Why Does Qantas Want to Base Crews in London - Case Study Example

Introduction 2 Background 2 Statement of the problem 3 Objectives of Qantas’s airline need to move base crew to London 3 Hypothesis and questionnaire for Qantas airline need to move base crew to London 4 The questionnaire for Qantas needs to move base crew to London 4 Hypothesis for moving base crew to London 5 Significance of Qantas airline need to move base crews to London 6 Limitations that Qantas airline faces to move base crew to London 6 Internal factors that limit Qantas airline to implement offshore outsourcing 7 External factors that limit Qantas airline to implement offshore outsourcing 8 Assumptions that Qantas airlines may make to implement a move of base crew to London 9 Conceptual approach of Qantas airlines to move base crew to London 9 Literature review 10 Factors that facilitated Qantas airline to move its base crew to London 11 embracing benefits associated with offshore outsourcing 12 To reduce costs of operation 13 rostering efficiencies 14 Details provided on a staff roster 14 Effect of staff rostering in Qantas airline 17 Total Domestic 17 Total International 18 Financial Year to Date September 2004 18 Conclusion 20 Bibliography 21 Introduction Background The principles of value based management require a company to stay ahead of the pack in formulating strategies that focus on reducing operating costs while at the same time increasing its profit margins. This is basis for economic value added. With evolution of digital technology and presence of workforce that is competent in human resource management, many companies are embracing the concept of offshore outsourcing in order to tap potential of highly qualified workforce at lower cost. Companies operating in the hospitality industry become more viable when they associated themselves with creative cities where creative industry flourishes. Creative industry is playing a significant role in paving the way forward for offshore outsourcing. The creative class in the creative cities provides cheaper labor and this minimizes operation costs for outsourcing companies in terms of decreasing significantly accommodation and meal allowances. Staff rostering has also been shown to increase efficiency and productivity and is an important ingredient for a company pushing for high profit margins strategies. Statement of the problem Qantas airline faces challenges of reducing expenses incurred through meal allowances and hotel accommodation that are incurred in London. Qantas airline spends at least £ 60.00 that is equivalent of $153 a day in meal allowances for one crew member in London. This accounts for $ 18 millions a year or an equivalent of £ 7.3 million a year on meal allowances. Qantas airline is also facing the challenge of very high costs of wages that contribute to 20-31% of its operating costs. Qantas airlines need to align itself to offshore outsourcing in order to reap and benefit from best human resource expertise. Offshore outsourcing would help to reduce administration costs of Qantas airline by 40-70%. This would translate into more profits. Qantas airline need to adopt the spirit of other multi-national companies like IBM and Proctor and Gamble that use English as a medium of communication. Qantas airline needs to update its fleet of aircrafts to measure international standards and improve on aircraft capacity. Objectives of Qantas’s airline need to move base crew to London To tap the potential of offshore outsourcing To tap the potential of London’s English as a multinational language To reduce the costs of operations with specific interest of reducing meal allowances and accommodation allowances To benefit from the rich creative industry in London To tap the opportunity of qualified skilled workforce that is found in London due to its geographical position and as a creative city Hypothesis and questionnaire for Qantas airline need to move base crew to London The questionnaire for Qantas needs to move base crew to London 1. Is the current human resources practice in line with international standards? 2. Is the cost of offshore outsourcing of human resource an opportunity cost to training own staff to measure to required standards? 3. Is the public opinion and political factors likely to influence offshore outsourcing? What is likelihood of the move being barred by political factors? 4. Are there challenges that Qantas airline need to address and is the task worth the cost? 5. Does feasibility studies on offshore outsourcing of Qantas airline a viable project towards reducing costs of allowances and administrative costs? 6. Does Qantas airline have a well organized transitional approach to her implementation of offshore outsourcing? 