Strategic Management of Qantas Airlines - Case Study Example

Airline Qantas Name: ZHENGZHIJIAN---30117973 Subject: Strategic Management Course Code: BUMGT3702 Lecturer & Tutor: Maria Zenaida Mullin Due: 2October 2015 Word limit: 3500 words Executive summary Strategic management is indispensible notably in effecting preferred organizational processes. Whereas its inclusion presents preferred organizational practices, it is typified by divergent practices that make the process a success. Contemporary organizations have incorporated such strategies throughout their practices, with an aim of garnering significant customer base and competitive advantage against rival companies. The airlines industry like any other industry is highly competitive given the need to maintain customer retention and confidence. Qantas Airlines presents an interesting case study, where both internal and external forces act on the company hence presenting divergent impact on the company. Evidently, a number of organizational challenges are either unpreventable in organizational operations. These challenges call for strategic planning in effecting measures that would solve the problems to improve operational outcome. In highly, competitive industries, like the airline industries, organizational problems may prove costly as they may lead to competitive advantage drop and subsequent losses. As such, airline companies need to frequently analyze the operational environment amidst challenges with the aims of recommending changes so as to avoid the negative impacts of problems. The paper highlights different market forces that directly and indirectly influence the performance of Qantas Airlines while maintaining its competitive position and advantage in the market. Analytical approaches such as pestle and SWOT analysis will be incorporated in highlighting Qantas’ various strengths, weaknesses and market position; where informed recommendations are presented for the company. Contents Executive summary 2 1.0 Introduction 4 1.1 Overview of Qantas 4 1.2 Objectives 4 1.3 Scope and Limitation 5 2.0 Analysis 5 2.1 External Analysis 5 2.1.1 Step 1: The Industry 5 2.1.2 Step 2: General Environment Analysis 5 2.1.3 Step 3: The Industry Environment 9 2.1.4 Step 4: Competitive Environment 11 2.1.5 Step 5: Opportunities and Threats 11 2.2 Internal Analysis 12 2.2.1 Step 6: Tangible and Intangible Assets 12 2.2.2 Step 7: Capabilities Identification 12 2.2.3 Step 8: Core Competency Analysis 13 2.2.4 Step 9: Value Chain Analysis 14 2.2.5 Step 10: Weaknesses 15 2.2.6Step 11: Pulling it together 15 2.2.7 Step 12: Current Strategies 17 3.0 Recommendations 17 3.1 Business level 18 3.2 Corporate level 18 3.3 International level 18 4.0 Conclusions 19 5.0 Reference List 20 1.0 Introduction 1.1 Overview of Qantas Qantas is Australian’s National Airline where Alan Joyce is the current CEO, having taken over since 2012. Though the entity is still profitable, the company is facing some challenges that have negatively impacted on the outcomes. The challenges range from a number of internal factors such a challenges in managing various employee needs and requirements and service quality to other external factors such as high competition and high supply prizes that increase production costs among others. Facing these challenges, the company’s performance has increasingly been on a decline since 2008, gradually dropping in its global ranking from position three to position fifteen in 2011. Notably the setbacks are not only domestic but also on a larger scale, affecting the international performance of the entity. As such, there is a need for a quick and urgent solution to these challenges through strategic planning, with the aims of reviving outcome and improving profitability on both local and international markets. 1.2 Objectives The main objectives of this report are to conduct a detailed analysis of the internal and external environments affecting the operations and operational outcomes of Qantas. This analysis would be effective in understanding the factors that negatively implicate on performance leading to reduced profitability and poor market performance. Using this analysis, the report aims at suggesting recommendations with the sole aims of making Qantas gain competitive advantage and promote its customer loyalty for increased profitability on both the Australian local and international markets. 1.3 Scope and Limitation The report is limited to the airline industry within which Qantas operates. As such, the sole focus will be on the forces that impact on airline’s performance in this industry with specific concern on how these factors have impacted on Qantas. However, notable variations in customer preference and customer loyalty based on various constant changes in the aviation industry, for example in flight prices, are potential limitations on the sustainability of the recommendations made in this report. Consequently, it is imperative to frequently monitor the customers’ trend and make adjustments to the recommended strategies with the aims of tackling customer needs for increased competitive advantage. 