Australian Airline (Qantas) - Essay Example

?Executive Summary Qantas is the world’s leading full service airline enjoying premium brand equity. Qantas has been experiencing declining sales andprofits and intends to start a new premium carrier with Singapore as its hub. Expansion and growth is the only solution if the airline is to survive. This has given rise to threats and agitation from the union and the pilots while the government too is evaluating if Qantas can operate with Singapore as the hub under the terms of privatization. Agitation by the union and the pilots could affect its brand equity. However, the major problem is that of competitive rivalry in the Southeast region where established full service players such as Singapore Airlines and Cathay Pacific continue to have loyal customers. SWOT analysis suggests that opportunities in the region are immense as the number of people flying in Asia would reach one million by 2014. Nevertheless, Qantas would have to add new destinations as competitive rivalry is immense. Even the Singapore Airlines has been steadily losing market share over the past decade. However, Qantas should not compete on prices but position itself as a leading full service premium carrier. The buying power of the buyers in Southeast Asia is high and hence Qantas must apply flexible marketing strategies such as differential pricing, joint venture promotion campaign, multi-sales channel. Qantas should focus on new product development, look for newer destination with fewer carriers and attract new customer base. They can also add several sales channels and offer differential pricing. Internet has become a powerful channel to attract customers with a varied pricing strategy. Qantas should use its brand equity and develop new customer base and introduce new destinations. SWOT Analysis Qantas intends starting a full service premium airline that would offer same day service to and within Asia. A SWOT analysis of factors relevant to marketing and factors that would have a significant impact on the elements of the marketing strategy is being presented here. Strengths Being the world’s leading long-distance airline, Qantas enjoys a reputation for safety operation reliability, engineering and maintenance, and customer services (Mehmood, 2010). This brand equity would enable the entry into Southeast Asian markets smoother. Safety culture and excellence are the key components of the brand that could help in a smoother entry into other markets. Weakness Declining profits and the domestic passengers choosing to fly out of Australia on airlines other than Qantas has forced the airline to think of alternative routes. Significant differences in culture exist between the Asian countries and Australia, which could impact the marketing strategy. So far Qantas has been focusing on the western countries with similar cultures but entering the Asian countries would require alteration in the marketing approach, as the Asians are considered conservative (Articlebase, 2010). People skills would be necessary to compete in the Asian market. To expand in the Southeast, Qantas faces cultural challenges as Australia has low power distance while all Southeast Asian countries have high power distance (Hofstede, n.d.). Culture has a significant effect on problem-recognition, problem-solving and perception and cognition (Gilbert & Tsao, 2000). Such cultural differences can impact the satisfaction levels for the same product among global consumers. Opportunity The three most competitive travel markets in Southeast Asia include Thailand, Singapore and Malaysia (Chang & Cheng, 2005). In fact, the best performing airports in the ASEAN region are located in these three countries. Asia’s economic growth and the growing middle-class has helped fueled the growth of the airline industry. This segment continues to grow and provide expansion opportunities to the airlines. Asia is a highly dispersed continent and hence unlike UK and US, surface or rail transport across countries is not feasible. Air travel is the fastest mode of travel for business and leisure in this continent. By 2014 the number of people flying in Asia will rise by 360 million to one billion (Kelly & Thurlow, 2011). So far Qantas has been focusing on UK, US and Japan as it had huge market potential but due to low-cost carriers in this region, the markets have become competitive. As such Qantas has to look for alternative destinations. However, the international market presents challenges and currently the Asian countries have huge potential. To obtain market share in the Southeast Asian countries, the FSC will have to meet the national objectives and focus on the tourism and trade sectors (Zainal-Abidin, Nawawi & Kamaruddin, 2005). Asia’s air travel market is competitive and fragmented and this makes it difficult for budget