An Australian Airline (Qantas) - Essay Example

Executive Summary Qantas had so far been enjoying premium brand equity but lately ash been experiencing declining sales and market share. Turnaround strategy should involve extension and expansion of the geographical region. Qantas plans to extend its services with an Asian hub and serve the underserved Asian markets. SWOT analysis had revealed that opportunities in this region are immense but they should focus on being a premium corporate airline. Earlier the recommendation was to focus on new product development, look for newer destination with fewer carriers and attract new customer base. This paper has evaluated two alternatives and recommends that for a turnaround strategy to be successful reorientation is a better strategy than trying to revive the underperforming sectors in tradition markets. Thus the first alternative to continue with Qantas brand and extend service in international sectors is not feasible and has inherent risks. Therefore, the airline should start its new carrier as a premium corporate airline with focused leadership having string corporate vision. They should be able to provide all on-board facilities based on an evaluation of customer needs and convenience. This strategy is in alignment with its corporate vision which is to operate the world’s best premium airline. This strategy would require 3-4 years to become effective as fresh agreements, landing rights, and delivery of new aircrafts would have to be obtained. This also requires training and development of the staff, better employee relationships and focus on profit maximization. This is an achievable strategy as the airline has abundance of experience in being a legacy carrier. They also have experience of dealing with the Asian clients because of Jetstar, their LCC. It is expected that this strategy would be able to provide the expected synergies. 2. Alternative recommendations Qantas Airlines, proposing to start a premium carrier with as Asian hub is subject to regulations imposed by the Australian government as they face charges against layoffs. It has been recommended that the new premium carrier should focus on Singapore as the hub and the strategy that has been recommended was to focus on product development and new market development. This strategy would disturb its agreement with Oneworld partners and especially Cathay Pacific. This paper analyzes the proposed recommendations and provides alternative strategy identification and discussion. 2.1 Alternative strategy 1 As of now the strategy is to start a new premium brand with a minority stake which would help them obtain landing rights in Asia and also feed the base hub with international traffic. However, this strategy could lead to fragmentation and dilution of its core brand as it already runs a low cost Jetstar subsidiary which operates in Asia. They should hence focus on the base brand and develop it. 2.1.1 Gap Analysis The airlines vision is to be the first 'next generation' premium carrier (Qantas, 2009). Brand Qantas is well established in the minds of the people and continuing with the existing brand instead of a new carrier would be a strategic fit with their corporate visions, mission and goals. They have the necessary resources in terms of human capital such as trained pilots and operations staff. This strategy would eliminate the existing pilot agitation in Australia and they could save face against government opposition. 2.1.2 Changes in the current marketing strategy With this new strategy Qantas would not have to focus on new product development. However, their target segment, market positioning and the distribution channels would remain the same. They could continue to offer new destinations to the new segments through innovative strategy. To differentiate itself from other products, 2.1.3 Expected results This strategy would help in better allocation of resources and utilization of unutilized resources. At the same time, financially there would be cost savings as the new brand need not be promoted separately. Marketing efforts too would be minimized as only the new destinations have to be targeted to a niche segment. Moreover, the existing customers are disturbed with its plans to start another carrier in Asia. Qantas is having trouble convincing the public about its strategy of setting up joint ventures (Creedy, 2011). This new strategy would help avoid this trouble and retain its loyal customers. Management staff could be retained so that layoffs are minimal thereby enhancing employee-employer relationship. 2.1.4 Implementation of alternative solution This strategy can be implemented immediately with minimum investment. The investments would only be in destination charting and obtaining landing rights in Asia through restructuring. 2.1.5 Solution Qantas is anyway going in for restructuring of its alliance with BA. This strategy would ease the resistance that airline is facing from the government as well as from the pilots and other staff. It could continue to remain an Australian-based majority-owned airline instead of having a minority stake in an alliance. 