Internal and External Environmental Analysis of Qantas Airline - Case Study Example

1.0 Introduction Qantas Airline was established in 1920 by Paul McGinness and Hudson Fysh. It is the world’s 11th largest airline and the oldest Airline in Australia as well as the second oldest airline in the world. Qantas was registered as Queensland and Northern territory Aerial Service (QANTAS) Limited (Qantas Airlines Business Report, 2011). The company was owned by the Australian government however in 1993 a 25% stake was sold to British Airline. In 1995, the airline was privatized and had to adopt management practices to overcome both internal as well as external influences and also had to change on its narrow minded culture. Although Qantas is primarily a passenger airline, air freight is also an integral part of its core business, Other Qantas operations include tourism, catering and E-commerce devoted to transport and air travel. In the last 80 years, Qantas airline has gone global and operates more than fifty flights daily to various destinations throughout the world; it has a total of 560 flights daily. There have been many internal as well as external influences and for Qantas to overcome this, they have kept on applying new strategies, adapting to new management styles, keeping on top with their human resource, as well as being up-to date with their technology so as to be on top of competition as well as being the major and most significant airline in Australia (Qantas Airlines Business Report, 2011). The Airline has undertaken essential changes over the last ten years so as to cope with these internal and external factors such as the terrorist attacks on September 11, 2001 which effectively reduced the demand for international travel. Today, Qantas airline is considered as the world’s leading long distance airline and one of the strongest brands in Australia, the airline continues to provide outstanding service to its customers and is at the forefront of the international civil aviation industry. According to Jackson (2010), the Airline had about 65 destinations around the world. In 2010, the Airline transported sixteen million passengers on routes based regionally and eight million passengers for its international routes. This essay will focus on the internal and external environmental analysis of Qantas Airline. In the external analysis, we are going to look at the objectives, strategies and capabilities of its competitors while in internal environment analysis we are going to identify Qantas’s resources, capabilities, core competencies, value chain activities, financial condition, current strategies and objectives. 2.0 External Environment 2.1 Competitors The following chart shows Qantas competitors and their market share From the diagram, Qantas has the largest market share in Australia. However, it’s very important to note that there is high competition in the Australian airline industry. 2.2 Micro-Environment Analysis In order for Qantas’s present business strategies to succeed, the company needs to understand the competitive environment in which their businesses reside. Macro environment describes all factors which influence the company as a whole but are out of their direct control including wider social, political, economic factors, direct or indirect competition. 2.2.1 PEST Analysis Qantas external factors have been both positive and negative as each factor is unpredictable though in most case the company knows how to prevent and even make it more profitable. Political Impacts New entrants have been favoured by the liberal policy environment. While the domestic airline industry is largely deregulated, Australia's international airline industry remains quite regulated at the Commonwealth level. Australia's international aviation policy has been 'multiple designations'. The industry deregulation in 1990s has given way to a more restrained form of competition between Qantas and its main competitors. Economic Impacts Economical Factor is the main external factors for Qantas which has been both profitable and undesirable. Qantas have benefited from the increasing demand for its travel services though during the global economic downturn it caused rapid revenue decline to a 88% fall in net profit where in the last six months in 2009 financial year Qantas suffered a loss of 93 million. The company responded by deferring and cancelling orders of new planes, cutting flying capacity raising $500 million from investors and replacing Qantas with Jetstar (cheaper air service, which is a branch of Qantas). The other issue is the increase of fuel since it has affected the basic costs of flights as well the likeability of passengers to book a flight. Technology Impacts The growth of the information industries is creating a knowledge-dependent global society and information will be the primary commodity of more and more industries, New and larger airplane designs would enable airline companies to achieve better economies of scales. Socio-Cultural Impacts The labour markets are tight, especially in skilled fields requiring more motivation. The demand for personnel in distant countries has increased the need for foreign-language training. Also Industrialization and technology have raised educational levels. 2.2.2 Porter’s five factor model Source: Author (2011)   Threat of New Entrants Capital requirement for entering this industry pose a high entry barrier for the new entrants. If a company intends to enter this industry, it has to consider costs of buying or leasing aircrafts, hiring qualified personnel, acquiring computer reservation systems and renting gate space. Together with the other start up cost, the company must also consider cost of aircraft maintenance such as fuel and repairs. All these costs combined pose a very strong entry barrier to the new companies intending to enter the industry. Also Brand Identity poses the most significant threat for all new firms intending to join the industry as they have to launch their product alongside companies that have already established their brand such as Qantas. Threat of Suppliers The suppliers in the airline industry have high bargaining power. Depending on the level of employees’ unity, this can create a substantial expenditure to any firm operating in this industry. If pilots go on strike, then airlines can lose revenue resulting to low profits. Also, aircrafts manufactures have a high bargaining power since switching cost from one manufacture to the other is high (Airlines Industry Profile, 2007). However, this power can be reduced if an airline firm decides to acquire secondhand airplanes. Fuel providers also pose a great threat to airline companies. With the fluctuation of the fuel prices and with no viable substitute for airline fuel suppliers have a higher power over the industry. Generally, the airline industry has many suppliers who have high bargaining and subsequently poses a threat to airline’s profitability. Threat of Buyers Customers demand for fair prices has lead to rise of Low Cost Carriers (LCC). If an airline company intends to make some good profit from this industry using price as a strategy, then, they must be sure to maintain a large market share in the industry. The airline industry serves a large group of clients and therefore if one airline decides to leave the industry, this will not have any impact on the industry. This means that if an airline is unable to differentiate