Management Report on Qantas Airlines - Case Study Example

Management Report on Qantas Airlines Name Professor Institution Course Date Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 Qantas’ Current Situation 4 3.0 New Goals and News strategies 5 4.0 New Goals 5 4.1 Increase the Profits of Qantas Airlines 5 4.2 Reviewing assets usage 5 4.3 Cutting costs 6 5.0 Strategies 6 5.1 Strategy plan: enhancing generation of extra revenues 6 5.1.1Tactical actions 6 5.2 Strategy plan: Reduction of fleet usage, retiring the old fleets and delay purchasing new fleets 7 5.2.1 Tactical actions 7 5.3 Strategic plan: Create extra airport terminal and sell Qantas share to partners 7 5.3.1 Tactical actions 7 6.0 Conclusion 7 7.0 References 9 8.0 Position Audit 11 8.1 SWOT Analysis 11 8.1.1 Strengths 11 8.1.2 Weakness 11 8. 1.3 Opportunity 12 8.1.4 Threats 12 9.0 Porter’s Five Forces 13 9.1 Threats of the new entrants 13 9.2 The threats of Substitutes 13 9.3 Bargaining Power of buyers 13 9.4 Supplier bargaining power 14 9.5 Competitive Rivalry 14 1.0 Introduction The aviation sector has been affected by numerous factors like the overcapacity and stiff competition resulted by entry of several low cost airlines and irregular times of devastating under-performance. Just like many of the market players, Qantas Airlines have faced tough times embodied with macroeconomic and social factors like the fluctuating oil prices, the rising terrorism, the emergence of bird flu menace and SARS crisis, slow rate of economic recovery, the Asian tsunami, and rising terrorism which have affected profitability negatively (IBISWorld 2014). Therefore, managers have been faced with management crisis which needs quick management strategies to halt the situation and return the company to profitability. In a nutshell, the company ought to come up with new strategies and tactics to counter the challenges. Prior to these strategies, Qantas managers must first understand the internal and external capabilities of the company to guide them in implementation (Gillen & Feldman 2010, p.43). Therefore, this report will conduct the internal and external audit of the company using the SWOT Analysis and Porters competitive five-force Analysis as a basic foundation to developing new goals, strategies and tactics used in attaining competitive advantage. The SWOT analysis evaluates the strengths of the Qantas including being a strong brand, government backing, reward program and safety and performance. On the other hand, Weaknesses will include price sensitivity and industrial disputes. Opportunities that will be discussed comprise of increase in disposable income and partnerships. This report will discuss threat such as fierce competition in both international and domestic markets, fluctuating fuel prices cost and regulatory conditions. The opportunities will consist of the improving domestic market, economic improvement in Asian market and technology. The report will recommend new goal including increasing profits, reviewing Qantas use of assets and reducing of operation costs. These recommendations can be attained through various strategies including improving of ancillary revenues and raising the number of airport terminals among others. 2.0 Qantas’ Current Situation Qantas Airways is the Australia national carrier which was established in 1920 and has its headquarters in Sydney (Qantas 2015). Qantas has the largest fleet in the world based on size and the 3rd oldest company globally. IBISWorld (2014) states after 95 years of operation, company has grown significantly and commands a domestic market share of 65% and transport 18.8% of the passengers getting into and out of the country. Qantas owns and operates Jetstar, as a low-cost both at domestic and international level (Jones 2012). In the recent years the company has faced a number of challenges such as high competition from Emirates, Singapore and Qatar airlines in various international routes. As a result, it experienced financial losses in 2011, 2012, and 2013, and in first quarter of 2014 financial year which led to drop in the market. Abc (2015) reported that in the first quarter of 2014 financial year, the company made a loss of appositely A$236 million. Pearl (2011, p.54) stated that in 2011, Qantas stated that will consider conducting structural change including cutting jobs and creating new partnerships. Cost-cutting strategy through lay-offs is expected to save the company up to A$2 billion. The whole process will be guided by the company mission statement which is to build a profitable company, restore their reputation, and operate sustainably. 3.0 New Goals and News strategies Qantas has and still experiencing some tough times as it has continued to register losses in the last three years (BBC 2014). The losses has been cause by the high cost of fuel, high operational costs and fluctuating economy which has led to low demand for the air travels. Competition is also high in the industry due to several presence of new entrants both long-haul and long-haul categories (Fickling & Wang 2012). For that reason, the company needs to create new goals and strategies to revitalize its profit decline. 4.0 New Goals 4.1 Increase the Profits of Qantas Airlines As earlier stated, the company has been experiencing some low moment with losses in three consecutive years from 2011. Jones (2012) stated that in 2012, Qantas posted a loss of$245 million. Further, in 2013-2014 financial years it again made a loss of $2.84 billion (Abc, 2015). All these losses have been blamed on rising fuel costs, international operation’s poor performance and the industrial actions. Experts believe that developing ancillary revenues can be used to increase its general revenues of the company (Ford 2004, p.140). New ideas can be tapped from managers to help Qantas generate extra profits without relying of the core business. The practice can mitigate laying–off of employees since it may have extra revenues to pay its workers and improve operations. 