Executive Summary
Qantas is not only considered as Australia’s flag carrier, it is also an airline company that enjoys an iconic status among Australian citizens. Thus, it is a highly respected brand even if it is losing money. Using the 13-Steps Company Analysis framework it was discovered that the company has the resources to initiate a turnaround strategy in order to improve its revenue generating capability. Nevertheless, Qantas has to reconsider its multi-brand approach. The company must reduce its commitment on low-volume domestic routes. Jetstar must focus on regional routes, especially in countries and territories near Australia. Qantas on the other hand must focus on North American and European routes. However, these new strategies are not enough. In order to assure sustainable growth in the near future, Qantas must initiate a merger with British Airways.
Introduction
In the present time, Qantas is considered as Australia’s flag carrier. However, its humble beginnings can be traced to a Queensland outback, and appropriately named Queensland and Northern Territory Aerial Services. After a few years of success, its first decade of operation was made possible by eight aeroplanes. The company’s fortune began to change after World War II, especially after it was nationalised under Chifley’s Labor government (Hanson, 2012). Qantas was an established world airline in 1958. In the 21st century Qantas is the most dominant force in Australia’s aviation industry. However, the company financial problems are rooted in declining revenue. It is due in large part to competitors like Virgin Blue and Tiger Airways. Nonetheless, environmental and socioeconomic factors are partly to blame. Using the 13-Steps Company Analysis framework, the proponent of this study aims to determine how Qantas can turn it around using strategies that helps increase its competitiveness and cost-efficiency.
External Analysis
Step 1: The Industry
Qantas belongs to the airline industry. Its main source of revenue is to provide air transportation services using standard, and state-of-the art fleets for international, and domestic flights. It provides international travel services from Australia, to major cities, and destinations all over the world. At the same time, the company provides domestic travel services within Australia.
Step 2: General Environmental Analysis
It is not the best time to be the executive of a major airline carrier in Australia. The Australian airline industry has suffered from the market decline in international tourism as a result of terror attacks that can be traced back to the infamous 9/11 Al-Qaeda sponsored terrorist activity that claimed thousands of innocent lives. In the said terror plot, airplanes were utilised as weapons of mass destruction.
Aside from the financial difficulty that stems from various economic factors, Qantas is also at the mercy of Mother Nature. For example, the Christchurch, New Zealand earthquake of 2011, the ash from the 2010 Icelandic volcanic eruption, and the 2011 tsunami that affected Japan, these events have a direct impact on revenue. Highly contagious diseases are also creating insecurity in the hearts and minds of tourists and business travelers. The company’s performance is also affected by other economic factors such as the global prices of petroleum products.
Step 3: The Industry Environment
The international airline industry is not a picture of good health. According to recent reports it is only marginally profitable, with an average of 0.3 percent returns (Hanson 443). Most businesses will not last very long if given the same return on investment. It has a high barrier of entry, because investors require billions of dollars in investment money to start an airline company.
It appears that the local airline industry is in the brink of collapse. Part of the reason is seen in the “buyer power”, because customers can demand higher quality standards. Thus, airline companies are forced to spend more money on improving facilities, while at the same time reducing the cost of air travel. Another reason can be seen in the availability of several substitutes. In the case of Australia, the substitutes are Virgin Blue and Tiger Airways. The airline industry is also affected by “supplier power”, and it was evident on the problem encountered by Qantas when Boeing failed to deliver the aeroplanes that was ordered in 2005. Supplier power can affect the quality of the airline’s fleet. The rivalry among airline companies is the major reason why revenues are low. The rivalry between airline companies is the key force that influences the behavior of the industry. Due to the need to lower cost because of the trend that was started by low-cost carriers, other airline companies can no longer compete. Recent casualties included the Aeropelican and Brindabella (Ma par.1).
Although regional markets are struggling to increase revenue, there is a silver lining when it comes to increase demand for business travel. According to recent studies of the Australian airline industry, there is steep competition when it comes to reeling in business class travelers. The market is seeing evidence of an uphill battle between Qantas and Virgin Blue airlines as proof of surging demand. Both airline companies are investing in the upgrade of their A330 business class products (Freed par.1).