2.2 Alternative strategy 2 Asia is the world’s fastest growing aviation market and Qantas has been losing market share in it. Flying to Europe is no more beneficial as there are several competitors on those routes. Asia is expected to drive growth (House of Japan, 2011) and hence Qantas should adhere to its vision of starting a new premium carrier with Singapore as the hub. However, the product and marketing strategy could differ. They should focus strictly on corporate travel as they intend using narrow-bodied aircrafts (Nasser, 2010). It should be point-to-point service something like flights between New York and London. 2.2.1 Gap Analysis This would be in alignment with their vision to be an exclusive premier carrier and give them a point of differentiation in Australia. Their focus is to turnaround the international division. Southeast Asia is very promising, specially flights to and from India and China. It should hence focus on one-stop services to Asia with the corporate segment as its target segment. This strategy fits into their corporate strategy and vision of being an exclusive premium carrier. 2.2.2 Changes in the marketing strategy With the focus on the corporate segment the marketing strategy would differ. This would require more of direct selling or selling through travel agents. Aggressive selling may have to be done initially through focus on the same day return flights. This means the product has to be suitably designed with the customers’ convenience in mind. It must position the airline as a corporate airline and offer suitable facilities on board. Since these would be short-haul flights the number of seats could be increased on each flight. The timings too have to be convenient to provide day business hours in the country of arrival. Differential pricing strategy could be used based on the timing of the flight. Hence passengers not requiring the peak hour flights could settle for low-price flights. Special corporate offers could also be given based on the annual volumes guaranteed. 2.2.3 Expected results With this focus on corporate travel in Asia, Qantas can expect sizeable profits which would not be possible if the focus is on the leisure segment. Because of the corporate segment they could ask for premium pricing which the corporate travelers would be willing to pay for brand Qantas. Focusing on the leisure segment would not allow them to charge premium pricing. Marketing to corporate customers is easier than capturing the leisure segment. Moreover the need of the Asian market is the corporate segment as Asia drives global growth. 2.2.4 Implementation Implementing this strategy would require heavy investments in alliance, agreement, payments to obtain landing rights and recruitment and training of new operations staff. It would also require investments in marketing and promotion of the new products. Risks prevail in all international and new ventures but with the past record of Qantas’ transformational strategies, such as the establishment of Jetstar, it can be expected that Qantas would be able to handle this also (Kelly, 2011). 2.2.5 Solution However, if this strategy is accepted it would bring the airline out of current losses. Its international division could return to profits as it ash been suffering heavy losses. 3. Recommendation Qantas Airlines needs a turnaround as it is in the midst of losses and turmoil in its domestic as well as international operations as it is undergoing ‘a survival threatening performance and decline’ (Lawton, Rajwani & O’Kane, 2011). However, through the right strategy the airline can reverse the performance decline and end the threat to survival and achieve sustained profitability. The first alternative to modify Qantas and continue with the existing brand and facilities would not be suitable as they have already fallen behind and risk the failure to regain customer loyalty and trust (Lawton, Rajwani & O’Kane). When airlines experience declining growth in the existing markets and who are able to identify opportunities elsewhere should focus on revising the products and services and undertake geographical growth. In short reorientation is a better strategy than trying to revive the underperforming sectors in tradition markets. To capture a share of the growth market in Asia and to slash costs in its existing operations, Qantas should set up the Asian hub at Singapore with the focus on the corporate segment and the premium class travelers that are willing to pay premium price for excellent services and on-board facilities. Currently Qantas suffers a disadvantage due to its geographical isolation. It Qantas has a mere 4% market share in Singapore which adds up to 9% with Jetstar (Sreenivasan, 2011). However, these are the regular travelers, customers of low-cost air travel. The new strategy to focus on premium corporate travelers can be achieved because of the high growth potential in the area. 3.1 Gap Analysis The Qantas Group’s corporate vision is to operate the world’s best premium airline. To achieve this they focus on five elements – safety, right aircraft, customer service excellence, operational efficiency, and two strong complementary brands (Fact Files). Based on the growth potential in Asia, starting a premium carrier in this continent would be an ideal