Free Case Study About Qantas Group In The Global And Domestic Airlines Industry
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Strategic management of business organisations in the industry is a crucial and vital factor as the same directly influences survival, growth and profitability of an organisation in the market . A business organisation faces numerous challenges that are contributed by factors prevailing in the internal and external business environment to which an organisation has to continuously adapt to . When it comes to the service industry in general and the aviation industry in particular, the strategies taken up by a business organisation may lead to the development of competitive advantage, or it may also adversely affect a business organisation when the same are poorly planned and conceived.
This study focuses on the particular case of Qantas Airlines and analysis of the strategies that it had taken in the global and domestic market. Careful assessment of the different factors that were connected to development of a strategic alliance has been incorporated and the findings of the same have been presented in the sections to follow.
1.1 About the organization
The Australian organisation was found in 1920 in Queensland, and over the years has grown into the largest domestic and international Airline Company. The name Qantas stand for Queensland and Northern Territory Airlines Services Limited and is counted as one of the world’s leading international and domestic airline operators . The organisation states that the main business is provision of flight services to the customers through two brands – Qantas and Jetstar, along with subsidiary business lines in freight and catering. Almost 90% of the 30,000 plus employees of the organisation are based in Australia.
The organization is regarded to be a pioneer in introducing the concept of cheaper airfares and advanced booking, and it is also credited to be the only airlines company of the world to operate airlines fleet composed of only Boeing Aircrafts . However, the days of glory for the organisation came to an end when in 2012, Alan Joyce, CEO of the organisation looked for immediate action in order to sustain and grow the business operations of the company.
2. Problems faced by Qantas in the international Airline Industry
Over period of time there had been many problems faced by the organisation – mostly from the operational and management perspectives. Privatisation and the developments taking place in the domestic and international airlines industries are regarded to have had an impact on the operations and management of Qantas from sometime in 1990’s. These have been presented in the sections to follow.
Since the launch of the organisation in the Australian market, Qantas had been able to create value and brand position in both the domestic and international market, so much so that at one point of time, it became the largest airline operator of Australia. The other major airline company to operate during this period was that of the national domestic carrier Australian Airlines. In the year 1992, the government of Australia decided to sell of Australian Airlines to the organisation and also made the decision that the entire entity composed of Qantas and Australian Airlines will be privatised. Finally, privatisation took place in the year 1993, and shares of the organisation were floated. British Airways secured 25% of the shares and the rest were obtained by the public which resulted in A$ 1.5 billion being raised from investments.
The adverse impact of this development was the fact that barely 55% of the ownership of the airline was retained by Australia. Even though many believe that privatisation is not a bane, as there is multiple ownership of the organisation , specifically in the case of Qantas it meant division of the decision making powers that had been erstwhile exclusively reserved by Qantas management only. A division in decision making means delay in making effective and important decisions in the market, which may lead to harmful impacts on the operations and management of an organisation in the industry .
What further followed was that the government ended up deregulating which was also during the collapse of the traditional competitor of the organisation, Ansett. Deregulation of vital services allow the easy entry of foreign companies into a market , which was exactly what had happened in the beginning of the 21st century. Virgin Blue emerged as the biggest competitor of Qantas and started to offer flight seats at much lower costs. What followed was that Virgin Blue capitalised on the situation and more and more people started to prefer Virgin Blue airlines in Australia.
A key component of strategic management is to be able to take quick decisions , which Qantas failed to do. The end result was that company lost as much as 60% of the market share in Australia. More often than not, when business organisations are faced with difficult situations in generating revenue and profits, they resort to cost cutting exercises which was also the case of Qantas Airlines. As compared to Virgin Blue, Qantas had a fully operational and advanced model of business operations as well as a unionised and well-paid workforce. The sustenance of the same was threatened by the rapid fall in market share and Qantas resorted to launch an Airline that matched Virgin Blue’s approach and thus ended up launching JetStar in the industry, aimed at providing the same service levels and convenience as that of Virgin Blue in the market.