Step 4: Competitive Environment
Without a doubt competition between international and regional airlines is fierce. It is described as a crowded marketplace, because according to Skytrax there are 620 airlines in the world, and of that number, at least 230 fly international routes (Hanson 444). In addition, 56 global airline companies have the capability to transport people, and commodities over long distances. Furthermore, each of the 56 airline companies is well branded, and enjoys a loyal following. In the context of the Asia Pacific region, Qantas faces stiff competition from well-known companies like Virgin Australia, Malaysia Airlines, Singapore Airlines, British Airways, Thai Airways, Emirates, and Cathay Pacific. In the local market Qantas has its eye trained on Virgin Blue and Tiger Airways. Virgin Blue and Tiger Airways uses value chain strategies that lower the cost of doing business while sacrificing high standards of service. For example, the ticketing system was established around an automated framework using cutting-edge Information Technology. Therefore, the processing of reservations and ticket purchases are made without human-to-human interaction. This system is a good example of how to reduce operational expenses, however, it is difficult to use for customers that are not tech-savvy. It is also a difficult system to use if there are problems in the reservation process. It is a challenge to rectify the mistakes made.
Step 5: Opportunities and Threats
The One World alliance with major airlines all over the world provides an ideal marketing opportunity that can be exploited to increase the number of passengers that can use Qantas’ services. If the airline company can establish attractive packages, or customer loyalty programs for frequent flyers traveling back and forth to the United States, United Kingdom, China, Spain, Finland, and Canada, this can become a major opportunity for growth.
On the other hand, Qantas has to be mindful of the impact of the well-branded, and low-cost competitor in Virgin Blue airlines. In the initial encounter with Virgin Blue, after the demise of a key competitor in Ansett, Qantas immediately lost in the first round of battle. The company’s domestic market share fell to sixty percent, an alarmingly significant drop in revenue for this particular income stream.
Global conflicts will threaten to reduce Qantas’ expected revenue in the coming years. At the same time the company has to prepare for health scares like SARS, and other similar communicable diseases that spread easily through air travel. Aside from natural calamities and pandemics, the survival of the company is also threatened by investing in the wrong market. In the case of Qantas, the company covers 65 percent of the domestic market through a two-pronged approach: Qantas deals with the premium markets while Jetstar handles the budget markets.
Internal Analysis
Step 6: The Firms’ Resources
The One World alliance has given Qantas the ability to use facilities that the company did not pay for. Aside from the benefits derived from the One World alliance, the company is the biggest player in the Australian airline industry. For example, the company enjoys excellent slots at airports.
The company boasts of new aeroplanes. In 2005 it announced the purchase order of 115 Boeing 787s. In 2012 the company listed 308 aeroplanes under its fleet. This fleet includes two A380 long-range Airbuses and seven single-aisle A320-200 for Jetstar.
Step 7: Capabilities Identification
Qantas is known to have a full-service model for air travel. This means that the conventional and old way of providing service to airline passengers is still in effect. In most low-cost carrier, meals are not included in the fare. If the passenger wants to eat they have to purchase food from the airplane’s version of a food pantry or cafeteria. In other words, passengers pay with their own money, and the pre-packaged food is delivered to their seats. In a full-service model the passengers are pampered with the airline’s catering service, and meals are included in the airfare. However, this means that the cost of travel is much higher.
The full service model can also be interpreted as the conventional way of dealing with airline passengers. This means that the customers can make reservations using the traditional routes such as calling in using telephones to talk to a live person on the other end of the line. It also means that passengers can visit any of the satellite offices, or authorized ticketing outlets to talk to a company representative, and make their reservations. This model incurs higher operational costs, because it is not automated as compared to the value chain model of low-cost carrier. However, Qantas also entered the low-cost carrier game, and invested in a subsidiary called Jetstar. The Jetstar airline enables Qantas to offer a low-cost alternative, because it utilises the same low-cost value chain, and the components are: an internet booking system, passengers paying for on-board food and drink services, standard fleet of aircraft, and lower paid pilots and cabin staff (Hanson 442).
Qantas has the capability to service customers flying to international destinations all over the world. It also has the capability to fly passengers within the region, and this includes New Zealand, and nearby Asian countries. At the same time, Qantas can supports local airline routes.
