Table of Contents
Qantas Airways is an Australian airline considered one of the biggest airlines in the world by fleet size, international destinations and flights. The airline was founded in 1920 in Winton originally as Queensland and Northern Territory Aerial Services, hence the acronym QANTAS (Qantas report, 2012). The airline is based in Sydney, Australia. Below is a case study analysis of the airline in the global and domestic airline industry in 2012, when it was at crossroads and needed immediate action.
Qantas Airways Limited operates in the global airline industry and in addition to being one of the largest airlines in the world; it is the third oldest airline after Avianca and KLM.
Numerous issues and elements that make up the economic well-being of the industry characterize the economic environment in which Qantas airline thrives. In 1992, the Government of Australia sold its domestic airline, Australian Airlines to Qantas and followed the transaction with an announcement that declared the privatization of the group. The privatization took place in 1993 and the original airline, Qantas, remained with 55 percent ownership of the airline with British Airways taking twenty-five percent of the total share and the public taking up the rest (Hanson, D., 2012). The process raised funds totalling to AUD 1.5 billion. In 2001, Ansett, the airline’s biggest competitor collapsed from pressure from a variety of factors including those of awkward changes in ownership, an ageing fleet, launching of a fairly well-branded low-cost competitor and trouble with the Civil Aviation Authority – the agency shut down the airline during a key Easter season.
Competition between the two surviving airlines was high and had the domestic market share of Qantas fall to approximately sixty percent. The low-cost competition from Virgin Blue’s airline led to the launch of Jetstar, which adopted a similar domestic low-cost model under Alan Joyce. He later went on to become the Qantas Group chief executive officer (Hanson, D., 2012)
The situation in the global environment around the airline industry has seen a profitable industry over the last couple of decades. According to IATA, the industry data centre, only three years in nine years had a positive margin with the best being in 2007 at 2.7 percent. The forecast for 2012 was a little over 0.7 per cent margin on a revenue of 598 billion USD. Airlines all over the world are subjected to a range of nature’s vagaries such as earthquakes – which affect travel, volcanic eruptions and tsunamis – which collectively disrupt flights. The existing competition between airlines in the international scene can be described as fierce, considering the industry is crowded, hence the way over board competition. For instance, IATA had 230 members in 2009 while Skytrax listed 620 airlines that operated across the globe in the same year (Hanson, D., 2012).
The competition is evident in light of the numerous airlines ordering the Boeing 787. Ideally, in 2012, there were 56 Boeing 787s from different company brands with loyal followings. These large aircrafts transport people over longer distances, so their demand is high. To illustrate the global airline competition, consider that the Asia-Pacific region has Qantas, Thai, Emirates, British Airways, Malaysia Airlines, Cathay Pacific and Virgin Australia operating simultaneously (Hanson, D., 2012). The competition is also felt from the even balance that these airlines thrive on, for instance, they all have excellent fleets, good brands, professional staff, loyal followings and functional websites. The frequent winners of prizes from travel quality surveys are Singapore, Cathay Pacific and Malaysia (Hanson, D., 2012).
In the global airline industry, brand loyalty has been noted to vanish when there are noticeable price differences.
Technology and technological advancement has been a common element in most industries and sectors for the last decades, as is with the airline industry. Suppliers of aircrafts operate in a fast-cycle industry that features reliance on expensive research and development, as well as huge economies of scale. The two major craft manufactures that provide the industry with vessels are Airbus from the European Union and Boeing from the United States of America. New aircrafts with varied technological improvements are released every few years from the aforementioned manufacturers. Currently, the manufacturing trend is bent on airplanes that are more fuel-efficient with much reason resting on the cost and environmental considerations. Boeing and Airbus have various levels of craft offerings with the most popular being new large planes. The US based Boeing offers the Boeing 787, a large craft that offers tremendous fuel efficiency and the large passenger capacity. Ideally, the planes depend on models and carries between 210 and 330 passengers for distances as far as 16,000 kilometres (Hanson, D., 2012). The EU based Airbus, on the other hand, has a carriage capacity of between 380 passengers up to 555 seats. The Airbus offers two levels and can go for distances as far as 10, 000 kilometres (Hanson, D., 2012).