airlines to thrive as they have to meet cost efficiencies (Kelly & Thurlow, 2011) thereby enhancing opportunities for full-service carriers. Threats The full-service carriers (FSC) in the Southeast region continue to enjoy customer loyalty and have a long-established corporate image in delivering high quality customer service (Chang & Cheng, 2005). They have continued to grow financially and perform well. They invest heavily on improving passenger handling facilities and announce cheap internet airfares for selected routes. Strong competition from Singapore Airlines can be a threat as SIA has a rigorous quality control system, provides rigorous staff training and also has a definite service policy that it adheres to (Chan, 2000). The image of Qantas suffered adversely as one of its flights was involved in disaster in Thailand and this gave rise to doubts in operations in other countries (Articlebase, 2010). The image had to be remolded through massive efforts. Internationalization may not always bring risk as it carries risks; it can also bring negative publicity if disasters occur in another country. Analysis While Qantas enjoys its brand equity, it has been seeing profits fall over last several years. Expansion is the only solution and the target market should be the Southeast market, which it has ignored till recently. The opportunities in Southeast Asia are tremendous and Qantas should position itself as a full-service carrier and focus on product differentiation. It already operates a low-cost carrier, namely, Jetstar and hence should concentrate on FSC. Their image in Thailand was tarnished and hence they would need to project itself as a premium airline in all other Southeast Asian countries. Investments would have to be made in brand enhancement as well. The main competitors to Qantas will be AirAsia in the Southeast. However, the competition with AirAsia is limited to the routes. Qantas should not compete on prices but maintain its image as a leading full service carrier. The burgeoning middle class in Southeast Asia has the purchasing power and would not mind paying a premium for services. Threat in fact comes from the existing full service carriers such as SIA, Cathay and Thai Airways. Problem identification and discussion Problems can be analyzed through the analysis of the external environment as SWOT provides an analysis of the internal environment. The SWOT highlights the threats that the airline should be cautious of, as it could alter the marketing strategy. Even though the CEO says that the destination is yet to be disclosed, but chances are that Singapore would be used as the hub. The macro environment for any business influences how it devises its marketing strategy. Qantas intends starting a full service premium airline but its plans could face resistance as the government will examine the airline’s expansion plans. Under the terms of privatization Qantas was to remain an Australian-based and majority owned company. The macro environment is essential as it impacts the external business environment of the firm. Government regulations and legislation can impact the carrier’s decision for expansion but this problem is minor because Qantas would continue to remain as Australian carrier, complying with the rules laid down by the government. At best, Qantas may have to employ the foreign-based crew on the same terms as the Australian crew (Anonymous, 2011). Besides, if it is not granted approval for expansion, the airline would continue to suffer losses and the job cuts would still need to be done. Hence, the government too acknowledges that this is a commercial decision taken by Qantas. The decision could cut 1000 jobs in Australia and this has already stirred up opposition from flight workers and unions. Expansion plans not only affects job security but the issue is that this would affect Qantas’ safety record (Anonymous, August 16, 2011). Qantas has decided to trade off its good name and high standards as they intend outsourcing work overseas. The long-haul pilots intend to take industrial action and thus could further damage the brand (Anonymous, May 27, 2011). The demand by the pilots is huge and if the airline has to accede to these demands, it could further endanger the survival of the company. Apart from the political and legal environment of the home country, based on Porter’s Five Forces strategy, competitive analysis of the region and the bargaining power of the buyers are important factors. Competitor analysis The airline has seen declining profits and market share in the domestic market but the market in Southeast Asia is equally competitive. Threats persist from the leading SIA of Singapore which has been dominating the market. The major problem is how Qantas would use its brand equity to compete with full service carriers and particularly SIA