Step 8: Core Competency Analysis
The company has an established brand name. Although it faces a tough challenge against an upstart called Virgin Blue airlines, most Australians remember the importance of the Qantas brand, especially its contribution to nation building. It is important to realize the emotional connection of the Australian people to the airline. It is also important to realize the emotional connection of citizens that are under the patronage of the British Royal family. In the early days of Qantas, the company was the first airline that was able to bring the British Royal family to Australia. As a result there is a significant emotional resonance whenever Australian, United Kingdom, and Canadian residents mention Qantas. However, a younger generation of customers may not have the same connection. This could partly explains the spectacular rise of Virgin Blue, which at first glance seems a better alternative for those who wanted no frills travel.
The company believes that it can provide a better service for premium travellers. For example, the company is perceived to have superior lounges, on-time performance, and enviable frequent flyer programs.
Step 9: Value Chain Analysis
In paper, Qantas has a tremendous advantage over their rivals because of its One World alliance with American Airlines, British Airways, Canadian Airlines, Finnair, Iberia, and Cathay Pacific. This alliance has two major effects. First, it has unprecedented access to seven major destinations. These destinations enable the airlines to carry passengers back and forth from Australia to major cities in Asia, Europe and North America. Consider for example the number of tourists and business travellers that are flying back and forth from the United States, United Kingdom, China, Canada, Finland, and Spain.
The company has to manage two groups of aircraft and personnel: Qantas and Jetstar. In addition, Qantas has to deal with three union groups. Qantas was able to secure the support of the union because the pilots, and staff are well paid. However, it has problems when it comes to Jetstar, due to its attempt to lower operating costs. For example, in its Sydney-Bali route, cabin staff work 14 to 15 hour shifts.
Step 10: Weaknesses
The company struggles to make money in international routes. In fact, Qantas discontinued several international routes. Part of the problem is the strong, and loyal following of customers towards their national carriers. For example, the residents of the UK will prefer British Airways to Australian carriers. The same thing can be said of American travelers. It is difficult to persuade them to use Qantas if they will find that American airlines can provide the same service at the same price range. Another problematic area is the low return on investment when it comes to domestic routes.
A less than prudent handling of Jetstar’s woes can create a chain-reaction of problems that can pull down the company. Qantas must tread slowly when it comes to labour-related complaints regarding employee remuneration. Even with a highly paid group of workers that are protected by labour unions, the company was still unable to avoid a standoff that lasted 10 weeks. It resulted in the cancellation of 300 flights.
Step 11: SWOT Analysis
One of the major strengths of Qantas is something that is non-quantifiable. No one can measure the value of the brand in terms of how Australians associate it with nation building, and how the company has become a part of their lives. In other words, Qantas iconic status makes Australians feel patriotic whenever they choose to use its services.
Qantas also boasts of a unionised and well-paid workforce. It means that the company has a long-term agreement with its unionised workers to pay them an above industry wages. The airline company cannot modify the pay structure if corporate leaders decided to cut costs. They cannot modify the remuneration package, because they entered into an ironclad agreement with the union. As a consequence the company is saddled with payroll concerns on a yearly basis. However, on the bright side of the issue, the above-average salary, and the security provided by the union means that there is a low probability of work disruptions due to labour strikes. It must be interpreted as a major advantage for the company.
Opportunities are seen in the impact of changing world patterns. For example, there are at least 11 countries with a population of over 100 million. The most important development is the rising population in countries like China and Russia. Furthermore, the increase in population is coupled with an increase in discretionary income. This is a potent combination, and if Qantas can tap emerging markets the company can increase its revenue several fold.
A major weakness of the company is its inability to compete with Virgin Blue in the low-cost market segment of the aviation industry. Part of the problem is in the creation of a multi-brand strategy that divided the company’s focus. On one side is the full-service company that behaves likes any other national carrier should behave. On the other side is a company that is sometimes compelled to cut corners just to make ends meet. For example, Jetstar’s cabin staff worked longer hours compared to their counterparts in Qantas.
The threat to the company’s long-term sustainability and profitability are competitors like Virgin Blue and Tiger Airways. Threats can also come from environmental factors such as the outbreak of diseases and political instability in high-growth areas. For example, Thailand is a popular tourist destination, however, tourism was significantly affected by recent political problems.