2.2 Domestic Airlines industry
Australia is characterised by the fact that large portions of the continent remain uninhabited which has still not led to the situation whereby every part of the nation will be developed and infrastructural network being sound. As a result of which, travel by air has emerged as one of the most quickest and convenient means of travel for the people of the nation. It makes domestic airline operations in the country very attractive . However, the key fact that needs to be kept in consideration is that it also attracts rivals and the same has happened in case of Virgin Blue and others who also seek to take up the market share for domestic travel.
Before Qantas had been privatised in Australia, the organisation dominated the market share with the most flights, which was interrupted after the decision to float shares of the organisation and the subsequent entry of Virgin Blue. In any limited market in the industry, the revenue generation and profitability of business organisations are expected to drop in case of entry of new competitors , to which Qantas was no exception. With the entry of new competitors in the market, Qantas initially focused on differentiating its services increasing the bundle of value offered to customers. By the time it realised and acted upon the fact that customers in Australia preferred low-cost flights in the domestic segment, the rivals were able to establish a strong market presence. Given the fact that Australia is sparsely populated, the losses suffered led to a handicap effect on the company.
2.3 International Airlines industry
There were various factors that had impacted the international airlines industry as well. Early in 2007-2008, there was rapid increase in the international prices of crude oil which inadvertently increased the prices of fuel and other resources as well. Business operations are dependent to a large extent on the political, economic, social, technological, environmental and legal factors as well, due to which the operations of the airlines was affected .
International diplomatic relations led to increase in crude oil prices, which hit the aviation industry very hard. Travel slowed down around the world and business organisations around the globe slowed down their business activities in order to face the rise in fuel prices globally . As a direct consequence of which, the operational costs for airlines started to increase, creating an impact on returns as the revenue generation from flight bookings around the world also slowed down due to increased ticket prices. Furthermore, during the same time, the collapse of Wall Street and adverse market conditions for business in the European economy led to recession and depression like situation for the airline industry . On one hand, prices of fuel increased, business activities slowed down and economic collapse started affecting the international market, and on the other hand the increased competition and pressure in the national market also crippled Qantas in one way or the other to be able to face these challenges in the international market. Furthermore, factors such as earthquakes, floods and other natural calamities also had an impact on the revenue generation and profitability of the organisation in the industry.
At the same time, it also needs to be highlighted that many Asian countries have also introduced low cost carrier aircrafts to the international market which had its impact on old and traditional airline companies that have been existent in the industry for close to a hundred years now . The entry of such players in the international market also led to the increase in demand for low cost airline carriers, as the purchasing behaviour of the customers in the market started to change. This also led to a change in the services offered by international airlines on long flights in order to accommodate cost cutting and low air fares in comparison to emerging rivals. The emergence of economic airline companies have been greatly observed as more than 56 airline companies in the world are recognised as large and medium airline companies which operate international flights to more than 20 international destinations every day .
Erstwhile, there were few airline companies operating in different destinations around the world, but today it is difficult for Airline companies to enter into the Asia Pacific market as it is already too crowded, with the largest population density of the world. On the other hand, it has been difficult for Qantas and all other airline companies to procure aircrafts as increased demands by new companies have increased pressure on manufacturers . This affects not only Qantas, but more or less all airline companies as the lead time from receipt of orders and delivery of aircraft have also increased drastically. Together, all these factors have made it necessary for airline companies to develop new strategies which help them to survive and grow in spite of adverse market conditions.
2.4 Steps taken by Qantas
Apart from focusing on the reduction of costs and introducing more aircraft to the fleet of airlines, the management focused on entering into different alliances and also introducing its own line of low-cost airline services named JetStar, in order to compete with existing low cost airline companies and also to regain the lost market share in the form of budget and economy travellers in the market.
