Situational Analysis of Qantas Airways - Case Study Example

Qantas analysis. Name Tutor Institution Course Qantas Airways is operated as one of the listed public Qantas group. The Airways are the national airline of Australia where its main hubs are in Melbourne and Sydney while the secondary hubs located in Brisbane and Perth. This airline operates a large domestic and international network through utilizing its large fleet of both the wide-body and narrow Airbus with services to the Americas, New Zealand, Asia, Europe and South Africa. QantasLink subsidiary provides regional services within Australia. The market for air transport in Australia is proportionately large. It has the world’s fourth-largest market for domestic traffic, and the world’s seventh-largest market overall. This situation is a reflection of the vast expanse of the Australian continent, the long distances between its major cities and the lack of alternative modes of transportation. The domestic Australian market is largely concentrated around a core network of high-density routes between its major cities (Hill, & Westbrook, 1997). Australia airline industry was heavily regulated between the years the 1950s and 199s such that the domestic traffic was reserved to privately held Ansett airlines and the government owned the Australian airlines (Song, et al 2004). Qantas, which is also a government, owned operated internationally as Australia’s flag-carrier. In February 1993, the government recapitalized Qantas by $1.35 billion to reduce its debt and make the company be viewed as worthy to invest by the private investors. The company was floated on the Australian stock exchange in 1995, raising $1.45 billion for the government. In parallel, the government opened up competition on international air transport. The Ansett gained access to the Asian destinations exceeding its competition with Qantas on lucrative international routes and improving its ability to feed its domestic network with international travelers (Lindgardt, et al 2009). Qantas domestic operations comprise three complimentary airlines. These airlines include the Qantas, QantasLink, and the Jetstar. The objective of the group was to maintain its combined share of the market at 65 per cent. In the year 2004, Qantas domestic flew 17.7 million passengers. The full-service airline operated the two-class flights on all its routes, offering in-flight meals and entertainment, and a network of Qantas Club airport lounges. The international airline of the Qantas group consisted of three subsidiaries in 2004. The subsidiaries included the Qantas, Australian airline, and Jetconnect. Jetstar Asia, expected to start in December 2004 would be the fourth international airline business group. Qantas had a 31 per cent share of the international passenger traffic to and from Australia while it held favorable positions on the trans-pacific routes. Australian airline was Qantas international leisure carrier. The strategic aim was to complement the Qantas international network in the market where the main airline, with its higher cost, would not profitably operate. Australian was targeting international holidaymakers in Australia and Asia, flying Japanese tourists to Cairns and on to the gold coast. Qantas group’s main activities are conducting international and domestic air transportation services, selling international, providing freight services and domestic holiday tours. It also conducts associated support activities such as information technology, catering, ground handling and engineering and maintenance. The Qantas group flies to more than 150 destinations in about 40 countries. Overall, the company’s fleet include about 220 aircrafts (Gillen, 2006). Qantas stakeholders are all groups and individuals who have an interest in the company being analyzed. To focus on these groups that has the power to influence, corporate level activities have to be identified first. This includes large shareholders, governments and trade union. The stakeholder's power and interest to those groups have a direct effect on the process by which the strategy has been developed at the corporate level and in each business. Qantas stakeholders are its shareholders, employees, customers, business partners and the community. Indirect stakeholders include academics, the media, government and non-government organizations. They all have a major influence on the business, its strategy and, therefore, its performance. The Qantas group executes a strategy that is aimed at building a leading airline group in the Asia-pacific region by focusing on long-term profitable growth, the development of a two-brand strategy, and the lowering of its cost base. The strategic intent is highlighted by the motto of aiming to have healthy and effective competition across all sectors of the aviation business marketplace and in a growing number of markets. The importance of the two-brand strategy is underlined by the CFO, which states that the two distinctive brands of Qantas and Jetstar are central to the group’s future growth strategy. While the Jetstar redefines the value-based market, Qantas is firmly focused on growing premium business and leisure markets. Qantas flight pursues a traditional incumbent network carrier model on domestic and international trunk routes. However, due to the geographical location, QF is labeled an end of line carrier. On the other hand, QantasLink is the group’s full-service regional airline that supports Qantas domestic network by developing feeder markets that connect regional business and leisure markets with the major cities (Jackson, et al 2003). Qantas group is one of the most profitable airline groups in the world. Throughout the period under consideration, the group achieved strong growth rates and generated record profits. The strongest growth in passenger numbers occurred in 2001 driven by the collapse of the Ansett Australia. Of the 36.5 million group-wide passengers in 20007, Qantas carried 25.0 million, QantasLink 3.9 million and Jetstar 7.6 million. The factors of the general environment have dramatic effects on a firm and its business strategy. Qantas has been affected by population changes. The young generation represents about 4.8 million of the 21 million total population living in Australia (Brueckner, 2001). This young generation is reported to be setting and influencing spending pattern trends. In this environment, OzJet aimed at gaining business people as customers by offering its service on the Sydney-Melbourne route. This meant that their main target population consisted mainly of young business professionals, the so-called young generation, as well as business people ages 35 to 54, which represents a large part of the Australian population. The Qantas group is also affected by socio-cultural forces. Socio-cultural speaking, we can see an ongoing trend for greater concerns in the environmental especially to people with