opportunity. They are aware of the opportunities presented by the Southeast Asian open skies initiative scheduled for 2015 which will enable national carriers of ten ASEAN countries to fly between regional capitals (House of Japan, 2011). Qantas already has an unwavering policy towards safety best practices and reporting. They are committed to delivering the world’s most effective fleet flying on an optimal route network. Towards meeting this goal, Qantas has ordered 11 A320s with range-boosting winglets and configured to fly in low-density configuration. They are already focused on excellent customer service and operational efficiency can be expected as they would employ new labor in the areas of operation. However, Jetstar is a low-cost carrier and caters to a different segment. This new carrier would be an exclusive airline catering to the needs and preferences of a niche and discerning segment. Thus, this strategy is is alignment with their corporate vision and goals, and most suited for emerging from its position of loss. In fact this strategy could drive growth and development for the airline. 3.2 Marketing strategy Qantas needs to position itself as a premium carrier because the low-cost carriers in Asia are undergoing consolidation (Darwin, 2011). If they have a low-cost image they would not be able to attract the premium corporate segment. They must build an up-market image otherwise they would be considered equal to Tiger Airways or Jetstar. They must modify the product mix to suit individual requirements which implies that they must offer all-business class seats in the new carrier. This would give the airline class distinction and based on this point of differentiation, they could create a new segment of premium class travelers. On-board facilities should commensurate with market needs and may need further investigation. There is substantial competition in Singapore and hence Qantas should strive to gain competitive advantage through differentiation. Porter suggests that competitive advantage can be obtained either through cost leadership, through differentiation or focus. Qantas in Asia should combine the focus and the differentiation strategy to gain market share and achieve competitive advantage. The airline should position itself not merely as a carrier but as an extension of the office of the corporate organization where the executives have all the facilities to continue working before they arrive at their destination. Advertising and promotions may differ according to the destinations they intend touching. China and India are the two most important sectors in Asia that drive growth and hence the sky policies and the government restrictions, the customer needs in these nations would have to be evaluated. Corporate travel would come from multinationals and most multinationals have their offices in most Asian nations. Hence signing an agreement for all their offices executed by the headquarters would substantially reduce the marketing and advertising costs. The aircrafts should have a fresh look as the name too has been giving rise to speculation. One of the prospective names for the airline is RedQ and this has been associated with the preference given to the color red in the Asian countries (Sreenivasan, 2011). The interiors should have Asian touch and since the focus is supposed to be China, the decor and the service offerings should conform to the customer needs. The crew on board should be familiar with the local Asian languages and the nuances. Meeting customer expectations in the airline industry is important if the airline is to capture a fair market share. Cultural factors play a significant role in international marketing. Most Asian nations have high power distance which implies that they accept and respect authority. Australia has low power distance and high individualism index and hence the airline may have to recruit local people to enable the best customer services. Culture plays a significant role in cognition, problem-solving and perception. Thus, customer needs and preferences in Asian nations may differ from what Qantas is used to in Australia. They should strive to reach that stage that when someone going to Asia is asked which airline they wish to fly, the reply should be “RedQ” or whatever the airline decides to call itself. Image is created by the service given (Lawton, Rajwani & O’Kane, 2011) and the focus should be on excellent customer service, which is one of the elements of the airline’s corporate vision. 