7. Is the offshore outsourcing of Qantas airline backed up by extensive communication tools and consultations? Hypothesis for moving base crew to London London is a creative city and has diverse creative industries that require services of Qantas airline. Presence of creative industries provides an opportunity for Qantas airline to step up a call center to effectively serve its clientele in London. Offshore outsourcing positions Qantas airline to benefit from best human resource practices, reduces operation costs arising from meal and accommodation allowances. Offshore outsourcing will enable the Qantas airline to reduces administrative costs in the range of 40-70% and reduce costs of wages by a value of 20-31%. Introduction of staff rostering process helps to determine staff efficiency and improves productivity. Significance of Qantas airline need to move base crews to London The Qantas airline is going to benefit from high skilled labor force following implementation of offshore outsourcing. This would reduce costs of wages by a value of between 20-31%. The Qantas airline will reduce costs of accommodation and meal allowances advanced to base crew upon implementation of offshore outsourcing and cut costs of $ 18 million a year. This will help to improve profit margin of Qantas airline and increase the costs of its shares in the share markets. London is a creative city with many creative industries. Qantas airline would benefit from creative class that is present in London and get high notch human resource at a lower cost. This would help to reduce costs of wages and administration. Limitations that Qantas airline faces to move base crew to London Internal factors that limit Qantas airline to implement offshore outsourcing Qantas airline faces challenges of key decisions that must be made in order to competently implement its objective of offshore outsourcing. These tasks include: Arriving at a strategic location for Qantas airline in London Arriving at reliable destination for offshore outsourcing managing risks that are associated with offshore outsourcing like overseas agencies that may pose as possible registered agents for Qantas airline only to be engaged in fraudulent activities that may damage the international good will of Qantas airline Planning transitional approach for effectively carrying out offshore outsourcing without raising eyebrows from politicians and the public on the competence of the process Laying down global outreach program that will position Qantas airline at a strategic position to benefit from the move Assessment and analysis of the abilities of the workforce to be used in the implementation of the process Processes of carrying out feasibility studies and agencies to contact to carry out the feasibility process and their efficiency Carrying out analysis on how to best deliver their services following implementation of offshore outsourcing in London External factors that limit Qantas airline to implement offshore outsourcing Qantas airline is likely to face the following external problems in its quest to implement offshore outsourcing. Political factors may hinder successful implementation of the offshore outsourcing as they try to seek the fate of the employees. The move may affect the share trading value of Qantas airline Shareholders confidence may be decreased if they do not support the move and this might as well lead into massive sales of shares by the individuals who might think the company is winding up or maybe facing financial difficulties. Such a move may reduce value of Qantas airline shares. The labor unions may be wary about the fate of the employees and disrupt smooth transitional approach of Qantas airline. Assumptions that Qantas airlines may make to implement a move of base crew to London The political factors and public outcry won’t be there to affect timely transitional approach for implementation of offshore outsourcing There is extensive research and well planned and organized transitional approach There will be transparency in implementation of offshore outsourcing There are proper strategies to best manage human resource and deliver services The move is spearheaded by reliable communication and consultations. Conceptual approach of Qantas airlines to move base crew to London The main yardstick for measuring a performance of company’s output is in its profit margins (Smyth, 2004). This output, profit margins, is adequately achieved after various inputs into the company performance levels undergo company’s strategic repositioning production process. The inputs into a production process of a company are administration costs, staff retention factors (Aries,J., 1980) competence of