Qantas’ Resource- Base Analysis and Competition

Outline

The airline industry has become very competitive in the global markets. Many companies are facing challenges related to either internal and external factors or events. Qantas airline is one such company that has weathered the storm, despite these challenges. However, it still faces numerous challenges ranging from competition to internal strategic management. The company’s main areas of business are the operation of passenger airlines and airline-related business portfolios such as Qantas Engineering, Airports, Q Catering, Qantas Freight, and Qantas holidays among many more shareholding ventures in varied and related businesses. The paper outlines some of the internal and external environment as concerns its management, and the industry environment.

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Introduction

Founded in 1920 in Queensland outback, Qantas is the world’s second oldest and 11th largest airline (Doganis 2001. p.124). In Australia, Qantas is the largest airline company operating both domestically and internationally. According to its website, Qantas.com 2009, the company has over 36, 000 employees and operates in over 150 destinations and 38 countries in Australia, Asia and the Pacific, the Americas, Europe and Africa (CAPA 2002, p.4). The company’s main areas of business are operations of passenger airlines and airline-related business portfolios such as Qantas Engineering, Airports, Q Catering, Qantas Freight, and Qantas holidays among many more shareholding ventures in varied and related businesses. Initially owned by the government of Australia, the airline did not focus on efficiency and profits as its main goal, characterized by a classical management style of autocracy, no financial accountability, a long chain of command, and top down communication style (qantas.com). How has it transformed itself from a lowly regarded government enterprise into a highly recognized and respected airline company? Come 1993, British Airways acquired a 25% stake in the company (Highfield 2005, p.6). The company’s full privatization in 1995 meant that it had to adopt new practices of management that would enable it to overcome the internal and external environment challenges to business approach in order to;

  • be more profitable through efficiency and competitiveness
  • pay taxes, as well as levies to the government of Australia just like other businesses, did
  • make profits to pay dividends to its shareholders (Alan 2004, p.1)

Some of the current external threats like the swine flu, terrorism (preceded by the September 11 bombing) and competition, and the internal challenges prompted by poor leadership meant that the company had to adopt a strategic management style that would be more viable in today’s business environment. This paper analyzes the Qantas internal environment comprised of the resource-based view, its external environment comprised of socio-cultural, global, economic, technological political/ legal, and the demographic environment exploring the opportunities and threats available. It also analyses the airline industry environment, i.e. supplier power, buyer power, the potential entrants to the market, rivalry among the existing competitors, and the substitute products available from other competitors, analyzing areas where it has excelled, how it carried out the changes, and more importantly that, which still need improvement.

The Host Community

The community that provided the avenue for the establishment of the company also has its share of its own demand. Principally, the community (Melbourne City Council) has to take a large share of the benefits from Qantas’ success. They will always want the company to offer long-term security in terms of jobs and tax revenue returns. These expectations are likely to weigh down on the company management hence, a host of responsibilities to accomplish.

The union officials

Traditionally, the Australian labor system just like any other country is under labor unions. The unions normally use labor relations to agitate for the welfare of the employees in terms of working environment, better pay, security, and general employee satisfaction. Qantas faces the challenge of accomplishing all these demands in order to remain relevant in the current labor market

Qantas resources analysis: Resource-based model theory

The resource-based view of firm resources is the critical analysis of the firm’s resources, both tangible and non-tangible. An integrated resource-based analysis of Qantas indicates that it has numerous resources. Among the tangible resource, Qantas currently operates 224 aircraft under its Qantas and Jetstar brands. It also owns Qantas engineering, Airports, Q Catering, Qantas Freight, and Qantas Holidays (Alan 2004, p.2). The company holds 58% interest in Jetset Travelworth Limited, 45% interest in Orangestar investment Holdings Pte Limited. It also has an 18% stake in Vietnam’s Pacific Airlines (p.3). Apart from that, Qantas has a 46.3% stake in Air Pacific and partners to Australia Post in two jointly controlled entities-the domestic airfreight operator Australian air Express and the national road freight business, Star Track Express (p. 5).

It has also diversified its technology in an effort to leverage its services at par with the modern business by developing quick-check and online check-in services to its customers.

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Their employees are also their important resources since it is through the staff that they can continuously offer their services appropriately to satisfy all stakeholders.

