Qantas Airline’s Growth Path Evaluation Essay

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Updated: Mar 3rd, 2024

Introduction

Qantas (Queensland and Northern Territory Aerial Services Ltd) is the official airlines of Australia (Payne, 1957). The flying businesses of the Qantas Group include Qantas, QantasLink, and Jetstar brands that domestically operate more than 5,000 weekly domestic flights in Australia, 250 weekly flights within New Zealand, and nearly 700 international flights a week to 80 international destinations in nearly 40 countries (Kronos, 2007).

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The Qantas Sale Act 1992 limits foreign ownership to 49 per cent in total and 25 per cent by any one foreign entity. Hence Qantas is not a multinational but a transnational and a global corporation that operates across the world but controlled by only Australia (Langmead, 2007). Geoff Dixon is the present Chief Executive Officer of Qantas, Peter Gregg, its Chief Financial Officer and Executive General Manager Strategy and John Borghetti is Executive General Manager Qantas (Qantas, 2007). According to a poll held by Business Asia in 2000, Qantas airways is Asia’s most preferred airline (Cameron, 2000).

Early Beginning to World War II (1920s-1940s)

During this stage, the main benefit of internationalization was the increase in the number and quality of fleet Qantas possessed and also increase in its brand equity through participation in World War II. The key limitation to internationalization was basically their limited fleet.

External triggers

  • Accidental Meeting: Qantas was in itself founded through an accidental meeting of Fergus McMaster with P.J. McGinness and W. H. Fysh.
  • World War I: The First World War (1914-18) accelerated the development of aeroplanes which were then in their infancy.
  • Development of Aeroplanes: By the early 1920’s aeroplanes were much more reliable and capable of flying longer distances and carrying heavier loads. This made the 1920s the ideal time for starting an airline.
  • Availability of Pilots: Moreover pilots who returned from WWI were also available for work.
  • Public perception of flying and heroism: Flying captured the imagination of the public and pilots were seen as heroes. Charles Lindbergh was a flying hero of this period as he was the first pilot to fly solo and non-stop across the Atlantic Ocean in 1927.

Internal triggers

  • Great Leaders: The growth of Qantas during the early days was mainly due to the work of great leaders like P.J. McGinness (1896-1952), Sir Wilmot Hudson Fysh (1895-1974), Sir Fergus McMaster (1879-1950) and W. Arthur Baird (1889-1954) (Qantas, 2007).
  • Expansion of services and fleet: In March 1927 Qantas opened the Brisbane Flying School that later transferred to the Queensland Aero Club. The Australian Aerial Medical Service was formed on 27 March 1928 and Qantas signed a years contract to operate medical flights on demand.
  • Connection with Britain’s Imperial Airways: In 1931, Qantas established a link with Britain’s Imperial Airways. And on 18 January 1934 Qantas Empire Airways Limited was registered in Brisbane. This was a combination of the interests of Imperial Airways and Qantas which each held a half share. The airline won more airmail contracts.
  • Introduction of Flying Boats: The airline decided to introduce Short C Class Empire flying boats to meet the growing demand during the early stages (CF, 2007). The operation of the flying boats became a very significant line of communication during World War II. Catalina flying boats, moving at about 200km/h, 271 crossings between England and Australia during the period of World War II (Qantas, 2007).
  • Heroism of Qantas Crew: Many acts of heroism were performed by the Qantas crew during World War II and in the battle zones of New Guinea (Qantas, 2007).

World War II to Oil Crisis of the 70s (1940s- 1970s)

During this stage, the main benefit of internationalization was modernization and expansion of its fleet and expansion in services. The key limitation was the availability of capital for further expansion. During this period, the growth of Qantas is best studied using the 4 Ps of marketing – product, place, price and promotion.

