Australian Airline Industry- Qantas Airlines - Case Study Example

Australian Airline Industry- Qantas airline Name Course Name and Code Instructor’s Name Date Executive summary The Australian airline industry is linked with various benefits including facilitation of global economic growth, international trade, international investment and tourism. With time and with the employment of present advanced technology, the airline industry has been capable of taking advantage of the high frequency, short haul and gained a competitive advantage over other forms of travel including railroad travel and buses in Australia. QANTAS (Queensland and Northern territory Aerial Services) was established in the year 1921. The airline is based in Sydney and it has its main hub at the Sydney Airport. It is apparent this airline is the largest in Australia and it is commonly referred to as the flag carrier of the country. According to studies, the airline has been able to maintain its share of the market in the Australian domestic market share of about 65%. However, Queensland and Northern territory Aerial Services struggles to maintain its competitive advantage by competing with other carriers in its international operations. Queensland and Northern territory Aerial Services operates in a competitive environment that is characterized by numerous firms each employing competitive strategies in order to remain competitive in the market. Its environmental factors include technological and political factors as well as competitors and product. It is apparent that the airline is facing a number of issues such as competition. Formulating effective competitive strategies will assist the firm in sustaining its competitive advantage. These include effective marketing strategies such as pricing, promotion, and product strategies. Research has proved that companies employing effective strategies have proved to succeed in the market. Table of Contents Executive summary 2 Introduction 4 Industry/environment analysis 5 Industry analysis- Porters five forces framework 5 Threat of new entrants 5 Power of buyers 5 Power of suppliers 6 Availability of substitutes 6 Competitive rivalry 6 Environmental factors affecting the industry 7 Macro and micro environment- PESTEL analysis 7 Technological 8 Political factors 8 Competition 9 Product 10 Conclusion 11 References 11 Introduction The Australian airline industry was established in the year 1920 (Blee, 2010). During this time in the west coast was the Western Australian Airways and in the east coast we had the Australian Aircraft and Engineering Company (Blee, 2010). The Australian airline industry is linked with various benefits including facilitation of global economic growth, international trade, international investment and tourism. With time and with the employment of present advanced technology, the airline industry has been capable of taking advantage of the high frequency, short haul and gained a competitive advantage over other forms of travel including railroad travel and buses in Australia (Blee, 2010). In the year 1921, the QANTAS (Queensland and Northern territory Aerial Services) was established (Qantas, 2011). QANTAS is based in Sydney and it has its main hub at the Sydney Airport. It is apparent this airline is the largest in Australia and it is commonly referred to as the flag carrier of the country. In addition, worldwide, Queensland and Northern territory Aerial Services is the oldest operating airline. According to Skytax, a research consultancy firm, presently the QANTAS airline, is perceived as a four star airline. Skytax voted QANTAS airline as the eighth best airline in the industry in 2011. According to studies this was a drop from the previous years. The airline was able to retain its share of the market in the Australian domestic market share of about 65% (Qantas, 2011). However, Queensland and Northern territory Aerial Services struggles to maintain its competitive advantage by competing with other carriers in its international operations (Qantas, 2011). This report seeks to analyze the airline industry, the microenvironment in which the company operates and the company’s internal environment. Industry/environment analysis Industry analysis- Porters five forces framework The porter’s five forces are used to analyze the firms’ competitive structure. The probability of businesses making profits depends on these forces (Porter, 2008). Threat of new entrants This is the degree to which entry barriers to the business exists (Porter, 2008). It is apparent that entering into the airline industry is not a simple task. This is contributed by the high costs of entering into the industry and high government regulations (Porter, 2008. It is evident that starting an airline company is not similar to buying a bus and putting it in the highway. Due to this reason, QANTAS is in a better position (Qantas, 2011). However it is recommended that it employs efficient strategies to ensure that it competes effectively with the existing rivals. Power of buyers In case the bargaining power of the buyers in a specific industry is high, they have the capacity of forcing the prices down and this may impact the company negatively as it may lessen it returns (Porter, 2008). On the other hand, low