2.0 Analysis 2.1 External Analysis 2.1.1 Step 1: The Industry Qantas operates in the airline Industry. The industry is characterized by high competitive rivalry, having some industrial participants. The competition is not only locally in the Australian market but expansively on the international market too. Additionally, profitability in the industry is determined by the strategies in place to attract customer preferences and loyalty. However, with changing strategies now and then, maintaining high customer preferences and loyalty is difficult. As such, the industry demands frequent strategic planning measures in order to improve their operational outcome. 2.1.2 Step 2: General Environment Analysis i. Economic The Australian Dollar has, for the past ten years, increased by over 100%. The resulting impact of this increase is a rise in commodity prices. This impact is felt in the aviation industry by raising production costs, increasing employee demands on salary and wages and increasing customer preferences for cheaper flight prices. Additionally, according to IATA reports, only three of the past nine years have recorded positive margins in profitability with an increase in oil prices causing reductions in these margins. Since the trend is unpredictable and bound to go on for a long period, new opportunity is provided for cheap local and international flights in order to attract customer preferences and strategic planning in reducing production costs while improving service quality for competitive advantage. ii. Physical The airline industry is strongly affected by nature vagaries such as earthquakes, storms and drought among others (Cowper-Smith & Grosbois, 2011). Examples of notable impacts on Airlines are the Christchurch New Zealand earthquake of 2011, the Japan Tsunami in 2011 and volcanic ash from the Icelandic eruption in 2010 that disrupted flights. Furthermore, oil existing as a natural source tends to impact significantly on the airline industry. The technology and geopolitics are surrounding oils existence, for instance would heavily implicate on the oil prices by increasing or lowering airline productions costs. However, an increase in production costs is usually more likely. These physical factors, though impacting on airline industry’s performance are outside the controls of the industry and can only be manipulated by nature. However, strategic adjustments in pricing policies may control the impacts of oil prices. Sociocultural Sociocultural trends impact on traveling demands. Various people travel the world or different places for various social and cultural reasons such as work demands or tourism. These trends lead to variations in traveling seasons with conducive time periods being peak travel seasons while at other times traveling may be low. This presents an opportunity to partner with various tourist destinations with the aims of increasing awareness of the destinations and promoting flights to the destinations. Additionally, the airline industry can design strategies that would increase customer preferences over the both the peak and low travel seasons for profitability. Global Various global trends and characteristics affect the airline industry. Civil strife and wars, for example, reduce traveling to the affected nations hence leading to stopping or reducing such flights. In Kenya, for example, the Al Shabaab terror attacks, led to various outside governments discouraging and restricting flights to the country for their citizen’s security. Globalization trends, on the other hand, which encourage networking, have increased travels leading to increased profitability of the airline industry. This provides an opportunity for the participants to offer a variety of travel destination points and provide high-quality customer service in order to attract customer preferences and gain a competitive advantage over the peers. Technological Since most of the world is increasingly becoming technologically savvy, it provides an opportunity for most industries to harness the powers and advantages of technology to boost performance (Cowper-Smith & Grosbois, 2011). Airline industry falls into this category. Most airlines have, for instance, embraced the use of technological tools such as the internet to manage and control booking. Strategic use of technology facilities has also improved the market voice share of various airline industry participants hence increasing customer awareness and influencing preferences. Additionally, infusion of new technology in in-flight services improves the service quality. As such, the technology prevents some opportunities for the airline industry that could be used in increasing competitive advantages. Political/Legal Several political or legal concerns implicate on the airline industries