The airline industry

Qantas operates in an airline industry that provides transport services to the passengers and or freight. Airline companies also lease or own their aircraft that they use to offer services to their clients, a program that they may use to form a partnership with other airline companies (Doganis 200, p.116). Airline companies can either operate with single airplanes that are specialized in transporting mails and cargoes or a fully serviced international airline with numerous airplanes (p. 118).

Qantas’ mission statement, “committed to the carriage of customers with specific needs in a safe, non-discriminatory manner with dignity, whilst ensuring the health and safety of Qantas staff” (qantas.com). Together with their vision, “Qantas is the airline of choice for customers with specific needs, providing a travel experience that is comfortable and hassle-free while ensuring the safety of Qantas staff and achieving the company’s commercial objectives” have been at the core of their operational activities (Alan 2004, p.7). Both the vision and mission of Qantas define its organizational culture.

According to (David 1989, p.129), adopting quality customer-centered organizational culture is the smartest way for an organization to improve its return on investment (R.O.I). It is no surprise that Qantas has been on a mission to improve its customer care services. This is in line with their effort to explore concepts as well as reinforce new management ideas for improvement from good to best.

 General Environment Analysis

General environment analysis includes a critical look at the entire industry and its competitive environment that exposes threats and opportunities for the airline industry where Qantas and its subsidiary company Jetstar specialize. The principal objective of the general environment analysis provides information that would help Qantas navigate the challenges existing in the general environment of business operations as well as emphasize their strong points to gain the competitive environment. The general external environment of a firm is comprised of all the potential competitors plus the general operating environment that may entail changed circumstances of new technology, new competitors, and the new socio-political, economic, and financial environment of a firm.

The products and labor markets of Australia experienced numerous challenges that mainly bit the low-cost carriers (LCCs), as indicated by the collapse of Ansett in 2001. According to Lamb (1984, p. ix), strategic management should be an ongoing process to evaluate and control the business and the industries in which the company is involved. It helps to assess the competitors as well as a lay foundation to set goals and strategies to challenge all existing and potential competitors. Lamb also elaborate that it should give room to “reassesses each strategy regularly to establish the level of implementation” and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment, or a new social, financial, or political environment (Lamb 1984, p. x).

Demographic nature of the Australia

Australia as a country is a less and sparsely populated nation with a majority of the citizens seeking airline services residing in their major cities (CAPA 2002, pp.2-4). According to Australia’s Bureau of Statistics (2009, p.1), the population in the major cities of Australia grew rapidly in the last decade, where two-thirds of the 20.7 Australian population live. The baby boomer generation (currently aged between 45 and 65) comprises the majority of the regional residents who are in a better financial position to afford air transport. This may present an opportunity for the airline domestic airline industry players to explore further.

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With rugged terrain, Australian citizens, especially those traveling for business and leisure prefer air transport as a means of moving from one place to another (CAPA 2002, p.9). This has given the airline industry an advantage over other means of transport like road transport. The majority of businessmen are middle-aged groups, who have higher income and at the same time would prefer efficient means of transport that takes care of cost factor (ABS 2007, p.3). Qantas uses this group, who form the majority of travelers, as their target market with the low-cost strategies, and on the other hand offer services that are more luxurious to leisure travelers (comprised of majority youth) in urban areas.

A recent Woolworths research revealed that 61% of Australians favor reward schemes that companies provide, citing economic hardship as a factor that has influenced such preference (Alan 2004, p.2). Further 64% preferred reward schemes that offered them a variety to choose from rather than single product or service reward schemes traditionally offered by the companies (p.3). However, no single company in Australia has attempted to offer various options for their reward schemes to their clients in the past. Qantas has therefore initiated a reward scheme in collaboration with Woolworths where its Frequent Flyer cardholders will be able to collect points when they shop at Woolworths, giving them an opportunity to choose a variety of rewards in terms of goods and services offered by Woolworths and Qantas (Qantas.com). With the recent development where Qantas competitor has increased airfare by 7% despite its current load factor of 62% compared to Qantas 89% and Singapore Airlines’ 80% (O’Sullivan 2009, p.19) all eyes are on other industry players next move. With this reward scheme, Qantas is likely to develop a strong competitive advantage over its competitors considering the current economic slowdown.