human resource, quality of service offered, accessibility to market, staff rostering, competent feasibility studies for future growth, communication costs (Phillip & Pugh, 1994). The performance output, denoted by profit margins, is a function of how production processes interact. If the interaction of production process is healthy, the output, profit margins, is good and vice versa. This report seeks to establish the reasons that stimulated Qantas airline to move base crew to London. In conceptualizing, the researcher will attempt to point out how inter-play of production factors triggered the move of base crew to London. Literature review Improved communications technology has changed the way people work. Access to digital information has bridged the communications gap (Scott,R., 2004). This has led to decrease in the costs of telecommunications. India is among largest providers of offshore outsourcing services in the world. This is due to presence of highly qualified and skilled English speaking workforce. All over the world, many companies are also outsourcing their administrative functions to places such as Philippines, Kuala Lumpur and Brazil (Sullivan & Reading, 2002). The main reason for offshore outsourcing is availability of lower administrative costs and increased access to a highly skilled workforce. With increase in intellectual population and unemployment rates, competition for offshore outsourcing is very high. This translates into higher productivity. Developing countries are characterized by young potential employees who have required academic expertise to deliver task (Tanner & Bailey, 2001). The primary factor that makes companies adopt offshore outsourcing is the opportunity to access best human resource practices as well as critical mass expertise and technology. Other companies go for offshore outsourcing in order to improve their services, not because they may want to lay off their current workforce (Northwick park hospital, harrow, 1997). Procter & Gamble first piloted offshore outsourcing in information technology in 2001 and this led into a savings of about $28 million in the first year. In 2007, International business machine signed a ten year contract worth US$400 million, equivalent of Australian $534 million with Procter & Gamble to run its human resources services. The job description includes everything from payroll to expenses to recruitment and training as well as expatriate administration and other human resource functions (Scott, 2004). Factors that facilitated Qantas airline to move its base crew to London The following are factors that stimulated Qantas airline to move its base crew to London embracing benefits associated with offshore outsourcing Qantas airlines needed to align itself and be associated with offshore outsourcing and this could have been implemented by moving workforce in an effort to stay ahead of the pack in the competitive industry (Tanner & Bailey, 2001). There are numerous benefits of carrying out offshore outsourcing and these include lower costs of administrative staff. Implementation of offshore outsourcing would lower administrative costs by a margin of 40-70%. The second advantage of offshore outsourcing is to get access to the skilled qualified workforce that is seeking for better terms of service (Scott, 2004). Other competent employees seek to work with multi-national organization in order to fulfill the dream of adding a blue chip company into their curriculum vitae. The choice of London is strategic in that London has a large population of English speaking people. This is partly due to migration of human resource to London because London is a creative city. This mobility of creative class to London led into concentration of highly qualified personnel that Qantas airline can tap its potential and reduce the costs incurred in accommodation of crew and meal allowances (Scott, 2004). The concept of adopting offshore outsourcing by Qantas airline was not meant to lower payment or salaries of its employees but in order to reduce the costs that Qantas airline experienced in accommodation and allowances. Moving the base crew to London meant that Qantas airline base crew would rent houses in London and this would decrease the costs of accommodation that she experienced. At the same time, allowances that Qantas airline experienced would be decreased. As a metropolitan city that has a 24 hour economy, the weekly working hours would be increased to 240 hours for every eight week roster compared to 180 hours for a similar week roster back in Australia (Wicker, 1999). This move would translate into more profits for the Qantas airline. To reduce costs of operation Improved communication is a vital