3.3 Expected results This strategy would result in heavy costs savings as the labor including cabin crew and other staff in Singapore is some 40% cheaper than back in Australia (Sreenivasan, 2011). Airport fees too are much lower at Changi than the airports in Australia. Marketing would require some effort as this would be a new product. The airline group has experience of the geographic location as it operates its LCC, Jetstar in Asia but catering to a discerning clientele may require change of marketing efforts. Qantas has an effective management team and besides then intend outsourcing pilots and other operations staff locally. This ensures their administrative costs would be reduced while infusing new brains and innovative ideas into management and operations. However, risks in international expansion exist and particularly during this time when Europe and the US are reeling under severe recession. The Asia-Pacific region is a bright spot for the aviation industry especially in the wake of high fuel prices and weak economic growth in the West (Bellman, 2011). This has given a surge to low-fare travel which has changed the dynamics of the aviation industry. This has also resulted in pain, uncertainty and consolidation in the industry. This also affects the employees as they fear job security and no wage increments. During this period of turmoil opening new routes may help overcome the situation. Through quality leadership and alliance networks the airline would be able to overcome the risks that prevail in international operations. 3.4 Implementation The airline would have to engage in restructuring the business plan. To do so, it should engage the existing internal team as this would serve to pacify the emotions of the staff. Employee engagement is essential to overcome change resistance. When they are convinced of the benefits through the revised plan of setting up an Asian hub, they would be willing to listen, understand and cooperate. They would need new aircrafts, new operations staff, fresh agreements and landing rights. Focus in turnarounds has to be on profit maximization and in repositioning, it should be never be as a LCC. Investment would be huge but the airline should utilize its reserves to invest in growth and development. The entire strategy would require 3-4 years in implementation as administrative and regulatory laws have to be complied with. Besides, Airbus may take time to deliver the aircrafts as per requirement. Landing rights and agreements with different Asian nations would also take time. Investments would have to be made in staff development and enhancing employee-employer relationships. Strategic change requires excellent communication between the staff and the management. Change management also requires culture change – a culture of change should be brought in. Thus investment in training would enable the entire Qantas Group to reap rich dividends. Qantas already operates the low-cost Jetstar in Asia and hence is aware of the differences in culture. Thus, the management would be able to cope with cultural differences even with the high-profile customer base for its new premium carrier. 3.5 Solution This strategy would help Qantas terminate the unprofitable routes but would also result in massive job losses (Bellman, 2011). However, if the airline is to achieve a turnaround job losses are unavoidable. In fact, out of the 1000 jobs expected to go, about 350 voluntary redundancies have already been offered. Reorientation can be achieved through focused leadership. The airliner must have clear vision statements before they proceed for the turnaround process and the CEO Joyce does have that when he says, “We don’t have the option of pretending that things will change if we stay the same” (Case Study). It can thus be expected that the airline would be able to achieve the turnaround if it adheres to a niche segment – the premium corporate travelers for its new premium airline to operate in the Asian regions with Singapore as the hub. When the market declines extension and expansion is the only way out and Qantas is striving towards achieving that end. Focusing on the underserved markets would help in the reorientation process. Through the profits earned they could revive the existing Qantas which ash suffered major setback in the domestic market. References Bellman, E. (September 20, 2011). Profits Under Pressure at Asian Airlines. Wall Street Journal (Online) [New York, N.Y] Creedy, S. (September 5, 2011). Qantas strategy of setting up Asian airlines panned by public. Retrieved from http://www.theaustralian.com.au/business/aviation/qantass-asian-plans-panned/story-e6frg95x-1226129292183 Darwin, G.A. (Spetember 20, 2011). Consolidation looms for low-cost carriers. McClatchy - Tribune Business News. Fact File. THE QANTAS GROUP AT A GLANCE. Retrieved from http://www.qantas.com.au/infodetail/about/FactFiles.pdf House of Japan. (August 21, 2011). Retrieved from Qantas' Asia strategy will pay off. Retrieved from http://www.houseofjapan.com/local/qantas-asia-strategy-will-pay-off Kelly, R. (September 1, 2011). S&P endorses Qantas Asia strategy, raises outlook. Retrieved from http://www.marketwatch.com/story/sp-endorses-qantas-asia-strategy-raises-outlook-2011-09-01 Lawton, T., Rajwani, T., & O’Kane, C. (2011). Strategic reorientation and business turnaround: the case of global legacy airlines. Journal of Strategy and Management, 4 (3), 215-237 Nasser, R. (2011). Qantas banking on Asian strategy to fix international woes. Airline Leader. Retrieved from http://www.airlineleader.com/regional-focus/qantas-banking-on-asian-strategy-to-fix-international-woes Qantas. (2009). Qantas - The Next-Generation Premium Airline. Retrieved from http://www.qantas.com.au/travel/airlines/next-generation-airline/global/en Sreenivasan, V. (May 14, 2011). Qantas hopes to wing it in Asia with Changi-based carrier. The Business Times [Singapore] Read More