Economic environment

Australia’s economy is a free market economy that has prospered with the service sector dominating the economy with 68% of the country’s Gross Domestic Product (GDP) (ABS 2007, p.11). According to ABS, the purchasing power of Australians is slightly higher than Germany, United Kingdom, and even France. It means that the service sector, which is comprised of the Airline industry, is very competitive. However, since the year 2000, the emphasis by the Australian authorities on commodity export rather than manufacture has led to a significant decline in terms of growth, making the country amass more than 7% negative GDP (Highfield 2005, p.49). On the positive side, the country has experienced an annual growth rate of 3.6% in the past fifteen years (ABS 2007, P.10). This may present the airline industry with the opportunity to offer more manufacturing products, to diversify their product ranges. For example, Qantas operates an engineering unit that manufactures plane spare parts and repairs. They can emphasize this area to have better prospects in the industry.

By the year 2007, slightly more than half of the Australian population is underemployed, and the unemployment rate was only 4.6% (ABS 2007, p.14). The past ten years have seen an inflation rate between two and three percent, and the base interest rate of 5 to 6% in an economy largely controlled by the service sector (69% of GDP) comprising of financial services, transport, tourism, and education (O’Sullivan 2009, p.21). In this aspect, it would be sufficient if Qantas exploits the seemingly booming tourism sector by emphasizing their already target market of premium services for the tourists.

Australia is a member of Asia-Pacific Economic Cooperation (APEC) and other trade partnerships in Europe and Australia (APEC 2009, P.89). There are hundreds of foreign companies, which have their operation in the country, despite the fact that it is a high exporter of goods and services, mostly destined to South East Asia. Qantas is one of its companies with a recognized brand overseas. Even though trading blocs may be a barrier to the country’s export services, the bilateral free trade agreements normally break these barriers. The recent increase in regional policies barring trade especially the European Union Common Agricultural Policy and the protectionist policies imposed by the United States have negatively affected the Australian economy, thereby putting a lot of pressure on the domestic companies to fill the void (Doganis 2001, p. 98).

Political and legal environment

Despite the political efforts to make new trade policies, the global economic slump has affected Australia just like other countries. The political environment faces one of the greatest challenges like unemployment, which has been rising for years, a trend expected to persist for a longer period to come (ABS 2007, P.37). The government’s environmental policy agenda of establishing an emission-trading scheme by 2010 is likely to pose a threat to the general industry, especially those who have not taken environmental issues seriously (Bamber, Russell & Wailes 2004, p. 36). However, Qantas’s efforts to preserve the environment through their environmental program is a step forward, especially in the increasingly environmentally conscious citizens of the world.

Australia’s tax policy is one of the main impediments to the general growth of the manufacturing industry, according to experts. Tax in this country is levied both at the federal and state levels and the states are mainly dependent on the federal tax revenue to cater for their decentralized state expenditure (Baker 2008, p.52). There is also municipal taxation, mostly referred to as “council rates”, which are levied by the local governments to provide services such as perk maintenance, garbage collections and museum services (p. 53). These taxes weigh heavily on the service industry, which is the main income earner for the nation;

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According to ABS (2007, p.71), Australia’s labor and employment laws are complicated, and that it is only the legal experts who are in a position to interpret them. To make it worse, every state has its own set of independent rules and regulations guiding labor and employment (Baker 2008, p.55). The minimum wage in the country is also never consistent, with every state and municipality setting its own standards (p. 57). It, therefore, is a present challenge to the airline industry, especially Qantas’s Jetstar whose resource revenue is wholly dependent on the local market.

The socio-cultural environment

Armstrong (2006, p.342) describes culture as “the collective values, beliefs, attitudes, assumptions, and behaviors of a group”. Australia’s workforce is a multicultural society comprised of the indigenous population and the immigrants (Doganis 2001, p.45). Considered one of the most outstanding economies with high standards of living, Australia’s educational and health sectors are working well (Bamber, Russell & Wailes 2004, p. 70). This is because the workforce of the 10 million is highly trained, and a half of the workforce population is either University graduates, diploma holders (ABS 2007, p.54)). Its cultural diversity in terms of language skills, that is, 4.1% of Australians speak foreign languages, other than the national language of English (p. 41). This favors foreign investors who typically run a good proportion of the Australian economy, no wonder the recent show of interest by China to buy many Australian domestic companies.