The major factor that affects profit margins is the fuel costs. These make up the largest percentage of operating expenditures. For instance, in 2012, fuel costs for Qantas were around AUD 4.329 billion while the total operating expenses for the same year were AUD 15. 459 billion.
The industry also has an interesting demographic background upon which airlines benefit from. Airlines that are relatively established largely benefit if they have appropriate destinations that are organized to match and effectively target the changing patterns in the vast populations that characterize the world airline market. More and more countries are increasing their populations. In 1950, only the USA, China, the USSR and India had populations above 100 million, in 2012, countries with such a population totalled to 11. Asian and sub continental countries are improving in terms of both the population and income. Thailand has 65 million people, China has 1.3 billion, Japan 127 million and Indonesia (which is the biggest Islamic nation in the world) has 240 million people. It is forecasted that in 2050 there will be not less than 19 countries with population exceeding 100 million (Hanson, D., 2012). The forecast dictates that the population of Tanzania is more likely to be 20 percent more than that of the United Kingdom and ten percent larger than that of Afghanistan.
The areas experiencing the largest demographic growth are Africa and Asia. Africa was noted to be a fast destination, thus opening numerous regional carriers in 2012. However, Asia differs from Africa in the sense that the continent experiences good population and income growth as well as a fairly stable economic and political systems, all of which are negative in Africa, save for the population growth (Hanson, D., 2012).
Various parts of the world continue to experience legal and political issues in their operations. Qantas and other global airline such as American Airlines, Canadian Airlines, British Airlines and Cathay Pacific among others formed the One World alliance. The One World alliance is an agreement between airlines that provides for the sharing of departure lounges, joint booking of flights and frequent flier points between airlines. In addition, airlines find themselves in loggerheads with airline authorities (Hanson, D., 2012). For example, the Civil Aviation Authority shut down Ansett during an Easter season. The shutdown was among other issues that led to the collapse of the airline. In addition, most countries in the African continent struggle with political and legal issues owed to unstable political systems that affect the airlines’ international operations (Hanson, D., 2012).
The suppliers of aircrafts in the airline industry have the most power. Considering there are only two major manufacturers of aircrafts, airlines that purchase the high demanded crafts most of the time go with the terms of buying dictated by the manufacturers. On the other hand, if the airlines are described as the suppliers and the public as the buyers of the services, the suppliers have less power. That is because the suppliers operate in a very competitive world with numerous airlines that offers the same services.
Buyers in the airline industry may be the airlines or the passengers depending on the context. In the context that has the airline as the buyer, the buyer power is less since the supplier dictates most of the terms. In the context where the buyer is the passenger, the buyer power is high since they have multiple airlines wherefrom they can make their choice. As such, the buyer dictates most terms.
The airline industry is a competitive field and always has new entrants. The African continent has the most new entrants considering the region is experiencing a major surge in economic development. In addition, existing airlines continue to launch new routes to various destinations. These activities contribute to the congestion of the industry.
There are very few services that can substitute the importance of airlines and their services. Most routes served by airlines are not accessible by road and those that are accessible by road, although cheap and affordable, are tiresome and consume a lot of time. The same also applies to those accessible by water and water vessels. Travelling using water vessels is cheaper than air travel. However, like road travel, ships take more time to deliver passengers to desired destinations compared to aircrafts.
The airline industry is one of the most competitive industries with numerous airlines to the same destinations. Rivalry is more vivid when certain airlines offer cheap and low-cost services to certain destinations. For instance, the Virgin Australia Airline offers cheaper services than those of Qantas. In response, Qantas launched the Jetstar wing to cater for the low-cost service countering those of Virgin Australia (Hanson, D., 2012).