  • Product: After the war Qantas modernized its fleet and in 1946 an A$5.5 million order was placed with Lockheed for four of its new, long-range pressurized aircraft – the Constellation. Soon, Qantas followed it up with the DC3 aircraft, the Douglas DC4 Skymaster, Catalinas and Short Sandringham flying boats (FU, 2007). In the years to come Qantas introduced fortnightly flights to Johannesburg, South Africa, two Super Constellations that circumnavigated the globe, seven Boeing 707-138 jet aircraft and modified existing Boeings with turbo-fans for long distance travel. Thus Qantas sought continuous product innovation and expansion (Qantas, 2007).
  • Promotion: In 1947, the Australian Government acquired Qantas shares and made it its official airline (Payne, 1957). This was government endorsement. With patriotic zeal, in 1954, Qantas operated four Royal flights, carrying Queen Elizabeth II and the Duke of Edinburgh on their Australian tour. This helped build promotion through celebrity endorsement. By 1956 Qantas had a fleet of 34 propeller driven aircraft that carried a record number of passengers to the XVl Olympic Games in Melbourne (Payne, 1957). The Olympic Games was a great promotional event for Qantas. The symbol of the Qantas Flying Kangaroo helped build the brand visibility of Qantas and became a familiar sight at airports in 23 countries (Business Asia, 1999). In 1974 Qantas established a world record for carrying the most passengers when it evacuated 673 people on a 747 flight from Darwin after the city was devastated by Cyclone Tracy (Payne, 1957). This added to the good reputation of Qantas.
  • Pricing: The introduction of the first Boeing 747-238B aircraft in September 1971 proved to be highly economical and beneficial to the travelers, and revenue grew phenomenally despite sharp increases in fuel prices. Qantas embarked upon a low fares initiative in late 1971 and in 1972, cut the one-way fare between London and Sydney from £276 to £169. Single fares between Australia and four other European cities were cut similarly. Qantas even sold unapproved tickets in the face of bitter opposition to the new low fare from its rivals. While it was a right move to face the competition, it was not considered ethically right. (Qantas, 2007).
  • Places: Qantas expanded its services to many more destinations around the world during this period apart from London and New York. This lead to increased brand equity and profits as well. In 1947, the Australian Government introduced Constellation aircraft on the London route and operated its first flight to Japan. In 1954 Qantas began flights to San Francisco and Vancouver with Super Constellations and in 1958 Qantas introduced round the world trips, using Super Constellations.

Thus we find that Qantas used the right mix of the 4ps of marketing during this phase of growth.

Oil Crisis till Privatization

During this stage, the main benefit of internationalization was its ability to maintain profits despite the oil crisis, increase in tourism, connection with British Airways and expansion in routes served. The key limitation was the result of privatization – increased competition at both domestic and international level. This period may be studied using the 4 c’s of marketing: context, company, customer and competitor analysis.

Context Analysis

In the early 1980s, Qantas suffered from large operating losses and it had no backing from the government either. But with the election of the new Labor (ALP) government in 1983, Qantas’s capital base increased from AUD 89.4 million to AUD 149.4 million. However, during this period, the main opportunity in Australia was with tourism. By introducing large, long-range aircraft tourist traffic from the Asian region was increased. The Australian Government in 1992, approved an A$400 million bid by Qantas for Australian Airlines and its subsidiaries. The merger brought by the change in policy of the Australian government lead to economies of scale, more efficient use of aircraft and improved management of passenger capacity and transfers between domestic and international services.

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Company Analysis

The new capital provided by the government allowed the company to expand. It acquired new modernized jets – three stretched upper-deck Boeing 747s and six Extended Range Boeing 767 twin-engine jets. The latter helped service many airports such as Adelaide, Cairns, Darwin, and Townsville. It also ensured that its quality of servicing was maintained by selling off its six oldest 747s progressively as the new aircraft were delivered. Qantas became profitable in 1984, making a record pretax profit from airline operations of AUD 58 million in the year to March 31. This was a particularly strong performance given the depressed state of world aviation at that time.

Qantas was able to sustain its strong recovery throughout the mid-1980s. In 1987, the Australian government announced the complete deregulation of domestic air services from October 1990. This meant that the government would withdraw from regulating domestic fares or capacity (Doganis, 2002). On the international side, the government decided to go public. The initial public offering (IPO) finally took place in July 1995, and the company’s shares were listed on the Australian Stock Exchange; the foreign ownership limit was set at 49 percent. For Qantas, the liberalization increased the level of domestic and international competition while it also enhanced tourist flow to the country.

Competitor Analysis

Air New Zealand: In December 1988, Qantas acquired 19.9% stake in Air New Zealand, defeating a consortium led by British Airways. However, it was revealed that this was done through secret unethical means by Qantas through a financial agreement with its partners in the consortium to prevent control of Air New Zealand going to British Airways. This damaged the reputation of Qantas.

British Airways: In 1993, Qantas chose British Airways as a strategic investor and sold 25% of Qantas shares to BA (Doganis, 2001). This partnership created new economies of scale. The Anglo-Australian tie-up in Qantas has been a great success. The Kangaroo routes – connecting Europe with Australasia – are fiercely competitive, with some 42 airlines vying for passengers. Through the tie-up, BA and Qantas share passengers, aircraft and flight codes (Sunday Business, 2001).

Australian Airlines: In April 1993 the Qantas board decided to merge Qantas and Australian Airlines, a domestic competitor under the banner Qantas – ‘The Australian Airline’ (FU, 2007). The merger allowed Qantas to overpower Ansett in the domestic market. This is in accordance with Porter’s Diamond model under demand conditions. A more demanding local market leads to national advantage (Daily Post, 2007).