buyer power means that the company has the ability of formulating pricing strategies which will favour such a company in terms of increasing profits (Porter, 2008). Typically, customers in the airline industry have low bargaining power. This ids due to the fact that there are many buyers in the industry and that there exists homogenous products, large volume of customers and high switching costs. This is an advantage to the QANTAS airline as they can still maintain its customers despite the price (Qantas, 2011). Power of suppliers If the bargaining power of suppliers is high in a sector, it is hard for firms in that industry to make profits as such suppliers can determine the conditions of conducting a business (Porter, 2008). Usually, the bargaining power of suppliers is affected by switching costs, supplier concentration and size, and uniqueness of resources supplied. The supply in the airline industry is mainly Airbus and Boeing. As a result very little competition exists among the suppliers. Availability of substitutes It is apparent that maintainable competitive advantage is the key to success for any company. The emergence of a substitute product to the market threatens the company in that it significantly lessens the competitive advantage of that firm (Porter, 2008). Simply, these substitutes amplify competition in an industry. In our case, the QANTAS airline launched a low cost carrier the Jet star and this is an advantage to them since will be hard for the entry of another low cost competitor in Australia (Qantas, 2011). Competitive rivalry This measures competition levels amongst the existing firms. It is apparent that, when there is high competition in a certain industry, firms in that industry enjoys low returns due to the high competition costs (Prathibha and Antonio, 2010). This can be very unfavorable for the firms especially during the times of economic instability. Evidently, there is high competition in the airline industry. The QANTAS airline has to compete with other major players in the airline industry including British Airways, Air France-KLM internationally and Virgin Blue internally. Therefore this means that the airline has to use effective strategies in order to overcome such a competition and remain successful in the market. QANTAS has an advantage over its competitors due to its low operating costs and a strategic location (Qantas, 2011). This means that the overall operational costs are low and therefore it is in a better position in the market (Prathibha and Antonio, 2010). Environmental factors affecting the industry Macro and micro environment- PESTEL analysis A pestle analysis is simply a framework that classifies environmental influences as political, economic, social, technological, legal, global, demographic and environmental (David, 2010). The analysis scrutinizes the effects of these factors and their relationship with each other on an industry. The application of pestle analysis is useful for business and marketing planning, strategic planning, research reports and product development (David, 2010). Pestle analysis also makes certain that, the performance of a company is associated positively with the forces of modifications that are influencing the business environment. Besides, pestle is also efficient when an organization chooses to penetrate its business operations into new states and new markets. Technological The contemporary society has been characterized by rapid technological growth. This has impacted many companies and the airline industry is not an exception. It is apparent that companies should combine new and existing technologies in order to respond to the increasing technological development (Prathibha and Antonio, 2010). Furthermore, firms that were employing technology to gain competitive advantage over their rivals must look for other means presently in order to remain successful. In addition, Queensland and Northern territory Aerial Services has to deal with the initiation of better informed customers (Qantas, 2011). Currently, most individuals have become more knowledgeable concerning reputable airline firms as they are using the internet to obtain such information. This technological advancement has greatly affected Queensland and Northern territory Aerial Services as it necessitates ascertaining that it provides better services as compared to its rivals in the market and that it can be able to meet customers’ future demand. However, the advancement in technology has also affected the company positively (Prathibha and Antonio, 2010). Through the internet and especially the social sites such as twitter and Facebook, Queensland and Northern territory Aerial Services can be able to advertise itself adequately especially to the target customers both locally and internationally (Qantas, 2011). Political factors It is apparent that the political environment in Australia has led to the success of the QANTAS airline industry (Qantas, 2011). This is evidenced by the fact that the Australian government through the various departments such as the Department of Defense, Department of Transport and Regional Services, Airservices Australia and the Civil Aviation Safety Authority has played a major role to ensure that it meets the responsibilities put forth by the