performance (Yu, 2012). In most cases, political and legal effects are felt or experienced in the formulation of the industries policies. While most political implications are mostly felt in government-owned entities, others such as political tensions and government impositions of travel bans, for example, affect even the privatized entities. However, legal aspects mainly affect both scopes. Workers unions, for example, strongly agitate for good compensation packages for the workers and emphasize on professional treatment of the workers and provision of high standards workers safety measures. It is important for the airline industry participants to ensure adherence to political and legal expectations in order to improve outcome and cut down on costs that would be diverted to legal tussles. Demographic The demographic background impacts on the industry are massive and interesting. High populations nations such as China, Thailand, and Japan, have increased travels hence impacting on airline travels by increasing profits from the high number of travels. Moreover, in Africa, where population increase has been more evident, regional carriers have developed and increased since 2012. This provides opportunities for growth of the airline industries by strategizing on organization destinations to meet the world’s changing population patterns. 2.1.3 Step 3: The Industry Environment Porter argues that there are five major forces that impact on business performance (Alderighi., et al., 2012). These forces include: Supplier Power In the airline industry, the supplier power is very strong (Gregson., et al., 2015). Airlines require various machinery supply, technological equipment, fuel and foodstuffs among other operational requirements. These requirements need to be high quality and convenient for effective service. The inability to function without them makes the supplier power strong, hence in most cases airlines are faced with high production costs from suppliers. The suppliers operate in very fast-cycle industry featuring large economies of sales and relying on very expensive R&D. Airplane Manufacturers such as Boeing and Airbus have high bargaining power. Buyer Power On the other hand, the buyer power is also very strong (Alderighi., et al., 2012). The customers can control the pricing by setting various price expectations through which their preferences and choices for airlines are influenced. In response to the high buyer power, for example, Tiger Airlines and Virgin Australia introduced low-cost flights in order to increase their competitive advantage. Consequently, Qantas is forced to introduce Jetstar due to strong buyer power. New entrants Threats The threat of new entrants in the industry is law. This is attributed to the fact that initiating the business is costly, requiring very high capital and time to set completely up a functional unit. Setting up airline spaces and purchasing airlines, for example, would cost billion dollars, hence limiting investors. Substitute Products Threats Most airline industry participants have a tendency to engage in other supporting businesses such as hotel service, taxi services, and parking space businesses among others (Alderighi., et al., 2015). Qantas airline, for instance, runs operates baggage service business, check in services, passenger lounges and Qantas catering businesses. Operating some various other businesses sometimes could be distracting to core organizational values. As such, the threat of substitute products is high. Rivalry Levels However, the strongest force, which is second to the supplier power, is very strong and high rivalry in the airline industry (Yu, 2012). In order to explain the high industrial rivalry, the study gives examples of IATA having 230 members and Skytrax list having over 620 airlines. In Asia, for example, Qantas faces stiff competition from Malaysia, Singapore, British, Thai and Cathay Pacific Airlines. Different industry participants have different effective strategies for increasing competitive advantage. Additionally, gaining customer loyalty in the industry is difficult, hence increasing the levels of competition among the competitors. 2.1.4 Step 4: Competitive Environment The airline industry is characterized by very high competitiveness and low-profit margins (Yu, 2012). Qantas experiences these effects, facing stiff market competition from Virgin Australia and Tiger Airlines that entered the market as low- cost airlines. Both Virgin Atlantic and Tiger Airlines have strategic measures of increasing competitive advantage such as having new airplanes that consume less fuel, quality catering and venturing into profitable locations at low costs. As such, the airlines attract new customers as well as the majority of air travelers who are more inclined to preferring more affordable and low price travels. Qantas loses losing its competitive advantage to the competitors if its sets its prices too high. On the other hand, the airlines still have the capability of outperforming Qantas in the market if she lowers her prices. Besides, lowering the prices may further lead to incurring losses due to the high production costs. 