a high access of information on awareness for global warming try to travel environmental friendly and looking for suitable traveling substitutes. According to the department of transport and regional service, there is also an increase in providing services to leisure destinations to fulfill the needs for fun and consuming lifestyle of the Australians. The economic trends have also affected the Qantas Airways Company. According to an article published in the Herald Sun, the value of Australian dollar will continue to rise for the rest of the year and the stock market is likely to surge almost 10 per cent. The report also mentioned that a short-term rise in unemployment over the coming months may force the reverse bank to lower interest rates to 4 per cent (Lijesen, & Oum, 2006). Due to the large distances, air travel is the preferred mode of travel between the five major cities. Furthermore, Australia is one of the most liberal aviation markets in the world, the domestic market having been liberalized in 1990. Therefore, the group’s innovation activities are to be integrated into light of these unique structural settings. In Australia, domestic passengers in 2006 amounted to 39.5 million, and 21.3 million passengers flew internationally. Domestically, heavy price competition is observed, which points to clear commoditization tendencies. In Australia, the Qantas group operates as Qantas, QantasLink, and Jetstar, and on mainline routes it competes heavily with virgin blue. This natural duopoly has recently been attacked by tiger airways. Jetstar has the lowest cost structure of all the Australian carriers (Symes, 2008). The domestic market share of the QF group averages above 65 per cent while the international market share ranges between 30 and 35 per cent. The international market is characterized by being both extremely long-haul and highly competitive (Daley, 2001). Qantas faces heavy competition from a large number of Asian Middle Eastern carriers including Emirates, for example, which operate to all major Australia airports, often several times a day (Rowthorn, Landragin, & Daly, 2002).  With the financial backing of Richard Branson, Virgin Blue entered the Australian domestic airline market in 2000. Many experts predicted that the airline would have difficulty establishing itself in a market that was virtually dominated by the two long-established airlines- the Qantas and Ansett. Branson’s strategy for virgin blue was to set up an airline that operated as a low-cost budget carrier, particularly focused on the leisure market. He believed customers would be attracted to his low fares and no-frills service. By eliminating in-flight meals and printed tickets, and by selling food onboard and using telephone and internet booking system, virgin blue’s operational cost structure was much lower than those of Ansett and Qantas. Ansett and Qantas operated in the traditional way of full service (Spiess, & Waring, 2005). With the demise of Ansett, Qantas suddenly found itself engaged in competition with a much more aggressive carrier that Ansett had ever been. Qantas management knew they had to come up with a new strategy. Because Qantas was operating as a full-service airline, it could not compete on price with the newcomer, which had a much lower cost structure. The solution was to buy up the struggling impulse airlines at the end of 2001, rename it Jetstar, and position it as Qantas’s low-cost carrier. This carrier would be able to compete directly with the Virgin blue’s business model. Qantas’s management, on the other hand, believed the market had grown through the expansion of cheap holiday flights and felt compelled to enter the budget carrier market that virgin blue had so successfully created for itself. By setting up Jetstar as a direct competitor to Virgin Blue, Qantas aimed to occupy any further, at the same time, this move would prevent other low-cost carriers entering domestic airline market in Australia. The two brand strategy allowed Qantas to maintain its parent brand as a full-service carrier. Following the deregulation in the Australia, Qantas acquired domestic flights and, like Singapore Airlines developed a low-cost subsidiary. Despite these changes, the comparison between the two airlines is still valid for highlighting the differences between Singapore airlines based on ‘main street’ and Qantas Airways headquartered in a ‘cul-de-sac’ location. Singapore airline is a single-fortress-hub airline that seeks to be a global airline by offering the world’s longest non-stop daily commercial flights between Singapore and New York with its A340-500 services. Qantas is an end-of-line carrier in a ‘cul-de-sac’ location that has to use an intermediate hub on ‘Main Street’ route to Europe because maximum limit for current planes on the route is a flight time of 15 hours. Having to make a stop put Qantas’s role as an independent long-haul airline at a great disadvantage has been comparing with Singapore. This disadvantage has been compounded by Singapore airlines being able to draw upon ‘behind the hub’ traffic in Asia, whereas Qantas has been limited to New Zealand and the Pacific islands. Even if Qantas could overcome this locational disadvantage, its direct European destinations had been reduced to London and Frankfurt with code share to Helsinki, Paris, and Rome. Qantas SWOT analysis (Hill, & Westbrook, 1997). strengths 1. It has a strong brand and reputation. 2. Qantas low-cost carrier jet is attractive to customers 3. The company has ten-year investment plan 4. The company is usually protected by the government. weaknesses 1. There is a high cost of operations. 2. Government interventions preventing foreign investment 3. High capital expenditure. opportunities 1. There is growth trend in key sectors. 2. Potential joint ventures are likely to happen. 3. Subsidiary businesses are available. threats 1. There is a rise in fuel costs. 2. Interference by political formations and insecurity. 3. New entrants on lucrative trans-pacific routes Many present marketing strategies encompasses loyalty schemes, some that involve large retailers like Flyboys at the target, large banks like Citibank and tourism operators, and this way the business is likely to continue strongly. Qantas should emulate their rivals Virgin Blue in offering frequent flyer points. Corporate failure of the company that offers such schemes may occur and would have a really large impact on the community who lost entitlements. It would be a popular electoral move for the federal government to introduce protection in the form of a statutory priority so that if such circumstances are to happen, the company will be protected. References Alamdari, F., & Fagan, S. (2005). Impact of the adherence to the original low‐cost model on the profitability of low‐cost airlines. Transport Reviews, 25(3), 377-392. Brueckner, J. K. (2001). 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