Step 12: Current Strategies
Due to the airlines’ inability to contend with Virgin Blue’s low-cost carrier model, Qantas decided to create a similar service provider in Jetsar. It employs a multi-brand strategy. An interesting component of the strategy utilises both Qantas and Jetstar aircraft for international travel. However, Qantas aircraft and staff must focus more on European and USA routes.
The company tries to execute several strategies relating to improving services, while at the same time, cutting overhead expenses. There were several practices that were discontinued, and several routes that were considered non-viable. The company decided to outsource 7000 IT and maintenance jobs.
Step 13: Strategies
The best solution that will cover all issues is a merger with British Airways. A merger with the UK-based conglomerate is a viable option because workers, pilots, and cabin staff from both companies share the same culture. It is not difficult to merge two companies that share a lot of common ground. The merger will reduce the financial pressure that the company is currently experiencing due to declining revenue and skyrocketing costs. It will solve Qantas’ struggle with international routes. As a result of the said merger, Qantas can focus on regional routes, and destinations that does not require extended travel time. Thus, Qantas can focus on emerging markets in China, India and other Asian markets with rapid population growth, and a corresponding increase in discretionary spending. In other words, there is a whole new world out there that can be considered as an untapped market.
A merger with British Airways enables the company to sell shares of Qantas at a higher price. The inevitable infusion of investment money from optimistic investors will enable Qantas to upgrade its fleet and its facilities. In addition, it will allow Qantas to experiment in reducing its commitment to the local market, and reduce its market share. The best thing to do is to collaborate with local carriers in order to pressure the government to honour promises made to support local routes.
The merger will allow Qantas to use Jetstar for domestic flights. Jetstar can also focus on regional flights that are near to the Australian continent such as New Zealand and nearby territories. Jetstar must not be allowed to fly international routes because of the possibility of creating labour disputes in the future. Allowing Jetstar to fly long distances creates a stressful environment for the lowly paid cabin staff and pilots.
It is important to consider the need for low-cost carriers servicing international flights (Addis par.1). The best solution to this problem is to provide the same low-cost model in Qantas routes. In other words, several Qantas routes must incorporate the same value chain as a low-cost carrier. If this is not feasible due to management concerns, the compromise is to allow a limited number of Jetstar aircraft to cover highly lucrative international flights. However, the distance covered should be in the nearby Asia-Pacific region. Jetstar aeroplanes must never be allowed to cross the Atlantic or travel to Europe.
Conclusion
The company must leverage its reputation as Australia’s flag carrier to initiate radical changes in the company’s strategic approach. The company has all the resources needed to implement strategies geared towards long-term growth. However, corporate leaders must realise the importance of pruning those things that may provide a semblance of success, but in reality these thing are pulling Qantas deeper into a financial quagmire that it may not be able to overcome. For example, Qantas must reconsider the effectiveness of the multi-brand strategy. Due to the challenges created by Australia’s land area, the company must reduce its commitment to low-volume domestic routes. It is more prudent establish an alliance with regional carriers. Qantas must use its considerable influence to ratify laws that are favorable to airline companies servicing the domestic routes. Thus, Jetstar must be repositioned to service regional routes, specifically those destinations that are in close proximity to Australia, such as, New Zealand, and other nearby Asian countries. It is no longer prudent to engage in a price war with Virgin Blue and Tiger Airways.
Reducing its commitment in the domestic market will enable the company to provide better working conditions for Jetstar’s staff and pilots. Qantas must focus its attention on long-distance flights. Nevertheless, these strategies are not enough, unless the company can persuade various stakeholders to agree on a potential merger with British Airways. A merger can help the company streamline its operations, especially with regards to costly international flights. A prospective merger with British Airways is a smart move. It can pave the way for the creation of a dominant airline that could provide high-quality service for customers on both sides of the Atlantic. It will free up Qantas to focus on lucrative markets, especially Asian destinations where one can find large populations with high-purchasing power.
Works Cited
Addis, John. Beware the Qantas Investment Trap. The Sydney Morning Herald, 2014. Web.
Freed, Jamie. Virgin, Qantas, Step Up Battle for Business Travelers. The Sydney Morning Herald, 2014. Web.
Hanson, Dallas. The Qantas Group in the Global and Domestic Airline Industries in Late 2012. Tasmania University, 2012. Web.
Ma, Wenlei. REX COO Garry Filmer Warns Australian Aviation is on the Brink of Collapse. News.com.au, 2014. Web.