2.1.5 Step 5: Opportunities and Threats Using the analysis in step 1, 2 and 3, various opportunities and threats are evident in the airline industry. These could be related to Qantas Airlines in order to identify the opportunities and threats within the entity. Various demographic patterns in the world demand for strategic planning in the airline’s operations (Karp, 2003). Such is the opportunity for Qantas. All these opportunities would be imperative for improving the competitive advantage of the entity over is strong competitors. On the other hand, the company faces the main threat of being thrown out of the market by its low cost and highly competitive competitors such as Virgin Australia and Tiger Airlines. Additionally, the threats of low profits or incurring rises due to high productions costs are also more likely. As such, the company needs to strategize on effective measures that ensure high profitability by increasing their competitive advantage as well as cutting down on costs to prevent incurring losses in case lowering prices strategy is implemented. 2.2 Internal Analysis 2.2.1 Step 6: Tangible and Intangible Assets Tangible resources refer to both the current and fixed assets such as machinery, buildings, and inventory (Yu, 2012). Qantas owns some fleets that include the Boeings and Airbuses that serve some destinations. The study observes that the airline has always strived to stay updated in terms of airplane type and numbers. Additionally the airline has two major hubs in Melbourne and Sydney where the majority of their local and global networks operate. On the other hand, the intangible assets refer to the non-physical but long-term resources that entities may have (Alderighi., et al., 2012). These include knowledge, copyrights, patents, trademarks and trade names among others (Yu, 2012). Qantas is a household name in Australia with over 60 % shares in the domestic market (Qantas, 2013). Furthermore, it employs branded airplanes such as Boeing 747, the second version to keep its competent edge in the airplane market. Qantas operational airlines consist of Qantas and Jetstar airlines. Additionally, the airline company is associated with Qantas Freight Enterprises, Qantas Link, and other alliances. 2.2.2 Step 7: Capabilities Identification The Qantas group possesses an industry leading resilience business capability that is extremely active in identifying internal and external risks that are developing and thus provide a quick response. This in turn acts to assist the company in its quick recovery from pitfalls and makes the company emerge as an organization that is stronger and highly capable of handling itself in various risk scenarios. 2.2.3 Step 8: Core Competency Analysis Exceptional Valuable Hard to replicate Non-substitutable Competitive Consequence Performance Implication Excellent customer service Yes yes No No Competitive Parity Average Returns Reliability Yes yes No No Competitive advantage Average Returns Safety Yes Yes Yes No Competitive advantage Average Returns Outstanding engineering and operational services Yes yes Yes No Competitive advantage Average Returns In 2009, Qantas got its award for having a good design in the First Class Suit A380. Furthermore, Qantas has achieved awards for being the best Australasia airline in the years 2005, 2006 and 2009. The airline company has not been left out in being awarded the Skytrax award for being the best regional airline of Australasia. Qantas is valued as one of the major brands in the airline industries, serving both international and domestic platforms. The airline has various customer related services and operational services that enable it to get connected with the state and also with international avenues. Qantas Airways have a loyalty program that is considered the most famous in the southern hemisphere. In addition, Qantas Airways have a corporate group that plays a vital role in the company. The corporate group serves to provide Qantas Airways with the needed guidance to create strategic goals and develop policies that meet the set goals for the company. Furthermore, the group ensures that Qantas Airways are in compliance with set standards of performance for the airline. 