Reasons Why Jetstar Company Was Created by Qantas - Case Study Example

Name: Course: Institution: Tutor: Date: Strategic management Introduction Strategic management is defined as an ongoing process that evaluates and controls the business and the industry that the business is operating (Sandler and Craig 7). It entails an assessment of a company’s competitors, setting goals and setting up strategies so as to win a competitive edge. Competitors are other companies offering the same services to satisfy same customer needs. On the other hand, a competitive advantage is defined as the relative advantage that one business has over another and it translates into a benefit that is vital to target customers. The assessment can be done in intervals such as quarterly or yearly in order to ascertain how the strategic management process is to be implemented and incorporate any changes in the industry which result to a new strategy. Some of the changes may include new technology, new competitors, new management, and new economic or political environment. Strategic management is the top level in the management hierarchy and it is an obligation to the board of directors and other stakeholders in the organization, depending on the organizational structure. There are several steps taken in the strategic management process (Michael 1). To begin with the strategy is first formed. To form a strategy, first the assessment of the company itself and its environment should be carried out. Also, the company’s objectives should be set by crafting the vision, mission and the overall corporate goals. A mission statement shows the organizational role to the society while the vision statement shows the view of the company’s future. Other corporate objectives may be financial, strategic business unit objectives and the tactical objectives. The said objectives should suggest a strategic plan that shows how these objectives are to be achieved. The other step to strategic management is strategy evaluation by ascertaining its suitability, feasibility and acceptability. The strategy can also be measured for effectiveness using the SWOT analysis which ascertains the strengths, weaknesses, opportunities and threats regarding the company. Suitability here means the rationale for implementation of the strategy (Michael 1). That is if it makes any economic sense and whether the strategy will be suitable to the environment. On the other hand, feasibility is mainly concerned the question whether the resources available to the company are available. Finally, acceptability tests the expectations of the identified stakeholders such as the customers, shareholders and employees. It tests on risk, returns and stakeholders reactions. After the above step a have been taken, then the strategy can successfully be implemented. Reasons why Jetstar Company was created by Qantas. We can make a presumption that, Qantas group did an analysis of its internal and external environment using the SWOT analysis as part of the strategic management process. The SWOT analysis as noted earlier analyzes the strengths, weaknesses, opportunities and threats of a company (Michael 1). Some of the opportunities might be that specific needs a certain market segment or niche had not been met. A threat would have been competition from other airlines businesses as a result of offering affordable air tickets. An example of a new entrant offering low priced tickets was the Virgin Blue Australian airline in the year 2000. As a result of such analysis, Qantas decided to position itself strategically in order to attain and sustain a competitive edge. There are three porter generic strategies that aid in attaining a sustainable competitive advantage (Michael 1). There is the differentiation strategy, cost leadership strategy and focus on niche strategy. Differentiation strategy aims at being different from other companies offering same customer needs through branding. Cost leadership strategy aims at minimizing the cost elements of production such as labor and operational costs. On the other hand, the focus niche strategy aims at identifying a specific market segment with special requirements and the pursuing them. It seems that Qantas wanted to be different from its competitors by operating as a value based airline. The competitor of Qantas was Ansett Airlines before Virgin was introduced. The company also wanted to target the untapped market composed of customers who could not afford expensive tickets (Sandler and Craig 7). For instance, the market for affordable tickets had not been fully tapped by the Virgin blue airlines. We also find out from the cases study that Qantas created Jetstar so as to enjoy the economies of scale by being the cost leader within the Australian airline industry. Economies of scale mean that cost per production is less compared to output. The Jetstar minimized costs by offering only one class of travel, having quicker airport turnaround times, reducing the luggage allowance, charging meals and beverages and operating routes that have never been operated. All these reasons led to the creation of Jetstar Airline Company by Qantas. Major risks associated with the strategy of creating Jetstar A risk is said to occur when there is a deviation between the actual and the expected outcome. One of the major risks that Qantas experienced when coming up with strategy to be a dual company is that it was did not know whether Jetstar would be a success (Sandler and Craig 7). You find out that there are other airlines which tried to come into the market like the compass airline but they collapsed. Jetstar airline was created immediately after the virgin Blue airline had made an entrance. Virgin airline also provides affordable air tickets just like the Jetstar. The risk that Qantas experienced in this case was whether it could fight competition from virgin Blue so as to attain a competitive advantage (Michael 1). According to the case study the actual outcome is that virgin blue was the leading company in the airline industry in the year 2003 and 2004 when it grabbed the opportunity to create a strong niche because of the collapse of Ansett Airline Company. Another risk that Qantas faced when strategizing is that of acceptability by the targeted marked. How will the market react towards the new product? This posed a major risk especially because Qantas had a fully established brand of offering premium full service airline, with a strong safety record, offering services in and outside Australia. How Qantas managed these risks The risk of competition from virgin Blue has been managed by entering new markets like in Asia. In the year 2005, the Asian destinations that were being toured were Hong Kong, Vietnam and Thailand. Qantas also acquired other low fare airlines like Valueair in Singapore. This also helped ensure its success. The Qantas also managed its costs well and it becomes a cost leader among the Australian airlines.To ensure acceptability by the customers, the Qantas had the management of Jetstar different and also it opened 14 new domestic destinations within Australia. Key operational and functional aspects that ensured the success of Jetstar The success of Jetstar has been achieved by having certain functional aspects in some operational areas to ensure high profits and low costs. Jetstar though part of Qantas, it was a newer airline and new airline employ younger and cheaper staff thus minimizing the operational costs. The other operational aspects that have resulted to low cost in Jetstar are offering of only one class of travel, having reduced luggage allowances and having operations in routes that have never been toured before (Sandler and Craig 7). The airline also charged for its meals and beverages so as to cover costs. There was also the introduction of wed based system to make the bookings of tickets and online. Recently passengers who travel light are being offered lower fares than those who do not have check in luggage. The travel light luggage is set at 10 kgs. The company minimizes its parking and maintenance costs by having the aircrafts parked in airports that offer relatively lower parking and maintenance cost in comparison to other major airports. According to the case study, most of the Jetstar aircrafts are parked in secondary airports thus ensuring the company enjoys the highest aircraft utilization rates. The other functional aspect is that Jetstar has employee service agreements which other airlines do not have. Such agreements offer flexibility to the employer. Reasons why Jetstar operates as an international airline and not just a domestic airline When a company operates outside the domestic markets, we say its being global. Globalization entails searching for new resources such as labor, technology, money outside the domestic market. The reason why Jetstar operates global is to expand its market and enjoy economies of scale. Economies of scale are only associated with large companies and you find that the costs are low and the profits are high (Mankiw 281). The other reason might be to fight competition. Therefore, it has use globalization as a strategic tool to enter the international markets to gain a competitive edge. It seems the virgin blue airline had already tapped the Australian market and the only way that Jetstar could survive competition was entering new international markets. Finally, Jetstar wanted to spread it risks through diversification of its operations. When risk is spread then it is said to be kept at minimal. For example, if Jetstar Australia collapses, Jetstar Asia won’t be affected. Work cited Sandler Philip, Craig C. James, (2003). Strategic Management. Kogan page. Pg 7 Porter Michael, (2008). On competition. Harvard business press. Pg 1 Mankiw N. Gregory, (2008). Principles of economics. CengageBrain. Pg 281 Read More