The present paper is aimed at comparing two companies – Jetstar, subsidiary of Qantas Airways, and Virgin Blue, subsidiary of Virgin Airways – in terms of the competition issues they face and analyze other problems and risks that can arise if the companies formed a combined marketing arm. The background of the companies is provided, and a theoretical framework is formulated about the market department adjoining. The prospective competitive issues are viewed through the lens of the existing ones, the main assumption being that the combination of marketing forces is likely to result in the loss of incentives to adjust the scope of services and their quality.
Qantas has been in the market for a long time and has grown into a national symbol, fondly referred to as a “Flying Kangaroo.” Jetstar Airways, its subsidiary, positions itself as a value-based airline offering affordable flights to just under 9% of all passengers crossing the Australian borders (Ironside n.pag.). Despite the remarkable experience, the last years have not proved to be altogether successful for the company.
For the last several fiscal years, the company has been repeatedly announcing massive losses, and its credit history is far from being perfect. More importantly and disastrously for the competitive capabilities of the company, the user ratings have recently hit the rock bottom going down as low as 1.8 out of 5 (“Virgin Australia (VA) vs. Qantas (QF)” n.pag.). The company indicates that fuel costs and obsolete legal regulations prevent it from receiving any substantial profits. The Qantas Sale Act is obviously not helping either since it does not allow for sustainable foreign capital investments. The company has been pleading for the government to assist, and it would seem that the assistance is due.
However, the company’s prime competitor Virgin Airways, although quite small in size and operation scope, has been crossing its way ever since its inception. Virgin’s leaders have stated that the overgrown Qantas has adopted a laissez-faire approach because it believed it was too big to fail. In other words, the competitor indicates that Qantas’s hardships are a direct result of poor management and decreased service quality (Ironside n.pag.).
Additionally, Virgin Airways has repeatedly argued against Qantas monopolizing the government’s assistance, financial or of any other nature. The company’s leadership board has repeatedly issued a claim that the help should be received by all the companies within the industry, on an equal basis. At that, Virgin Blue, a subsidiary of Virgin Airways, seems to be facing some market position problems which the company attributes to the increased attention Qantas receives (Grimson n.pag.).
If BlueJet Australia were to be formed as a combined marketing arm, the result of the symbiosis would seem to be a both-ways market position improvement. However, regarding the subsidiaries’ current status, and the overall positive outcome is arguable.
The combined departments and competitive issues
A marketing joint venture is one of the more common types of joint venturing, which basically assists the adjoining companies in service promotion and distribution. The practice is known to have some benefits, one of which is advertising budget reduction. Indeed, the combined promotional efforts tend to result in less advertising expenses since the cost is shared in two. This can improve the joint’s competitiveness against all other companies in the market.
Another positive feature of joint venturing is that it offers a wide array of business combinations. New entities can be consolidated, contracts can be signed, alliances can be formed, etc. The practice also enables the participants to achieve economies of scale and thus spend less on the services they render, combine market research to do it faster, and adopt several new practices together (Marth par. 1-9).
The downside of the combination is the harm it inflicts on the companies’ competition. The theory says that when competitors such as Jetstar Airways and Virgin Blue suddenly stop competing, they lose the incentive to strive for quality and other aspects critical for customer loyalty. Such companies, when collaborating, can lose their ability to raise costs or decrease their outputs (in terms of service quality and innovations) – something that they would be perfectly capable of on their own.
Another serious disadvantage results from the adjoined companies’ limitations in terms of independent decision-making. Indeed, they combine their financial interests, assets, other aspects of competition sensitivity (Shishido, Fukuda, and Umetani 2). When the need for competition is decreased, the risk of collision arises – which is one of the anti-competitive practices the antitrust regulations are struggling to put an end to (Marth par. 1-9).
There are some competitive issues between the companies in question that already exist; some more are likely to arise when the joint venture is formed.
Qantas vs. Virgin Airways
First and foremost, Virgin Airways (and its subsidiaries, including Virgin Blue) are not subject to the Qantas Sale Act (link page). It primarily means that the company can raise funds from foreign investors, while Qantas (and its subsidiaries) cannot expect the said investors to own more than half of its market stock. The direct implications of it – and the fact that Qantas has to be headquartered on the territory of Australia – are that the companies it owns would have to deal with foreign investors on their own.
This circumstance is complexified by performance and reputation issues faced by Qantas and its subsidiaries. Particularly, Jetstar has initially positioned itself as a value-based airline, which is to say, offering budget flights (“About us: Jetstar Group” n.pag.). On the other hand, despite the almost impeccable performativity, Virgin Airways has not achieved Qantas’ scope, although it does require the government to assist equally across the industry.
The competitive issues the venture is likely to face, therefore, pertain directly to the following factors. The existing cost competition would be the major discrepancy when the companies join because Virgin Blue is constantly attempting to improve the customer experience (which results in increased prices) and Jetstar, as said, has always specialized in low-cost services. As an innovator, Virgin Blue has more chances to attract foreign capital, which it does, while Jetstar Airways has to confine itself.
Moreover, the companies operate on the same routes, which would either create a conflict of interest or deplete the incentive to improve service quality whatsoever. Considering that Jetstar Airways is specifically targeted at a low socioeconomic status population, its reputation among the higher-SES clients is far from perfect, and the fact that Jetstar cooperates with Virgin Blue is unlikely to change the situation to the better.
Although the combined marketing arm can assist the companies in promoting their services, several incentive-related issues can arise resulting in cost inconsistency, customer dissatisfaction, and the non-alignment of the companies’ foreign investment needs with the status quo.
“About us: Jetstar Group.” Jetstar. Jetstar Airways Pty Ltd, 2016. Web.
Grimson, Matthew. “Qantas versus Virgin: The fight for Australia’s skies.” ABC News. ABC. 2014. Web.
Ironside, Robyn. “Virgin Australia down but fighting back against profitable Qantas”. News. News Limited, 2016. Web.
Marth, Ryan W. “Antitrust Treatment of Joint Ventures: Analyzing Competitor Collaborations”. Robins & Kaplan: Rewriting the Odds. Robins Kaplan LLP, 2009. Web.
Shishido, Zenichi, Munetaka Fukuda, and Masato Umetani. Joint Venture Strategies: Design, Bargaining, and the Law. Northampton, MA: Edward Elgar Publishing, Inc., 2015. Print.
“Virgin Australia (VA) vs. Qantas (QF).” WanderBat. Graphiq, Inc., 2016. Web.