2.2.4 Step 9: Value Chain Analysis The value chain tool of a company presents the strategy of the company, its history, the mode of management and its potential economics. The analysis of the value chain of Qantas Airways starts with the high cost of fuel supply compounded with the aircraft supply cost that is also high. Primary Value Chain Operations for landing and taking off are planned on timely schedules, and the bookings in procedures are handled efficiently by an online system that shows the embracing of technology by the company. Supportive Value Chain The flight services of the airline are comprehensive of most of the Australian region and the globe as well. Relationships between Qantas and its suppliers are excellent and are contractually drawn where parties deliver with mutual respect to each other, and this oversees the operation of services in a smooth manner (Qantas, 2013). As a founding member of the AIMSC (Australian Indigenous Minority Supplier Council), it has signed an agreement with AIMSC suppliers, Message Stick Communications (Qantas Sustainability Review, 2012). In this respect, it consolidates major functions with supplier groups such as Jumbana Group. Human resource management in Qantas is effective in the promotion of a comfortable working environment for the employees. The integration of the company’s primary activities with its supplementary activities has brought about a competitive business edge of Qantas over other airlines. 2.2.5 Step 10: Weaknesses The company has based much of its effort around Australia thus missing the opportunity to expand to other markets given its known brand. 2.2.6 Step 11: Pulling it together SWOT ANALYSIS Strengths i. Qantas Airways have an employee base of 35000 productive employees who are committed to do their work (Qantas, 2013). ii. The company provides care to their employees through the provision of tangible benefits such as leave of personal care, parental leave, examination assistance leave, and training. The human resources management of Qantas Airways provides working conditions that are favorable and flexible to the employee team. The service provided to customers of Qantas Airways is free of hassle and more often than not comfortable to passengers. iii. The company has been impressive in caring for all kinds of their customers’ needs particularly the catering of persons with disabilities and assisting them in travel. Weaknesses i. From the internal perspective, employees find airline work in Qantas Airways stressful due to lengthy working hours and impossible schedules that are a fact to be reconciled with by workers in the industry. Different climatic conditions faced by the crew, in addition, do not help to ease the situation. As such, employees may be grumpy and exhausted thus reducing its workforce productivity. ii. The maintenance of set standards under such conditions such as the climate and the patterns is very often hard to accomplish. Opportunities i. Qantas Airways are involved in student college programs such as Community Network Transition Program, which encourages the student in opportunities and careers possible for their future life (Qantas, 2013). The provision of internship programs by the company furthermore serves to create a simpler employment base for the company on the foundation of trainees who have practiced well with the company. ii. Qantas Airways are involved in humanitarian projects that have helped raise the profile of the company in the consumer’s eye (Qantas, 2013). Threats i. Qantas faces difficulties such as fuel price fluctuations that destabilize the normal operating costs of the company. ii. Changes in the aviation policy of the government also affect the normal operations of the airline (Sarina, 2013). iii. Qantas Airways are prone to employee industrial action which create an imbalance in the company’s program and easily sway away customers from the company as services are immensely affected by a strike. For instance, from the year 2008 in September where the company witnessed a 0.2% decline in sales due to a strike by workers (Qantas, 2013). iv. Being an industry that relies greatly on a technical and human judgment based on the reliability and safety, Qantas Airway faces the threat of being sued in the case of an accident of one of its airplanes. Passenger and crew injury during an accident in the course of a flight is an expensive affair in the airline industry as it is followed by lawsuits and decline in consumer trust of the services offered by the respective company, in this case, the airline company. 2.2.7 Step 12: Current Strategies Qantas has developed a reform strategy that is proactive in the checking of deficiencies in safety in order to minimize the risk of accidents. Accompanied by this strategy are policies and programs that are insistent on the emphasis of the laid out structure for the observation of safety. Furthermore, the company localized its airline transportation through the partnership with Jetstar International. The company now provides domestic airline services at favorable prices for consumers (Taylor, 2013). This move has helped Qantas to battle its competition locally with airlines such as the Tiger Airways and Virgin Australia. Qantas has recently revised its international strategy, and, as a result, has set up a base in Dubai to tackle the Arab market. The plans to enter the Asian market are also underway so as to increase the company’ s market share in the industry. 