The quality of life work life in Australia is one of the best in the world, according to United Nations (O’Sullivan 2009, p. 29). It was ranked the second-best in the world because of its excellent quality of life to its residents leading to high life expectancy, low crime rate and good education (p. 30). This has instilled an attitude of a relaxed lifestyle and good working environment that is the reason behind its high ranking and Qantas has benefited tremendously from this work attitude, drawing most of the expertise locally, and even exporting its workforce to its foreign airline destinations (Greg 2006, p. 56).

Technology advancement

The global ICT sector has expanded exponentially over the last decade. Australia is one of the countries with its sophisticated IT sector, posing 26% growth annually (Leijon & Malm – Andersson 2007, p.6). Slightly half of the small and medium enterprises apply internet use in their business to business operations, three-quarters of the Australians use internet banking while the mobile services are the fourth in the Asian region (IATA 2002, P.9). This has presented an opportunity for the airline industry to exploit the booming ICT sector. Qantas has developed a strong ICT sector, giving its customers opportunities to use online services to book tickets and offer other internet services outside their area of specialization (Jetstar 2004, p. 7). They also introduced flight information updates through SMS to its business travelers, and passenger screening and anti-terrorism systems that ensured the safety of the travelers (IATA 2002, p. 31).

The introduction of the world’s first twin-deck aircraft, AIRBUS A380, by Qantas is a step forward that will see the company overcome the challenge of limited slots available in the world’s airports (Qantas.com). According to their website, cantas.com, they have also introduced the Boeing 787, which will see them fly with a quick speed similar to current wide-body aircraft to advance its technological prowess. Such are the strong points of Qantas that will see them gain a competitive advantage despite the current economic crisis.

The global market environment

The current global market has become more competitive than ever before. Businesses have to keep up with the constantly changing market positions, consumer dynamics, competition, employee management, production technology and costs, and lately the fluctuating global economy (Baker 2008, p.3). Many international companies are struggling to remain afloat in the serious economic slowdown. The globalized market economy has seen several small players in various industries finding it easy to enter the market with much lower entry costs and lower prices for their products and services (Doganis 2001, p.77). This puts a lot of pressure on the big players, whose bigger operation costs may not favor lowering prices; hence, the resultant reduced profit margin or even loss.

The competition and the pricing freedom mean that the new entrants in the market take the market with a storm, giving these established players a run for their money. The resultant scenario is uneven profitability that has forced some major airlines to go under, in addition to the poorly established new operators (Doganis 2001, p.65)

The industry analysis

Industry Overview

The airline industry has a very rich mix of strategic competitiveness that sets them apart as they pursue competitive advantage and efforts to get above-average returns. The industry environment has a more direct effect on the strategic competitiveness of the firm and above-average returns than the general environment. Competition from small players is one factor that has threatened the established airline industry players like Qantas and Virgin Blues. The entry of Tiger Airways into the market formerly dominated by Qantas and Virgin Blues airline services has changed the market situation especially in Asia (O’Sullivan 2009, p.19). This is largely because of the deregulation of the different international investments and industries. Australia, United States, United Kingdom, Mexico, Japan, and Brazil all have a deregulated airline market (Highfield 2005, p.89)

The collapse of Ansett set a new stage of competitive environment between Qantas low-cost brand and Virgin Blue. Internationally, different catastrophic events like the September 11 bombings and the contagious swine flu brought about the challenges of overcoming the impacts of low international air traffic (Virgin Blue 2003, p.3). To remain afloat, the airline companies had to reduce costs of operations through:

  • Downsizing staff and the purchase of more efficient aircraft if need be
  • Lobbying for the government for protection
  • Outsourcing maintenance of their fleet overseas
  • Relocation of planes from international to expanding domestic market
  • Considering selling catering operations
  • Sale and leaseback of terminals (CAPA 2002, p.13)

Such were the initiatives set by many international airline companies to increase their competitive environment. Furthermore, according to the industrial organization model of above-average return, an industry in which a firm competes has a stronger influence on the performance than the choices managers make in their organizations (Lamb 1984, p. 141). Some of the determinants of a firm’s performance are the economy of scale, barriers to market entry diversification, product differentiation, and degree of concentration of the firms in the industry (p.142). The industry environment analysis may take the following theory models:

Rivalry among the existing competitors

The presence of industry competitors may present a challenging task to Qantas. The main domestic competitors are Virgin Blue and Tiger Airways who always wage price wars, innovations in technology, and ideas on customer services. Initially, Qantas and Jetstar (formerly Ansett) had higher overheads, with the reduction of fare making the two firms face challenges of handling these higher costs and making profits at the same time (Doganis 2001, 189). Under this price war, Qantas launched Jetstar as Ansett collapsed, setting the stage for fierce competition between Qantas and Richard Branson’s Virgin Blue (Highfield 2005, p.6). Branson initiated the low-cost airline in 1973 and since then it has grown into an international brand (CAPA 2002, p.21). The introduction of the brand in the Australian market made the competitiveness market fiercer (Virgin Blue 2003, p.52). This model was similar to Southwest Airlines: a “no-frills” airline with the conventional wisdom that the airlines that are clearly succeeding are those that have “stuck to the consumer-friendly Southwest low fare model” (CAPA 2002, p.34). Virgin Blue at first used second-hand planes, for the low-cost endeavor, but with an intention of offering reasonable customer service (Virgin Blue 2003, p.55). Even though Ansett’s collapse left Qantas with more than 80% market share, the company was still worried about the aggressive expansion of Virgin Blues based on much lower costs, strategically 3040% less than Qantas’s. This strategy helped Virgin Blue astronomically acquire a third of the Australian domestic market within three years (p.57).

To respond to the competitive threat of Virgin Blue, Qantas introduced Jetstar, to restrict the penetration of Virgin Blue and other carriers to the limit of less than 35% of the domestic market share (Harcourt 2004, p.9). Qantas adopted a “pincer-movement” strategy: it set up an LCC to compete with VB on price, especially in growing leisure markets, whilst using Qantas as an FSA to concentrate on business markets (Bamber 2006, p.3). They intended to force Virgin Blue to respond either by reducing costs to compete with Jetstar in the price war or by increasing costs to compete with Qantas in the corporate market (Harcourt 2004, p.9). The use of two-brand strategy is to target different markets, which Qantas used to close the gap at the lower end of the domestic market as well as to reduce the risk of “cannibalization” of the mainline carrier, a scenario that occurred between the British Airways and GO, its low-cost carrier) (p.8). Whereas Virgin Blue is a stand-alone in the Australian market, Jetstar is a wholly-owned subsidiary of Qantas, thus it is a carrier-within-a-carrier (p.10).

Such a level of rivalry is a critical aspect in the life business since it may lead to an involuntary pullout by a firm or astronomical rise, depending on the competitive advantage strategies and the general market forces. That is to say, the rivalry is likely to influence the market structure and most importantly, determine the success or failures of the existing firms.

The worldwide economic recession is slowing the growth prospects of the airline industry. There are reduced flight bookings since a majority of travelers are cutting down on their expenditure leading to many Australian airlines scaling down on the capacity for some of their routes. For example, Virgin Blues and Qantas had their flights scaled down to nearly 10% in the year 2009 (O’Sillivan 2009, p.19). The Qantas total passenger fleet as of March 2009 stood at 224 aircraft. Halting some of their flights means the company will carry the burden of storing the aircraft in the limited facilities available. The competitors are not likely to withdraw from the market, considering the heavy investments in the industry in terms of aircraft, engineering facilities, and Airport facilities. The high switching cost by the clients is not likely to occur because the companies offer similar services at more or less similar costs and promotional activities.

Buyer power

The Australian domestic market has one of the highest purchasing power in the world, surpassing major European countries like Britain, Germany and France. However, the fall in private consumption growth and investment leading to a slump in commodity prices is likely to have an adverse effect on the general trade in the country (Bamber, Russell & Wailes 2004, p.109). For example, the falling demand has practically forced the county’s airline companies to scale down by approximately 10% on some of their formerly very busy routes like the Sydney-Melbourne route, prompted by a fall in demand (O’Sullivan 2009, p.22). This coupled with demand for low airfares by the customers and competition is likely to affect the business environment in the region. Due to these factors, Australia’s Business Forecast predicts negative growth of 1.4 to 1.2% (O’Sullivan 2009, p.20). The industry relies on both domestic and international buyers of its airfare tickets, contributing to more than 75% of its revenue. However, the customers’ ability to switch service providers at no extra costs is an important aspect that one should regularly monitor. This could happen when consumers respond to a new tailored product by other airline companies.