tool in business that wants to tap the potential of online transaction. Therefore, relocation of base crew to London from Australia is a step into minimizing communication costs (Scott, 2004). Following implementation of the move to London of base crew, Qantas airline has benefited from cheaper cost of labor. This is because Qantas airline has handed over the tasks or duties of office operations like offshore payroll, paperwork, processing and administration to offshore human resource functions. This has made Qantas airline to pay less for more work done and this has helped to push up productivity and profit margins (Scott, 2004). rostering efficiencies Aviation industry is a service intensive industry characterized by a highly competitive market. Efficient use of personnel provides the key means of tackling two conflicting tendencies: first, there is need to meet consumers’ expectations of a certain level of service quality and secondly, the expense factor associated with qualified human labor. Staff rostering is a practice that involves automatic registration of the time when a staff enters and exit a workplace (Northwick park hospital, harrow, 1997). Staff rostering uses login details of the staff so that a particular staff can be known the time that they have entered into the company or the time that they logged in to start working. The staff rostering has a log out registration that shows the exact time when an employee leaves the work place (Tanner & Bailey, 2001). Details provided on a staff roster Wages of employees depending on their actual man hours The time that an employee gets into work place and time that the employee leaves the work place is documented. This helps to compute the total man hours when the employee is assumed to be effectively productive to the company (Tanner & Bailey, 2001). The staff rostering makes it possible for a company to know the employees who are absent most of time. Therefore staff rostering is able to provide guidance on commitment of the employee to the work. This evaluation and analysis of employee’s seriousness with their work helps in human resource management because the company is only able to retain staff that is serious with their work and those that are economically viable to the company (Wicker, 1999). Staff rostering provides details of employees based on the following criteria: when staff has requested to go on holiday and is away from work. This provides human resources management with timely knowledge to relegate the duties either to another staff or to outsource for the time being Staff rostering ensures correct staffing is done to match the work load in a given department Staff rostering ensures there is correct staffing for shifts depending on workload. Staff rostering helps to create a staff roster for attendance record. The staff roster shows the time a staff logs in and logs out of the work place. If an employee consistently logs in late, it means the employee is not serious about the work. Therefore staff rostering provides a method of determining staff attitudes towards work through analysis of their login and log out times. Staff rostering is able to perform staff productivity or output variables like holidays for staff, sickness of employees, employees on study leave, employees who are changing bases to other centers. This makes it possible to determine the exact number of staff who will be available in a given day or night shift and encourages timely planning for any deficit. Planning in advance saves time and inefficiencies. It ensures new rosters are produced to cover every element should key staff leave. Staff rostering is an efficient method of staffing a company to maximize efficiency. Staff rostering ensures that every member of staff knows who is supposed to be in every position. Staff rostering helps to instill discipline of professional conduct and makes employees to be accountable for whatever happens in their desk. This makes planning of human resources easy and hassle free (Tanner & Bailey, 2001). The expansion of a business requires application of staff rostering in order to increase efficiency. Another importance of staff rostering is to foster development and realization of greater flexibility and minimization of labor costs. Staff rostering analysis helps to determine staff requirements, staff modeling abilities and advanced operational results. Staff rostering creates an environment where the staff productivity increases. As a result, the efficiency of output increases and this improves service delivery. Rostering of staff is a non-discrimatory practice that involves rostering of managers even to the frontline employees. The overall result is that there is an improved