Market Analysis of Flight Centre Ltd - Essay Example

Case Analysis Flight Centre Name of Student: Student No: Name of Supervisor Date: Introduction Flight Centre Limited is a travel agency which offers a complete travel service including business and leisure. They serve travellers in Australia, New Zealand, Hong Kong, China, Singapore, India, South Africa, UAE, United Kingdom, Canada and the United States. According to InvestSMART (2011) Flight Centre’s business strategy involves super sizing its global market share and aiming to be at the lead in business and trade travel markets. Working at this level is designed to facilitate the international purchasing power of the group and thereby enable them to access better agreements with travel providers. Flight Centre is developing an online and offline product offering that is complimentary. Their Net Profit After Tax for the year ended 30th June 2011 was $139.81 million. Revenues derived from ordinary activities rose by 4% from the previous year and amounted to $1.86 billion. The diluted Earnings Per Share at 138.9 cents compared favourably with the previous year’s 138.8 cents. The full year dividend for Flight Centre for the year ending 30 June 2011 was 84 cents which amounts to an increase of 14 cents on the previous year. Flight Centre intends to improve this performance in 2012 using its strong balance sheet and sales force, a wide variety of brands and strategic plans on how to promote future growth. It is hampered in its endeavours by the volatile situation in world economy more specifically in the US and UK. 1- Analysis and discussion of the most important factors in Flight Centre’s external and internal environments A review of former and current employee reviews for the company for glassdoor (2012) reveal a mixed bag of emotions. A majority agree that the working environment and their colleagues are a fun team to work with, the environment is friendly and there are opportunities to travel annually to exotic locations which is definitely viewed as a benefit. The uniforms worn by all staff however, are considered oppressive by some due to their unattractiveness. There were complaints of long working hours, many times without the possibility of a lunch break, and while in some locations, the opportunities for promotion were based on merit, in the home country of Australia, friendship seemed to be the main criteria. There were complaints of unfair promotion practises being seen to be used. The lack of specificity of work goals was cited as a definite disadvantage of the firm. There was also a feeling of being over supervised in the office environment which was thought to be demoralising. The monetary compensation was also said to be uncompetitive, but the company does offer good incentives packages. There also seems to be a gap between senior management and employees, the relationship being said to be impersonal and distant. The SWOT Analysis will examine the internal and external environment at Southwest airlines. Strengths A unique marketing network has worked for them in a digital age with oversupply of airlines. They have the best travel marketing network in Australia and one of the best in the world. The retention of the store network and its commensurate retail system has given them an edge in the travel slump currently experienced in the industry. This is because in an effort to clear their stock, airlines were sourcing for distribution networks to clear their backlog of tickets, due to their own concentration on online sources. The use of lower prices has lifted the rate of enquiry for Flight Centre, reducing profits but increasing customer base. The decision not to cut back on advertising during the economic downturn when other panicking travel agencies were doing so was a plus in Flight Centre’s corner. Coupled with cheap airline tickets and the Flight Centre distribution, advertising helped advance the business and augment profits. They also have direct customer service unlike many other businesses. Knowledge building is the result of a flat structure exemplified at Flight Centre fostering easy communication and sharing. Access to discount travel and camaraderie amongst workmates is good for employee morale. Weakness There is a disconnect between the public and private image of Flight Centre. While it is winning awards for being the best employer in many countries, personal employee reviews reveal pockets of discontent and a communication breakdown between workers and management. The wearing of uniforms by all staff is seen by many as oppressive and may contribute to lowered morale. Mandatory attendance of company events is considered to be an imposition according to some employees. Opportunity The withdrawal of Singapore Airlines led to creation of a gap that was filled by other airlines such as Qantas, Etihad and Emirates. The failure to sign preferred agreement with Singapore Airlines meant they could engage with these other airlines without fear of breach of contract. The distribution system that they operate is a powerful tool in the success of any business. There is also improved performance in the Australian market in general and in the travel business in particular that is a