Jetstar gets the advantageous support of guidance and financial support from Qantas. Such supports include lobbying government, buying planes, fuel hedging, and treasury advice. Virgin Blue’s association with Virgin, Jetstar’s relationship with Qantas seems attractive to the domestic customers. It, therefore, indicate that the challenge comes as a result of the ability of the buyer to choose between the two more or less similar approaches of the two companies, even though analyst say that such connections may backfire if the parent company loses its reputation on the brand name. The customers (passengers) demand the reliable product in order to remain loyal to the services offered by Qantas that would separate them from other competitors offering similar products. They, therefore, look for lower charges across the board in order to choose the most viable in their budgetary plans for the traveling services, mostly looking at the value-added to their ticket purchase.

It is therefore easy to conclude that Qantas had the same strategy as its competitor, Virgin Blue, hence making the buyer possess the power to choose two similar services with more or less similar costs. Tiger Airways became the latest entrant into the Qantas and Virgin Blue’s market share, bringing in unprecedented competition in the market to the consumers’ advantage.

Supplier power

This is the ability of a firm to establish a strong chain of supply channels within its services, by identifying and building good relationships with its suppliers to ensure it is above the competitors in terms of receiving supply services at a relatively cheaper rate. With the monopoly of suppliers and the high cost of the manufacturing industry weighing on the Australian manufacturers, the importation of the spare parts is one of the single most expensive aspects for Qantas and its subsidiary Jetstar.

Generally, the ability of a firm to drive the savings continually and successfully does not rely on the cost down and cost avoidance, especially in this increasingly complex contract cycle. Furthermore, there is a significant increase in the monopolistic supply chains, forcing firms or suppliers to venture into each other’s effort to add value to improve their commercial relationship (Bamber, Russell, Lansbury, & Wailes 2004, p.49). No wonder Qantas focused on the improvement of supplier relationship management (SRM). Their major challenge and concern were how to achieve this initiative by effectively implementing the strategy across its distributed strategic sourcing (p.51).

The objective of SRM is normally: to optimize the mix of quality, service and total lifecycle cost for the goods and/or services; continually drive for innovation and improvement in the specification, on-going cost reduction, and service improvement; be a customer of choice; and minimize the need for expensive regular re-sourcing activity by proactively managing suppliers (p. 233).

Substitute products and services

The establishment of substitute products by other airline companies is a real threat to Qantas. With Qantas’ already existing Frequent Flyer product for its loyal customers, there is the likelihood of its major competitors, Virgin Blues and Tiger Airways adopting a new product and services, targeting a segment of the market, thus bringing an unprecedented variety of products to choose. In fact, Virgin Blue had already launched its frequent flyer program, known as Velocity Rewards. The substitute product may even come in a more friendly cost with value addition to the consumer, hence giving the consumer reason to switch. For example, Jetstar won an award of the airline low-cost carrier section of the Skytrax World Airline Awards and was subsequently named the 2008 Official Airline of the Australian national rugby league team (The Australian 2008, p. 2). Both LCCs try to implement a thirty-minute flight “close out” notion, though VB is more flexible about its application (p.77). During the early phase of its operations, Jetstar’s stricter policy caused irritation among passengers, which led to some negative publicity and prompted it to soften its stance in this context (Harcourt 2004, p.33)

The substitute products services may be superior or equal to the one offered by Qantas. For example, United Airline’s lowering of its airfare between the lucrative route between Australia and the United States is likely to pose a threat to Qantas Airlines, which together with United Airlines had dominated the route for quite along.

The potential entrants

With the deregulated airline industry, Australia presents a good hub for the industry competitors in the global arena. Already there is the entrance of Tiger Airways in the Australian domestic low-cost airline services, presenting an unprecedented challenge to the established airlines, due to their high cost of operations and pressure to reduce airfare. There is also the opportunity for the new conglomerate companies operating in the global arena to introduce their services in the Australian market, which seems favorable as compared to other regions or countries with unfavorable trade barriers like the European Union’s strict barriers to trade from countries outside the block and the United States’ “protectionism” approach to trade. However, entry onto the saturated Australian domestic market is may not be easy for a newcomer, with big players like Qantas and Virgin Blues likely to make it difficult for them to pose any threat, considering their large economy of scale. Furthermore, the government affiliation with Qantas means they have the power to control any new entrants’ expansion ability and fix limited market share, a tactic that the company used to slow down Virgin Blue’s rise.