if it chooses to have Singapore as its potential base. Singapore is considered to be the most logical hub because of its connections with Jetstar and Qantas. In fact the new premium airline could encroach upon SIA by establishing a powerful 25% share of the Singapore market (CAPA, 2011). Competitive rivalry between the two groups would increase because this new premium airline would also compete with SilkAir – the full service regional subsidiary of SIA, along with SIA. Qantas’ decision to use Singapore as the hub could be a strategic response to the SIA Virgin Australia alliance as Qantas expected to offer the same routes as this alliance (CAPA, 2011). SIA’s market share in Singapore has eroded over the past decade and the new carriers could capture another 4% of this market share which would make the total Qantas group share increase to 11% from the existing 7 percent. Tiger Airways, partially owned by SIA also has 8% market share in Singapore and pose competition to the new carrier. Qantas intends using only narrow body aircrafts for the new carrier so that they do not have to fly to Europe. They also have decided to enter into partnership with Malaysian Airlines and they already have alignment with British Airways. Thus, the new alliance including Qantas-Jetstar-AirAsia-MAS-BA would give the group a total of 26% of the market share. This includes 4% of the share that the new carrier expects to capture initially. Bargaining power of the buyers As far as the target market is concerned, the opportunities analysis suggests that potential is huge as the number of people flying from Asia would rise to one billion by 2014, which is when Qantas intends starting its premium carrier. Nevertheless, since competition is huge, the bargaining power of the buyers is high. The buyers have alternatives to choose from. Threat of substitutes is also high as the FSC are successful in the Southeast Asia and continue to have loyal customers. Recommendations Qantas may have to apply flexible marketing strategies such as differential pricing, joint venture promotion campaign, multi-sales channel. The Ansoff Matrix shown below suggests that Qantas would have to focus on product development and Diversification strategy for growth and expansion: Product Development Qantas has presence in Singapore but should now focus on new product development – they should cater to new segments and offer new destinations to the existing customer base. They would be able to handle competition and maintain brand equity by being known as innovators. For new product development, alliances with BA, MAS and JetStar could be beneficial. Market Development Qantas has to use the hub as Singapore and focus on development new markets such as India and other nations, away from the Thailand, Hong Kong sectors. India is a promising destination and could also enhance the prospects of tourism for Australia. They could offer differential pricing and special offers for internet booking for developing new customers for added routes and even for their existing customers. References Anonymous. (May 27, 2011). QANTAS BOSS SAYS STRIKES "ENDANGER THE SURVIVAL OF THE COMPANY. Asia Pulse. Retrieved from http://search.proquest.com/docview/869399865? Anonumous. (Augist 16, 2011). SENATOR WANTS PROBE OF QANTAS' AUSTRALIAN JOB CUTS. Asia Pulse. Retrieved from http://search.proquest.com/docview/884695964? Articlebase. (2010). Growth Path Of Qantas Airline. Retrieved from http://www.articlesbase.com/writing-articles/growth-path-of-qantas-airline-1896630.html CAPA. (August 17, 2011). New Qantas Group full service carrier could further alter competitive landscape in Singapore. Retrieved from http://www.centreforaviation.com/analysis/new-qantas-group-full-service-carrier-could-further-alter-competitive-landscape-in-singapore-57226 Chan, D. (2000). Beyond Singapore Girl. Journal of Management Development, 19 (6), 515-542 Chang, Y., & Cheng, C. (2005). Analyzing the Strategies of LCCs and FSCs in Southeast Asia. Retrieved from http://www.aerlines.nl/issue_36/36_Cheng_LCCs_FSCs_SEA.pdf Gilbert, D., & Tsao, J. (2000). Exploring Chinese cultural influences and hospitality marketing relationships. International Journal of Contemporary Hospitality Management, 12 (1), 45-53 Kelly, R., & Thurlow, R. (August 16, 2011). Qantas Looks to Asia to Expand. Retrieved from http://online.wsj.com/article/SB10001424053111904253204576511890262959216.html Mehmood, F. (2010). Qantas airlines optimistic despite of fall in profits. Retrieved from http://topnews.ae/content/23621-qantas-airlines-optimistic-despite-fall-profits Zainal-Abidin, M., Nawawi, W., & Kamaruddin, S. (2005). Strategic Directions for ASEAN Airlines in a Globalizing World: Ownership Rules and Investment Issues. Retrieved from http://www.aseansec.org/aadcp/repsf/docs/04-008-FinalOwnership.pdf Read More