Also, in order to attract more customers to the services offered by Qantas, the management introduced and refurbished various kinds of loyalty programs, among which the most prominent was the frequent flier program. However, the most significant fact that needs to be highlighted here is that the organisation focused on the refreshing its image through entering into a lot of alliances and partnerships with global aviation organisations. The strategy of implementation of multi brand image is complete with operations of JetStar, which is called low-cost full service domestic line and Qantas, which operate as the exclusive full-service international airline of the organisation in the market. In order to capture the potential of the new emerging markets, the organisation has focused on the differentiation of the level of services provided – Qantas continues to be the elite class of flight operations both in international and domestic markets and Jetstar given the image of low-cost commercial operations which have been focusing on the Asian market for quite some time now to take advantage of the potential.
This plan of the organisation was expected to provide benefits till the year 2012, when the due to a number of factors, sustaining the advantage that was developed by the organisation has become more of a challenge. As a result of which, it might seem feasible for the organisation to focus on entering into strategic alliance with one of the most reputed airline companies around the world, Emirates Airlines.
3. Risks associated in developing Strategic alliance with Emirates Airlines
There are numerous risks that need to be highlighted when possible strategic alliance with another airlines company is being considered. In this section, the potential risks are highlighted to both the organisations, Qantas and Emirates Airlines, based on the history, market conditions and industry characteristics of the companies . Assessment of associated risks is an important and ethical factor in order to ensure that the future business operations do not have a negative impact .
The risks to arise for Qantas in terms of entering into a strategic alliance with Emirates Airlines come from the fact that the organisation already has a very strong unionised pool of human resources. The company has always maintained cordial relations with labour unions in Australia and the HRM policies have always been focused on the mutual benefit of employee and employer. An alliance with another organisation will automatically imply that there will be changes in the ownership and management structure of the organisation, which will increase the chances of conflict between the employees and the employers . Another risk that is raised with the strategic alliance of Qantas with Emirates Airlines is that it might happen that structural and operational changes are required in order to ensure that both the organisations are able to make the best of their contributions to the industry. However, the same will involve a change management process which is expected to increase the operational costs of the organisation. Furthermore, entering into another alliance is expected to adversely affect the goodwill and brand image of the organisation in the market, as customer will associate loss of creativity and initiatives to have gripped the organisation.
3.1 Identified risks to Emirates Airlines
Along with the risks that have been identified to be related to Qantas, there are various risks that are also associated with Emirates Airlines as well. Emirates Airlines have been able to develop a reputed and luxurious brand image in the international market, which does not operate any low-cost airlines in the market. Association of Emirates Airlines with Qantas known to run both high and low-cost flight services will have an impact on the brand image of Emirates Airlines.
The second risk that has been identified from the case study is the fact that it is really not feasible or profitable for the organisation to focus on the Australian market. The study has already shown that the Australian market is characterised by the presence of too much completion and too many airline companies. Entering into already saturated market will not guarantee the desired levels of revenue generation and profitability. Even internationally, entering into an alliance will make it necessary for the organisation to operate flights in newer destinations to enable Qantas capture the needed market share internationally. This will increase the burden on Qantas as the same will require allocation of more resources, which is truly not recommended given the fact that the potential market returns are not as feasible as expected.
Taking both these factors into consideration, a probable strategic alliance is ruled out.
4. Impact on pricing strategy of Qantas by launch of Jetstar
4.1 Assessment of feasibility of adopted strategies
4.1.1 Cost Leadership Strategy
It might seem that Qantas will be able to take advantage of the market through launch of JetStar. It needs to be highlighted here that the cost leadership strategy to be deployed will involve termination of many value added services to the customers. Even though it might seem that this strategy will not affect customers, in reality, it will have a negative impact on the organisations brand image. This is because termination of services will be followed by cost cutting and probable lay-offs, which will never be taken positively in the labour market .
4.1.2 Differentiation strategy
5. Recommended five year plan to sustain Qantas’ competitiveness
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