Is the airline industry attractive or unattractive?

According to Warren Buffet, “Airline industry operates on high revenue but has less than zero profit return on investment,” (Highfield 2005, p.3). However, considering the analysis of the new entrants’ ability, supplier threat, and rivalry, the industry seems attractive. This is true as long as the company uses its strategic analysis to gain a competitive advantage in the market. For example, Qantas’s record profit of $ 1,408 million before tax and $ 970 million after-tax (Qantas.com) despite the economic slowdown could have not come from an unattractive industry.

The competitive environment

Qantas’ operations elaborate the supply power. It operates in the shadow of the work practices and high-wage costs associated with the forty-eight enterprise bargains (labor contracts) between Qantas and the sixteen unions with which it negotiates (Highfield 2005, p.39). Virgin Blue on the other hand supplies its own customer and ground handling services at its busiest airports but outsources these functions at other airports, on top of outsourcing catering at all airports, some maintenance services, and the overflow from its call centers (Virgin Blue 2003, p.6). Although VB primarily used SWA as a model, Qantas sought to select the “best features from leading low-cost carriers around the world” and replicate them to the Australian market (Alan 2004, p.20). Alan (2004, p.17) states, “it aimed to adopt the efficiency of Ryanair, the branding of EasyJet, the innovation of JetBlue, and the customer service of SWA”. Both carriers introduced features used by LCCs in the United States and Europe, including “no interlining of passengers’ baggage” and Jetstar introduced a twenty-five-minute flight turnaround (Alan 2004, p.33). It also adopted “freestyle” seating (although subsequently introduced staggered boarding). On the other hand, VB allocates seats in advance is more popular with passengers (CAPA 2002, p.71).

In terms of employees flexibility, Virgin Blue has an advantage over Qantas in that all its employees apart from the highly specialized crew like pilots and technicians are working in the industry for the first time thus its ability to establish a flexible workforce with less traditional labor relations (Harcourt 2004, p. 6). In contrast, Qantas has maintained the old staff that may be difficult to change their working mentality, due to their familiar traditional approach (p. 12)

Opportunities and threats

Qantas Group presents strong, flexible, and diverse airline services that give it an advantage over other competitors in the Australian market (Bamber, Greg, Russell, Lansbury, & Wailes 2004, p.66). This enables the airline to compete favorably in the international arena when carrying out aviation-based duties. This is where Qantas drives its competitive advantage to offer a wide range of goods and services. The services range from financial, advertising, catering, printing and publishing, ground handling and transport, accommodation, airport services, design and construction, air navigation, air safety inspection, rescue and fire fighting, meteorology, insurance, security, health, news/music/entertainment (Harcourt 2004, p.51). Even though some of these services are indirect, it offers Qantas a competitive advantage in the industry.

Over the past years, fuel prices have soared, making it difficult for Qantas to cope with its numerous flight management. In a lecture by the group’s CEO Margaret Jackson, she acknowledged that the fuel prices had dipped into the profit margins of Qantas and that the problem presented the worst threat to the company more than even the terrorism, SARS, or even tsunami (Bamber 2006 p. 64). This could be justified by the fact that Qantas’ fuel bill jumped from $1.5 billion in 2002/2003 to more than $5 billion currently, presenting more than 30% of the overall airline’s operation costs (p. 61).

The recent H1n1 has generally affected the Qantas operations, with many passengers canceling their flights for fear of contracting the deadly disease. According to the latest information from the International Air transport Association (IATA), the fear of H1N1 has adversely affected the revival of air traffic in the Asian Pacific region, while international passengers have shown a decline of 7.2% in June alone as compared to the same month in the previous year. The international passenger load factor was 75.3% for June 2009, down from 77.6% in June 2008, thereby reducing the rate of revival as early expected. In Asian-pacific alone, where Qantas operates most of its flights, there was a 14.5% fall on-demand in June this year, thus putting pressure on airfare and yield, consequently leading to a shocking 25-30% fall on international revenue (IATA). These statistical data are a sure threat to Qantas, whose international revenue forms one of its main advantages, especially in the Asian-Pacific market.