its services from other airlines, then the customers will be the determining factor. Consequently, the airline which will be in a position to offer high quality services at a reasonable price will definitely be the favourite to the customers (Thompson et al 2010, p. 58). Other factors such as slowing or unstable economy can have an effect on the threat of buyers as they affect the financial viability of customers to travel by air. Threat of Substitutes All other means of transportation pose a threat of substitution, where in this case we are excluding the competition among airlines carries. Rail, water, highway and transit satisfy the same need of a consumer in a different way. Other factors such as distance, convenience, price and immediacy determines the mode of transport chosen by customer and may also poses a great threat. Short distance travel makes up 89.8 % of the travels total and is considered as 499 miles or less. Bus transportation and personal vehicles are the ones that dominate the short distance group. The airline industry focuses more on long distance travel which is referred to as 500 miles or more. Personal vehicles and airline firms are exposed to high level of substitution in the categories of 750-999, 1000-1499 and 1550 and more miles. Passengers’ vehicles have dominated the transportation sector since they have the highest portion of the market share making and as a result, mode of transport by vehicle poses the greatest threat of substitution to the airline industry. 3.0 Internal Analysis Resources Resources refer to a company’s inputs into the production process and are usually the firm’s source of capability (Hamel & Prahalad, 2003). Resources are either tangible or intangible. Under tangible resources, there are financial resources, organizational resources technological resources and physical resources. Under intangible resources, there are human resources, innovation resources and reputation resources. Qantas travel world group is well equipped with all of these resources. To start with, the company a well equipped human resource. Human resource refers to the knowledge and skills possessed by a workforce. Qantas travel World group is one of the largest employers in Australia with over 37,000 employees (Qantas 2008). Their dedication, skill and motivation have made it possible for Qantas travel World group to cope with the challenges facing the aviation industry. The group employment opportunities driver in the community having created over 8,000 job opportunities in the last few years and invests heavily in installing skills to its workforce spending over $280 million every year on training of staff. Its objective has been to be an employer of choice, involving all members of its diversified work force to be green, safe and customer focused. Qantas travel World group has continued to expand its workforce initiatives of diversified with specific intension of employment and development of Indigenous Australians. It has also focused on other areas pertaining to women recruitment and retention especially in management position, cultural diversity and age. In July, 2008 Qantas Business travel and Qantas Holidays merged to form a vertically integrated company known as Jetset Travel world group (Qantas 2008). Through this merger, the group has been able to increase its productivity and efficiency through volume aggregation, cross selling and recruitment of new retail shops. As at June 2010, the company’s network had grown 670 member outlets. The company has invested over $17 billion over the last five years in new products including aircraft interiors and lounges. On the technological resources, the company is already registered with the US patent and trade mark. On financial resources, Jetset travel World group has the ability to generate funds internally as evident by the spike of 141% in profit before tax in half year period ending December 2010 in comparison to the same period in the year 2009. The company’s current ratio was at 1.2 in 2010 meaning that the company has sufficient assets to cover all its liabilities and it is therefore not at the risk of bankruptcy of insolvency Qantas travel World group (2010). Capabilities This refers to a company’s capacity to allocate the company’s resources effectively so that they can achieve the desired end result. They merge over time as tangible and intangible resources interact. They are mostly developed, carried and exchanged through the company’s human capital and are usually developed in the specific functional areas such as finance, marketing and R & D department. Qantas travel World group has both financial and economic capability in that it is able to offer its services as compared to its competitors. The company also enjoys Strategic and marketing capabilities as its services are differentiated from those of the competitors. Qantas travel World group also enjoys technological capability since it offers innovative and high quality services to its customers (Jetset travel World group 2010). Core competences Core competence refers to a firm’s capabilities and resources that act as its source of competitiveness. They allow a company to deliver and produce products that are unique to their customers in terms of their value and benefits offered (Hamel & Prahalad, 2003). In large and diversified organizations like Qantas travel World group, core competences are usually applied and developed across the different business segments. Qantas travel World group core competence is in its strong brand name which is recognized globally and enjoys customer loyal and brand equity. The company connects Australia to many major destinations in the world and its management team has a good reputation (Jetset travel World group 2010). Qantas travel World group is known to offer the world safest travel services and has a good reputation internationally for engineering workmanship (Jetset travel World group 2010). The company is also known for its long time experience and expertise in areas pertaining to domestic and international flights, low cost carriers (Jet Star) as well as full Service airline (Qantas) and its ability to offer its services to all levels of customers be it economic segment, budget segment and premium segment. References Airlines Industry Profile (2007) In Business Source Premier online. Retrieved on 28th February 2011 from http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=27967383&site=bsi-live Hamel, G., & Prahalad, C. K. (2003). Strategy as stretch and leverage Harvard Business Review, 71(2): 75-84. Jetset travel World group (2010) Jetset travel World group-Australia retrieved on available on 17th April 2011 from http://www.jetsettravelworld.com.au/Brands/Australia/TravelManagement.aspx Jetset travel World group (2010) Jetset Travelworld Limited and Controlled Entities Annual Report For the Year Ended 30 June 2010 Retrieved on 17th April 2011 from http://www.jetsettravelworld.com.au/LinkClick.aspx?fileticket=vam39iWm-go%3d&tabid=793&language=en-AU Qantas (2008) Sustaining the spirit-Sustainability report 2008 Retrieved on 17th April 2011 from http://www.qantas.com.au/infodetail/about/investors/sustainability2008.pdf Qantas Airlines Business Report" 123HelpMe.com. 05 Oct 2011   http://www.123HelpMe.com/view.asp?id=162161 Thompson, AA, Strickland, AJ & Gamble, JE 2010, Crafting and Executing Strategy: Concepts and Cases, 17th edn, McGraw-Hill Irwin, Boston. Read More