boost for earnings at Flight Centre. Threat The potential for online competitors to prove a threat is currently underestimated by senior management, specifically managing director, Graham ‘Skroo’ Turner. Google recently purchased US airline data provider, ITA and this has been described as a concern for travel industry by Credit Suisse. The lower margins available online are likely to get lower with this development and this may prompt customers to shift to that medium. Jetset, Travelworld, Harvey World Travel and Qantas Holiday and Business divisions have recently merged forming formidable competition, although this threat is also downplayed by Graham Turner. Their recent involvement in a case where bullying was said to be mismanaged by the organisation is a threat to the brand image. 2- A Review and critique of the planning processes in this organization, and ways they could have been improved Khalifa (2008) states that a large number of theorists have failed to explain the idea of strategy literature and how it impacts organisations. From a business perspective, strategy can be defined as a plan to facilitate the achievement of an organisation’s aims and policies. Davies (2000) adds that the resources required to make this a reality are determined by strategy. For Flight Centre, this consists of a strategy of limited online presence in distribution (Turner says the margins are too low); a branch distribution system which emphasises people, as well as cheap prices. The latest Flight Centre profit shows it works. Low-cost can be defined as carrying out activities at variance from competitors that gives a consistent set of key activities that augment each other in order to achieve a sustainable position (Porter 1996 in Jiang, 2007). This model means that Flight Centre has an edge over its competitors and created a customer niche. However, competitive advantage must be about more than low prices and must include provision of a quality product and service so that clients are getting value for money. 3- What could other organizations learn from Flight Centre? Traditional thinking describes organizational design as either vertical or horizontal in terms of control. These two styles of control result in different things. The former gives the advantage of efficiency while the latter is concerned with flexibility. Businesses therefore need to select a model that is commensurate with their goals. Choosing one over the other limits the benefits that one can attain from using both, through achieving balance through the contingency perspective (Nobre et al, 2010). In the case of Flight Centre, which operates travel agencies in eleven countries, maintaining a three tier, vertical control business and keeping the business units small, has created an organizational design balance that has ensured continuing success. This shows that businesses no longer need to choose between implementation of the two models. Use of the contingency perspective shows that a combination based on needs and objectives of both external and internal environments can create a model that ensures success for any firm. The trick is to find the right balance. Conclusion There is a fierce rivalry in the travel industry with a high threat of entry from potential competitors, high supplier and consumer power and the emerging threat of alternatives such as online bookings. In spite of this Flight Centre has managed to keep its extraordinary performance record intact as pertains to profitability and share price. The people management practises of Flight Centre have been put under scrutiny in order to determine whether there is a direct correlation between financial performance and use of specific practises. Flight Centre embodies many of the recommended practises, but also has parallel strategies involving marketing and logistics which bring up the issue of whether prioritising people management practises over other management areas is useful in determining performance results. The Flight Centre story appears to be a success story in this extremely competitive sector. This success seems to be a factor of the contingency perspective in which the Flight Centre utilises two models that may be conflicting in theory but actually can work to give competitive advantage. These are competitive individualism and collaborative teamwork as can be seen by the employee reviews. References Davies, W. (2000). Understanding strategy. Strategy and Leadership. 28, 5, p. 25-30. Glassdoor. (2012). Flight Centre Reviews. Viewed 02/09/12 from: http://www.glassdoor.com/Reviews/Flight-Centre-Reviews-E139827.htm InvestSMART. (2011). Flight Centre Limited. Viewed 02/09/12 from: http://www.investsmart.com.au/shares/asx/FLIGHT-CENTRE-LIMITED-FLT.asp Jiang, H. Competitive strategy for low-cost airlines. (2007). Asia Pacific Management Conference. Vol, 13, pp. 431-436. Khalifa, S. A. (2008). The strategy frame and the four Es of strategy drivers. Management Decision. Vol, 46, 6, pp. 894-917. Nobre, F.S. Tobias, A.M. Walker D.S. (2010) A New Contingency View of the Organization: Managing Complexity and Uncertainty Through Cognition. Brazilian Administration Review. Curitiba, v. 7, n. 4, art. 4, pp. 379-396, Oct. /Dec. Read More