3.0 Recommendations With its established brand name, Qantas Airways need to market aggressively itself internationally and partner with other large airline companies to learn from them and improve on its services. This will create the best scenario for an airline company with the ability to fully satisfy all ranges of customers. Getting into new markets will help Qantas Airways to handle competition and thus avoid potential fallout from the market through being overtaken by large existing companies and small uprising airlines. 3.1 Business level The pricing strategy applied in the ticketing of Qantas Airways requires an improvement particularly one that is concurrent with the latest technology to help achieve a competitive edge over its rivals and enhance customer loyalty in the process. The company, in addition, needs to value its customers more by ensuring that the feedback platform is effective and working on the customer feedback provided to improve the airline’s services. The value proposition is an imperative aspect when offering consumer with value for service. Vargo (2009 p. 379) present the importance of value proposition, as elements that need further implementation within an organizational context. 3.2 Corporate level On a corporate level, the numerous departments found within the management need to be cut down first to cut on costs and second to improve efficiency. An easier operational plan helps business to run smoothly, and the targeted goals are easier achieved. Arguably, the company should utilize available resources in effecting such functions. The resource-based view suggests the need to maintain competitive advantage through the consolidation of available resources. As such, it should use its large workforce to dispense effectively functions across divergent aspects (Vargo, 2009 p. 395). 3.3 International level Qantas Airways can improve its market share by entering new markets in the globe. Despite its worldwide travel destinations, Qantas Airways are still hugely based in Australia thus expansion and entry into other markets would serve to grow the company and help it achieve its maximum potential. Contrariwise, the company should benchmark competitive companies where they can effectively integrate newer strategies in retaining employees and provisioning quality services to its employees. Whereas, benchmarking has been frequently used by different companies its inclusion would offer competitive environment; these could be from companies such as Etihad and Qatar Airlines, to name a few. 4.0 Conclusions Whereas the Airlines industry present divergent competitive market, maintaining a highly competitive company necessitates the inclusion of informed decision, notably, through offering value proposition, effective use of resources and benchmarking initiatives, to name a few. The airline market is one that has aggressively established itself in the transport industry especially with increased travel caused by innovation and generally globalization. Whereas Qantas Airlines has its business operations run fairly well in comparison to all other companies and putting related factors into consideration, there is more it could do to achieve increased competitive advantage. For the unparallel achievement of the company and attainment of its long-term goals, the company needs to strategically plan its operations and implement on the basis of a dynamic transition in the globe so as to cope with business trends and still maintain its position in the airline market. 5.0 Reference List Alderighi, M., Cento, A., Nijkamp, P., & Rietveld, P. (2012). Competition in the European aviation market: the entry of low-cost airlines. Journal of Transport Geography, 24, 223-233. Cowper-Smith, A., & de Grosbois, D. (2011). The adoption of corporate social responsibility practices in the airline industry. Journal of Sustainable Tourism, 19(1), 59-77. Gregson, S., Hampson, I., Junor, A., Fraser, D., Quinlan, M., & Williamson, A. (2015). Supply chains, maintenance and safety in the Australian airline industry. Journal of Industrial Relations, 57(4), 604-623. Karp, A. (2013). Shifting alliances: moves by Qatar Airways, US Airways, LATAM, Qantas and Emirates signal a changing global airline partnership map. Air Transport World, 50(7). Sarina, and Lansbury, R. D. (2013). Flying high and low? Strategic choice and employment relations in Qantas and Jetstar. Asia Pacific Journal of Human Resources. 23-28  Taylor, E. (2013). Consortium clouds Qantas strategy. Airline Business,29 (1), 13-13 Qantas. W. (2013).  About Qantas. Accessed at:  http://www.Qantas.com.au/travel/airlines/about-Qantas/global/en  Qantas Sustainability Review, 2012 Vargo, S. L. (2009). Towards a transcending conceptualization of relationship: a service-dominant logic perspective. Journal of Business & Industrial Marketing, 24 (3/6), 373-79 Yu, G. (2012). Operations research in the airline industry (Vol. 9). Springer Science & Business Media. Read More