The airline industry is competitive and the profit margins realized are low. Virgin Australia is a well-branded competitor of Qantas in the budget market (Hanson, D., 2012). The airline’s majorly aims the profitable business by introducing new planes, uniforms and catering services at prices lower than other major airlines. The competitive environment also includes the Tiger airline, which also takes the same low-cost approach as Virgin Australia with new planes and takes up operations in profitable routes with cheap prices. The major hurdle in the competitive market is the new entrants that come with new low prices for their services. Airlines such as Tiger, Impulse, and Virgin Australia (previously known as Virgin Blue) entered the airline market as low-cost airline service providers (Hanson, D., 2012). Although Qantas has a good brand name and popularity, Tiger poses serious competition to nearly all the airlines by providing low cost flights. Additionally, Singapore Air, a major player in the airline industry, also backs Tiger.
Qantas airline has much less limited opportunities compared to other airlines. The airline has the opportunity of taking advantage of the confusion in Tiger. The Tiger brand was shut down in 2011 by regulators and is currently shabby (Hanson, D., 2012). Additionally, with the current world and its trends, the airline industry is bound to increase its profitability since less and less people opt for water transport.
On the other hand, the airline experiences numerous threats especially from its competitors. For instance, Virgin Australia offers services that are almost identical to those of Qantas. Virgin Australia, like Qantas, has a good brand, well-trained staff and good new aeroplanes (Hanson, D., 2012). In addition, Tiger is more likely to grow into a stronger brand to offer serious competition to the major Australian airlines. This is more likely to be made possible by the fact that Singapore Air backs the airline.
Qantas has various resources both tangible and intangible. The company despite having a good brand and offering the best airline services in Australia also has the excellent slots at airports. The slots enable business passengers to disembark and get to meetings as fast as possible. The airline has good new aeroplanes (Hanson, D., 2012). In 2005, the company ordered Boeing 787s with 45 firm orders, 50 special purchase rights and 20 options. In 2011-12. The company acquired thirty-seven new aeroplanes with two A380 Airbuses, two A330-220s for Qantas and seven single-aisle A320-200s for their sister airline Jetstar (Qantas report, 2012).
The airline also runs two businesses: Snap fresh – manufacturing frozen meats and other meals; and Q Catering – a premium catering business. The catering services are supplied to the airline and other premium airlines (Hanson, D., 2012). Additionally, Qantas operates the frequent flyer program as a business unit that is made up of members close to five million (Qantas report, 2012). The unit boasts of being the largest in the southern hemisphere. The airline also has a holiday travel business unit in operation known as QH tours under the established brands of Vival Holidays and Qantas tours.
The airline has numerous capabilities aside dealing with air travel. The company successfully operates the multi-brand strategy and its services are felt all over the Australian continent. The Qatar catering business provides catering to other airlines as well as to its parent company thus increasing the revenues earned. The airline also operates Qatar engineering, which is a large-scale maintenance and repair unit of business.
|Rare||Valuable||Costly to imitate||Non-substitutable|
|Excellent airport spots||yes||yes||yes||yes|
|Good new aeroplanes||no||yes||yes||No|
|Collaboration with other industries for multi branding||no||yes||no||no|
|Infrastructure and locations|
|Human resource management and well-trained staff|
Qantas, like all other businesses, has weaknesses. Some of the weaknesses that the airline has are: Old fleet that is made up of some of the first aeroplanes in the airline industry. Although this weakness is cancelled off by the fact that the airline has good new aeroplanes; Geoff Dixon, the former CEO made difficult decisions to save on money by outsourcing, a step that antagonized Qantas baggage handlers and engineers (McGreal, C., 2010). In addition, the airline experiences heated disputes under the new CEO Alan Joyce. The disputes are brought about by the fact that the CEO and the board seek cheaper and flexible elements of the value chain while the workers and the unions work to defend the existing situations. The unions address the fact that long haul pilots from Qantas fly fewer hours than five hundred hours yearly on average while those from other companies such as Emirates and Singapore Airlines and other higher-rated companies fly more than eight hundred hours on average per year (McGreal, C., 2010). These disputes disrupt Qantas cordial operations.
|1. Good brand
2. Good new aeroplanes
3. Excellent spots in airports
4. Well-trained staff
|1. Union disputes.