4.2 Reviewing assets usage Assets lay the platform on which workers serve the company. Qantas assets include aircrafts, airport, building, vehicles and computers among others. Even though the assets of the company has been used to full potential they have not provided the expected results, i.e. profits. Hence the company must reevaluate their usage. For example the company needs to reduce the number of aircrafts in less profitable destinations and increase terminals for profitable routes (Ford 2004, p141). The situation will save the high operation costs it uses in transporting people to less profitable routes. 4.3 Cutting costs Smh (2015) posited that it is always viable for a business to operate on low cost so as to realize many profits. However, before 2011, that was not the case for Qantas. The company found itself operating on a high cost while making fewer profits. The situation manifested itself when the company made consecutive loss in 2012 and 2012. However, it is rectifying the situation through cost cutting. First it started a process of laying-off excess employees to reduce the cost of operation by $2 billion every year (Smh 2015). The process has been a success in realizing a positive cost savings $376 million $676 million in the first half and full year respectively. 5.0 Strategies 5.1 Strategy plan: enhancing generation of extra revenues 5.1.1Tactical actions Charging on the excess luggage Charging of the Baggage fees; the means charging travelers extra fees if their seats have additional legroom. Cashless payment using visa and credit can be a good source of auxiliary. For passenger who insist on cash should be pay extra charges in purchasing products. The company can enhance its reward system to attract and retain customers. Enter into partnerships with competitive airlines. In this arrangement it can allow passengers to connect to various destinations using partners’ flights. In the process, Qantas will be paid a certain percentage of money. 5.2 Strategy plan: Reduction of fleet usage, retiring the old fleets and delay purchasing new fleets 5.2.1 Tactical actions Qantas Airlines can also duration they use their fleets reduce cost of operations. Delaying of buying new fleets for economy to improve so that when they finally buy it, they customer demand for travel has gone up. Suspend operations in unprofitable Retiring the old fleets which incur high cost of repairing. 5.3 Strategic plan: Create extra airport terminal and sell Qantas share to partners 5.3.1 Tactical actions The company can increase number of terminals at Sydney Airport to accommodate more flights in profitable routes hence more profits. Sell shares the Qantas share to partners such as Pacific Blue Airlines and emirates which can help the company improve its bookings and revenues. Reduce the consumption of fuel by reducing number of time the company uses its fleets. For instance, reducing the duration from 12 to11 hours. 6.0 Conclusion The research established various challenges currently faced by not only Qantas Airline but most market players in the industry. With numerous companies targeting new markets, competition is likely to intensify hence making Qantas to post more losses. Other factors which are likely to be threats to Qantas operations include fluctuating cost fuel, increase of terrorism activities and unstable economy. However, there are several strategies the company can use reach its goals which include increasing profits, cutting cost of operation and reviewing the usage of its assets. Management experts recommend strategies such as seeking extra revenue from other avenues, creating more terminals for profitable routes and retiring old fleets. 7.0 References Abc, 2015, As it happened: Qantas announces $2.84 billion loss for 2013-14 financial year, Viewed on 18th April 2015 from BBC 2014, Qantas reports record annual loss, viewed on 18th April 2015  http://www.bbc.com/news/business-28948855 Fickling, D & Wang, J 2012, Qantas, China Eastern Plan Cheap Flights for Asia Middle,           Bloomberg Ford, R.C 2004, David Neeleman, CEO of JetBlue Airways, on people + strategy = growth, Academy of Management Executive, Vol.17, No.2, pp.139-143 Gillen, D & Feldman, J. M 2010, Winning strategies for airports – a look at developments in          Australia.  International Airport Review, Vol.10, No.2, pp.41-52 IBISWorld 2014, IBISWorld Industry Report I4902: Domestic Airlines in Australia, Viewed on 18th April 2015 from Johnson, G & Richard, W 2010, Competitive Strategy – Techniques for Analyzing Industries and Competitors, 3rd ed., London, Prentice Hall Jones, T 2012, Qantas announces first annual loss since privatization, Viewed on 18th April 2015 from Mules, R 2013, The Long Haul: The QANTAS – Emirates Alliance, Warringal Publications, pp.          2-8 Pearl, Z 2011, What's the top three competitive advantages to make Qantas the most profitable airline in the world? Harvard Business Review, 20, No.6, pp.52-76  Qantas 2015, Qantas Official Website, Viewed on 18th April 2015  Smh 2015, The five reasons Qantas is back in the black, Viewed on 18th April 2015 from Superbrands Australia 2014, Qantas: The Spirits of Australia, Viewed on 18th April 2015 http://superbrands.com.au/index.php/volumes/volume-2/79-volumes/volume-2/274-qantas-vol-2 8.0 Position Audit 8.1 SWOT Analysis These section analysis Qantas internal and external abilities to cope with environmental changes taking place in the airline industry. 