat of terrorism, Qantas need to enhance the security of its aircrafts as this would increase the confidence level of passengers in the airline (Hall, 1980). Qantas also needs to take advantage of growing demand for holiday and vacation travels by focusing on this market segment. Because Australian labour market is unionized, Qantas should focus on building good relationship with the labour union. Additionally, given the strong competition in the market, Qantas should focus on differentiating from rivals in terms of product and pricing strategies. Additionally, the airline needs to invest more in aggressive promotional campaign to increase its brand awareness and to make the brand more appealing to customers. 6.0 Conclusion Qantas is the largest airline in Australia in terms of fleet number, destinations served and revenue. However, analysis indicates that the operations of the airline is affected by macro and micro environmental factors that include political, social, economic, legal, technology and environmental factors. Additionally, the company faces stiff competition from many established airlines. Therefore, to achieve to record growth, and achieve a competitive advantage, Qantas needs to respond to the external and internal factors by adopting effective strategies that will enhance its growth and competitiveness. References Aljazeera. (2017, June 7). Australia police: Melbourne attack 'act of terrorism.' Aljazeera p. 3. http://www.aljazeera.com/news/2017/06/hostage-taker-australia-acquitted-terror-plot-170606024634535.html Coyne, A. (2013, Dec. 5). Qantas suppliers hit by $2bn cost cutting endeavour. Retrieved from https://www.itnews.com.au/news/qantas-suppliers-hit-by-2bn-cost-cutting-endeavour-366608 Ensign, P.C. (2001). Value chain analysis and competitive advantage: Assessing strategic linkages and interrelationships. Journal of General Management, 27(1), 18–42 Euromonitor International. (2014). Innovation airline trends: Advancing the airline industry. 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