Internal Analysis

The fact that Qantas is one of the oldest airlines, specializing mainly in passenger transportation makes it have numerous resources ranging from tangible to intangible. Apart from flying Qantas and Jetstar brands, they operate numerous and diverse portfolios of businesses related to the airline industry including Qantas engineering, Airports, Q Catering, Qantas Freight and Qantas Holidays (Alan 2004, p.2). The company holds 58% interest in Jetset Travelworth Limited, 45% interest in Orangestar investment Holdings Pte Limited. It also has an 18% stake in Vietnam’s Pacific Airlines (p.3). Apart from that, Qantas has a 46.3% stake in Air Pacific and partners to Australia Post in two jointly controlled entities-the domestic airfreight operator Australian air Express and the national road freight business, Star Track Express (p. 5). It flies 5,300 flights domestically in 58 cities and regional destinations plus operating 160 domestic flights per week in New Zealand. On the international front, it prides itself on operating 860 flights every week (Harcourt 2004, p.78). These comprise the tangible resources that the airline owns. Among the intangible resources are its human resource capabilities e.g. skills. Human resource is a very critical resource to the modern business environment that requires that the (Bamber, Greg, Russell, Lansbury & Wailes 2004, p.10). For example, employees who do not keep up with the current IT development means they are likely to be handicap in this increasingly IT-dominant sector. Again, a firm’s resources will determine its ability to withstand challenges associated with expansion and competition (Ansoff 1965, p. 215). Probably this is why Qantas has adopted a wide range of strategies to ensure its employees have acquired the necessary skills to cope with its wide network of employees from diverse regions.

According to Qantas financial performance for the year ended 30 June 2008, it reported a record profit of $1,408 million before tax, an increase of 46% from the previous financial year (qantas.com).

However, the falling demands in the Australian Airlines have forced these airlines to scale down their operations, mostly by reducing the capacity on the Sydney- Melbourne route. This route has seen the reduced number of flights going down to 10% lower (qantas.com). This is due to competition from Tiger Airways that began operating on the route forcing the two dominant airlines in the route (Qantas and Virgin Blue) to cut down on the airfares, a venture that is likely to cut deep into their profit margins further.

Core Competency Analysis

According to Foss, Knudsen & Montgomery (1995, p.7), an integrated resource-based analysis of a firm can help develop corporate diversification, technological resources management, and performance development. In a study to investigate the usefulness of the resource base analysis, they established that the Resource-Based view provides the necessary criteria that help establish the resources available for the firm as they accumulate over time. The use of diversifications occurs around a base of intangible resources, especially the technological or commercial, and therefore very important given the decisive role of technological resources in ensuring the success of a business (Zahra & Covin 1993, p. 451). Baldwin & Scott (1987, p. 112) emphasizes the major challenges encountered in proposing the relevant hypotheses where key variables will be endogenous, stating that modeling and testing relevant hypothesis in a dynamic process with industry structure, firm’s research and development effort, and innovation all endogenous pose some of the greatest challenges for future work”.

The recent development where Qantas has experienced an improvement in the demand for its cargo services in the Asian market, thus providing expansion opportunities. This may salvage their profit margins despite the current fall in passenger bookings. However, the CEO Alan Joyce insists that the company will not price itself out in the passenger market, expecting a boost in the future.

Capabilities Identification

Armstrong (2006, p. 39) states that an organization’s most priced assets are its employees. A study conducted by Leijon, Wallgren & Malm – Andersson (2007, p.152) to examine the international database of leading companies suggested that flexible work with high-involvement practices like continuous training of employees emerged better in terms of general productivity and customer relations management. Perhaps this is the reason why many organizations have adopted the strategic and coherent management style (Human Resource Management), in an attempt to focus on their vision. The diagram below illustrates how proper human resource strategy influences the productivity of a firm. It could be sufficient for Qantas to apply such coherent and tested approaches to human resource development for a high involvement work system because it is a service industry (O’Sullivan 2009, p.27).

HIWS and Productivity
Figure 1. HIWS and Productivity

Many organizations have realized that training and development are very essential for the success of high- involvement culture in an effort to be an industry leader.

Conclusion

The Qantas Group’s ability to maintain a sustainable business and deliver a continuous contribution to its stakeholders significantly depends on the success of the management of its external and internal environment in the competitive airline industry and services sector as a whole. Valuing the services sector requires making conscious efforts to nurture it. If that occurs, both the consumer and the industry players can be sure of the industry growth for the longer term despite the current harsh financial environment.

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