8.1.1 Strengths Qantas is a strong brand both domestically and globally. Superbrands Australia (2014) claimed Qantas is ranked as the largest airline company in Australia based on the market share. In addition, the company has the largest fleet based on the size in the world. It conducts an effective market consideration in its partnership with Australia rugby Sevens, Wallabies and sponsorship of the Australian soccer team Socceroos (Superbrands Australia 2014). Qantas has implemented reward program called Qantas Frequent Flyer intended at building loyalty among its customers. On top of that, Qantas has presence in 21 countries across five continents including Africa, Asia, Americas, Oceania and Europe (Qantas 2015). In fact, the company is ranked as one of the best companies in terms of service. As a national carrier, Mules (2013, p.3) Qantas receives government support and political patronage hence it has competitive advantage in Australia over other market players such Virgin Australia, Singapore and Emirate Airlines. Qantas hold a good record for safety and performance which is an added advantage in terms of customer service. 8.1.2 Weakness The airline industry is a price sensitive sector which majorly depends disposable. IBISWorld (2014) contended that the economic fluctuation makes the income and price unstable hence Qantas has no control over them. The business Qantas undertakes is extremely prone to industrial disputes. In 2012, the company experiences a major industrial dispute due to what employees termed poor working condition and low wages (IBISWorld 2014). As a result of the action, the company operations were paralyzed with flights being schedules being cancelled. At the end of 2012 financial year, Qantas registered massive financial losses. IBISWorld (2014) went ahead to claim that the industrial disputes are likely to increase due to passage of Fair Work Act of 2012 which gave the companies mandate to operate its business free from trade union interference. 8. 1.3 Opportunity Pearl (2011, p.55) opined that there is an opportunity in the Asian airline market due to growth of economy in that region. In the process, the population of middle class citizens has increase considerable. Middle income families normally have high disposable income which they can use in luxury products and services such as air travel (IBISWorld 2014). Partnership also provides an opportunity for airlines companies to enter into new markets. Qantas entered into partnership with Emirates Airlines to so to penetrate the Asian market. 8.1.4 Threats The competition has intensified significantly due entry of many low-cost airlines in the industry, particularly in the Eastern Asia including AirAsia, Firefly Airlines, Tiger airways and Loin Air (Fickling & Wang 2012). The prices charged by these low-cost flights Qantas less competitive. The long-haul airlines where Qantas belongs to also experiences stiff competition from local and international airlines. Another issue threatening the operation of the company is the ever rising price of fuel. When the fuel is high, the operational cost goes up hence reducing the profits of a company (Johnson & Richard 2010). Some of the airline markets are highly regulated making foreign companies such as Qantas to operate below the potential. Some of the companies which operate in such markets are owned by the state hence have upper hand in terms of operation. 9.0 Porter’s Five Forces Porters five force is used here to analyze the intensity of the competition both domestic and international market. 9.1 Threats of the new entrants In the Australian airline, the threat of the new entrants is considered low due to the fact that it is highly regulated. This is an advantage to Qantas because few airline companies come in to compete (IBISWorld 2014). However, other international airline markets are less regulated thus high number of new entrants. When a market is less regulated, it becomes highly competitive but less profits. 9.2 The threats of Substitutes Airline industry highly depends on disposable income because it is a luxury product (IBISWorld 2014). The industry has experiences high threat of substitute in road and rail transport. 9.3 Bargaining Power of buyers Fickling & Wang (2012) claimed that buyers in the airline industry have a higher power of bargaining because the sector has many players both in low-cost and premium categories. According to Mules (2013, p.3) Qantas has invested in both categories take the market advantage. In addition, customers normally need high quality but are not loyal. 9.4 Supplier bargaining power Suppliers have a high bargaining power in the airline industry because they are few in numbers (Ford 2004, p.141). IBISWorld (2014) affirmed that Boeing and Airbus are the major aircraft manufactures in the airline industry. On the other hand, fuel suppliers in this industry have low bargaining power because they are many in numbers who sell fuel to the industry players. 9.5 Competitive Rivalry Competition is very high in the industry has many players continue to make entry. Some of the major competitors of Qantas include Emirates, Singapore, British, Virgin Australia, Southwest Airlines, Qatar and Lufthansa among others (Ford 2004, p.140). The competition is this industry is one the basis of service quality, price and branding. Read More