2. Old fleet of crafts.
|1. Shutdown of Tiger brand.
2. Increasing usage of airlines.
3. Increasing populations across the world.
|1. The rise and competitiveness of Virgin Australia.
2. The catching up of the Tiger brand with the support of Singapore Air.
3. Rise of new entrants that provide low-cost services.
Qantas has applied a wide range of strategies in its operations. The first strategy that the company has profoundly adopted is the Multi brand strategy. The company is in numerous service industry including the catering and holiday travel industries (Hanson, D., 2012). The airline implements this strategy by collaborating with other firms in the specific industries. These business operations run by the firm work positively towards increasing the returns that the airline realizes in every financial year.
The company maintains its well-branded characteristic by adopting effective marketing strategies. For instance, the airline has a series of television advertisements on a theme that goes as “the spirit of Australia.” The advertisement covers both the parent company Qantas and the Jetstar wing (Qantas report, 2012). The branding makes the Qantas group to be greatly supported by locals as Qantas – a full-service airline and Jetstar – a low-cost airline. The company runs relatively expensive marketing campaigns and is concerned with the pay its people receive (Hilderbrand, J., 2011).
In addition, the airline also has the strategy of keeping up to date with technology and for this reason; Qantas has, since its inception, invested in new aeroplanes and currently has the newest aircraft fleet since 1995 (Hanson, D., 2012). The airline is always keen with the upcoming trends in the airline industry and orders the newest aircrafts from EU’s Boeing and the Airbuses from the US. The Jetstar section of the airline has recently gone international as Jetstar International in a strategy to localize the airline with partners from the region.
There are strategies that the airline need to adopt while taking advantage of the opportunities and handling the threats. To counter the competition posed by Virgin Australia, Qantas should beef up its globalization strategy by expanding into more and more locations and destinations. This is supported by the fact that the airline is a well-known brand and can be trusted overseas. This should also extend to the Jetstar international element of the airline. Jetstar could serve locations around the continent while Qantas could expand to other continents save for the United States.
The airline should use the Jetstar branch to implement retrenchment strategies as they fetch from focusing on the most profitable routes across Australia. Additionally, the airline ought to adopt competitive strategies that differentiate their services from those of others. To counter the competition from Virgin Australia, the airline can separate its services from those of Virgin Australia by offering additional services that VA might not imitate or come up with substitutes. These areas of improvement could include customer services and in-flight services.
While Qantas continues to be a leading brand in the airline industry, the world is evolving and bringing into rise more entrants in the market. If Qantas is to remain at the top of the industry, it needs to review its operations and improve on the areas that seem to let the company down. The strategies recommended above are some of the steps the company should consider taking and evaluating their usefulness in the industry.
McGreal, C., (2010). A pilot’s life: exhausting hours for meagre wages. The Guardian. [Online] Available from http://www.guardian.co.uk/world/2010/jan/11/pilot-exhausting-hours-wages [Accessed: 12th September 2015]
Hilderbrand, J. (2011). Revealed: Qantas pilots paid more than Prime Minister Julia Gillard. Daily Telegraph. [Online] Available from http://www.news.com.au/business/qantas-pilots-on-high-flying-wages/story-e6lrfm1i-1226165387483 [Accessed: 12th September 2015]
Qantas, (2012). CEO Report: Qantas Annual Report. [Online] Available from http://www.qantas.comau/infodetail/about/investors/2012Annualreport.pdf [Accessed: 12th September 2015]
Hanson D. (2012). The Qantas Group in the global and domestic airline industries in late 2012. University of Tasmania.