Chicago Convection regarding aviation (Qantas, 2011). Evidently, this has not only created peace and understanding between the contracting parties, but it has also enhanced safety in the air travel industry and this includes the QANTAS. Due to this reason, Queensland and Northern territory Aerial Services has proved to be successful. In addition, the Australian government through the deregulation in the airline industry has led to increase in competition and the labour market. Moreover, the success of the QANTAS airline can also be linked to the peaceful environment. It is evident that, peace has prevailed in Australia due to political stability (Qantas, 2011). This has not only seen the growth of the airline industry, but also many businesses in the region have succeeded. It is evident that, a stable political environment results to an effective economic environment. Competition Queensland and Northern territory Aerial Services wishes to maintain its place amongst the globe’s leading airlines (David, 2010). However, the high competition in the airline industry means that the company has to employ effective marketing strategies and also tackle its existing strategic issues for it to maintain its competitive advantage (David, 2010). Some of the major competitors of the Queensland and Northern territory Aerial Services include British Airways, Air France-KLM and Singapore Airline all of which focus on particular cities including Hamburg, London Heathrow, and Singapore Changi Airport. However, due to its low costs of operations and minimal overheads as well as its large coverage of flying into 21 international destinations worldwide targeting large volumes of customers, Queensland and Northern territory Aerial Services has been able to remain competitive in the market and has recorded an accelerated growth since it was launched in the year 1921 (Qantas, 2011). In fact, research has proved that, profitability of airline companies solely depends on operation efficiency, and company overheads. Studies have revealed that, the company manages to ensure a steady growth annually and this place it in a better position in the market (David, 2010). Product Queensland and Northern territory Aerial Services offers both cargo and passenger services to 21 worldwide destinations and 20 domestic destinations in 14 states across Asia, America, Africa as well as Oceania (Qantas, 2011).. These destinations do not include those served by its subsidiaries. In general the entire group serves 27 international destinations and 60 domestic destinations. In order to sufficiently offer its services as well as fulfill its customers’ needs, Queensland and Northern territory Aerial Services and its subsidiaries operates a fleet of 288 aircrafts (Qantas, 2011).. This aircrafts include 5 by QANTAS freight, 4 by express freighters Australia, 10 by network aviation, 10 by jet connect, QANTAS link branded airlines 56 and 62 by Jetstar Airways (Qantas, 2011). Its major success is linked to the airlines good customer services as well as its low cost and hence they are able to attract and retain a good number of the customers (Qantas, 2011). Conclusion It is apparent from the above analysis that since its establishment, Queensland and Northern territory Aerial Services have continued to grow. The airline operates in a competitive market where it competes for its market share with major layers in the industry such as British Airways, Air France-KLM and Singapore Airline all of which focus on particular cities including Hamburg, London Heathrow, and Singapore Changi Airport. As highlightened in the report, the airlines environmental factors include technological factors, political factors, product and competition all of which have contributed to the success of Queensland and Northern territory Aerial Services. In addition QANTAS airline industry analysis has been done. According to the analysis, the firm has an advantage over its rivals in the market due to its low operating costs and a strategic location as well as the large volume of customers and high switching costs. This is an advantage to the QANTAS airline as they can still maintain its customers despite the price. In conclusion it is recommended that, Queensland and Northern territory Aerial Services formulates effective competitive strategies which will assist the firm in sustaining its competitive advantage. These include effective marketing strategies such as pricing, promotion, and product strategies. Research has proved that companies employing effective strategies have proved to succeed in the market. References Blee, J. 2010. Aviation in Australia. Sydney: ReadHowYouWant.com. David, R. 2010. Strategic management: concepts and cases. Upper Saddle River: Pearson Prentice-Hall. Porter, M. E. 2008. The Five Competitive Forces that Shape Strategy. Harvard Business Review, pp. 86-104. Prathibha V. and Antonio, K. 2010. Change Management for Effective Quality Improvement. A Primer American Journal of Medical Quality, vol. 25, pp. 268 - 273. Qantas, 2011. Airways official 4-Star Ranking | SKYTRAX Airlinequality.com. Accessed on October 31, 2011 http://www.airlinequality.com/Airlines/QF.html Qantas, 2011. Investor Briefing: Building a Stronger Qantas. Accessed on October 31, 2011, Read More