customer service and this in turn leads to more profits margins. The process of staff rostering also ensures there is limited staff turnover. This helps to assure employees of their job security. Rostering does not only apply to staff but also extends to system automation efficiencies. Effect of staff rostering in Qantas airline Total Domestic (Qantas, QantasLink and Jetstar) traffic, measured in Revenue Passenger Kilometres (RPKs) increased by 10.4% in September 2004 while capacity, measured in Available Seat Kilometres (ASKs) increased by 10.6%. This resulted in a revenue seat factor (RSF) of 80.0%, a 0.2 % points lower than September 2003 (Scott, 2004). Total International (Qantas and Australian Airlines) RPKs increased by 8.4% in September, while that of ASKs increased by 18.7% over the same period. The resulting RSF of 72.9% was 6.9% points lower than 2003/2004 year (Scott, 2004). The Group (comprising Qantas Domestic, QantasLink, Jetstar, Qantas International and Australian Airlines) passenger numbers increased by 10.0% over the 2003/2004 trading year. RPKs increased by 9.1%, while ASKs was up 16.0%, resulting in a RSF of 75.2%, which was 4.8% points lower in 2003/2004 year (Scott, 2004). Financial Year to Date September 2004 Total Domestic RSF for the financial 2003/2004 year decreased by 2.0% points to 79.9 % compared with 2004/2005 while Total Domestic Yield (TDY) excluding exchange decreased by 7.7% over the same period. Total International Yield (TIY) excluding exchange for the financial year to September increased by 4.5% 2003/2004. Total International RSF decreased by 5.1% points to 74.5% over the same period. Group passenger numbers for 2004/2005 year increased by 11.2 %. RPKs increased by 11.3% while ASKs increased by 17.4%, resulting in a RSF of 76.2%, 4.2%points less than 2003/2004 year (Scott, 2004). The number of passengers carried is calculated on the basis of origin/destination (i.e. one origin/destination journey represents one passenger regardless of the number of stage lengths undertaken). The table below illustrates (Scott, 2004). MONTH FINANCIAL YEAR 2004/2005 2003/2004 CHANGE 2004/2005 2003/2004 CHANGE Qantas International Passengers carried (‘000) 701 665 5.4% 2156 1990 8.3% Revenue Passenger Kilometres (m) 4329 4018 7.7% 13,453 12197 10.3% Available Seat Kilometres (m) 5938 5005 18.6% 18032 15181 18.8% Revenue Seat Factor (%) 72.9 pts 80.3 pts 7.4 PTS 74.6 pts 80.3 pts 5.7 PTS Australian Airlines Passengers carried (‘000) 70 56 25.0% 216 155 39.4% Revenue Passenger Kilometres (m) 334 282 18.3% 1021 761 34.2% Available Seat Kilometres (m) 453 381 19.0% 1409 1096 28.6% Revenue Seat Factor (%) 73.5pts 74.0 pts 0.5 PTS 72.5 pts 69.4 pts 3.2PTS Total International Passengers carried (‘000) 771 721 6.9% 2372 2145 10.6% Revenue Passenger Kilometres (m) 4662 4300 8.4% 14474 12958 11.7% Available Seat Kilometres (m) 6392 5386 18.7 19441 16277 19.4% Revenue Seat Factor (%) 72.9pts 79.8pts 6.9 pts 74.5pts 79.6pts 5.1 pts Qantas Domestic * Passengers carried (‘000) 1409 1496 5.8% 4261 4418 3.6% Revenue Passenger Kilometres (m) 1986 2028 2.1% 6042 6027 0.2% Available Seat Kilometres (m) 2439 2504 2.6% 7414 7292 1.7% Revenue Seat Factor (%) 81.4pts 81.0pts 0.4pts 81.5 82.7 1.2pts QantasLink Passengers carried (‘000) 256 264 3.0% 780 839 6.9% Revenue Passenger Kilometres (m) 156 172 9.3% 482 573 15.9% Available Seat Kilometres (m) 214 237 9.7% 652 770 15.3% Revenue Seat Factor (%) 73.0 pts 72.6 pts 0.4%pts 73.8pts 74.4pts 0.6 %pts Jetstar * Passengers carried (‘000) 334 - n/a 929 - n/a Revenue Passenger Kilometres (m) 329 - n/a 887 - n/a Available Seat Kilometres (m) 441 - n/a 1222 - n/a Revenue Seat Factor (%) 74.7 - n/a 72.6 - n/a Total Domestic * Passengers carried (‘000) 1958 1760 11.3% 5858 5257 11.4% Revenue Passenger Kilometres (m) 2428 2200 10.4% 7297 6600 10.6% Available Seat Kilometres (m) 3033 2742 10.6% 9129 8062 13.2% Revenue Seat Factor (%) 80.0 pts 80.2 pts 0.2%pts 79.9 pts 81.9 pts 2.0% pts Total Group Operations Passengers carried (‘000) 2729 2481 10.0% 8230 7402 11.2% Revenue Passenger Kilometres (m) 7090 6500 9.1% 21771 19558 11.3% Available Seat Kilometres (m) 9425 8128 16.0% 28571 24339 17.4% Revenue Seat Factor (%) 75.2 pts 80.0 pts 4.8 %pts 76.2 pts 80.4 pts 4.2 pts% Conclusion Qantas airline move of base crew to London was a corporate strategy to benefit form offshore outsourcing, to reduce costs of accommodation and meal allowances, tap potential of staff rostering as a means of improving human resource efficiency, to benefit from cheaper administrative costs associated with outsourcing, to get competent qualified work force on implementing offshore outsourcing. 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