Impulse Airlines and Branson’s Virgin Blue: These are two low-cost new competitors on the market. This internal competition is causing some decline in the market. But Qantas has chosen not to respond with a low-cost operation of its own – as BA did with Go. This shows that Qantas has positioned itself wisely among international quality airlines as one for quality conscious consumers.

Kiwi International: Kiwi International was pushed out due to low pricing by Qantas and Air New Zealand (Haugh and Hazledine, 2007).

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Thus we find that Qantas has a flexible pricing policy. While on one had it is not willing to reduce price to compete with local low-cost competitors, on the international level, it is willing to engage in competitive pricing war with a small competitor (Haugh & Hazledine, 1999).

Customer Analysis

In 1994, due to increasing demand, the airline increased its capacity in domestic routes. As there were many low cost fliers in the market, Qantas stuck to quality conscious customer and redesigned the cabin of its core fleet to bring more comfort in seating. It also ushered in new menus, uniforms and expanded airport lounges to cater to this sophisticated customer base.

Privatization to September 11

During this stage, the main benefit of internationalization was increasing revenue and availability of a large clientele. The key limitation was basically the Asian financial crisis that made Qantas cut back on some Asian routes. The financial strategies followed by the company during this phase are very interesting.

  • Reduction of Debt: In March 1997, Qantas sold its 19.9 percent stake in Air New Zealand to ANZ Securities for NZD 425 million ($295 million), using the after-tax profits of AUD 66.8 million to reduce debt.
  • Increasing revenue: Later that year, Qantas began a AUD 560 million ($430 million), three-year fleet modernization program. By fiscal 1997, Qantas was making net profits of AUD 252.7 million ($190.1 million) on revenues of AUD 7.83 billion ($5.89 billion). More than 20 million passengers flew the airline in 2000. Qantas posted revenues of AUD 6.98 billion in the fiscal year ended June 30, 2000; sales rose to AUD 7.94 billion in 2000-01.
  • Facing Crisis: In early 1998 the Asian financial crisis forced Qantas to cutback on some of its Asian flights. Flights to countries such as Indonesia, Malaysia, and Thailand were stopped.

After 9/11

During this stage, the main benefit of internationalization is the technological advances in the realm of comfortable seating, bigger aircraft and more powerful engines. The key limitation is the forced increase in prices due to increase in oil prices after Iraq War. By application of PESTLE we find that Qantas strategy was impacted powerfully through economic, technological and political conditions of the period.

  • Political factors: The September 11, 2001 terrorist attacks on the United States affected the aviation industry in a big way. But the situation proved to be favorable for Qantas. Rival Ansett Airlines collapsed in September 2001, nearly forcing its parent Air New Zealand Ltd. (ANZ) into bankruptcy. Qantas bought a low-cost startup Impulse Airlines Pty Limited, and secured almost the entire domestic Australian aviation market. Moreover, due to the setback in aviation industry, American Airlines had to give up some of its aircraft orders. These were reassigned to Qantas and thereby allowed Qantas to get Boeings within three months of ordering.
  • Economic factors: The main domestic competitor to Qantas, Ansett Australia, collapsed on 14 September 2001. Market share for Qantas immediately increased to 90%. This was an economic event that Qantas capitalized on by ordering Boeing 737-800 aircraft and getting them within three months. Virgin Blue announced a major expansion in October 2001 which reduced the Qantas domestic market share to 60%. Qantas responded by creating a new cut-price subsidiary airline Jetstar. This has been successful in keeping the status quo at around 65% for Qantas group. The strength of the company has been its flexible organizational policy. It utilized timely services and quality oriented servicing as a basis for competitive advantage. Qantas’s stock price hit a record $6.06 a share on December 13, 2007, up 5.4 per cent on the day on the back of yet another earnings upgrade from the company (Durie, 2007).
  • Social Factors: This is the age of globalization and hence the airline industry is undergoing a boom (Williams, 2006). People are willing to travel abroad for leisure and for immigration purposes. This growing lifestyle changes have increased the scope of the aviation industry as a whole and for Qantas in particular.
  • Technological factors: Qantas Airways plans to have just 450 seats on its A380 super jumbo jets it is buying from Airbus even though the aircraft is capable of carrying almost twice as many people. This is aimed at providing greater comfort in seating. But the manufacturer, Airbus, is facing problems in its production due to complex wiring issues of the jet in France and Germany. There is also a dispute at the World Trade Organization between Europe and Washington over state subsidies and support for Airbus and Boeing aircraft development.
  • Legal factors: The Australian Sales Act of 1992 requires the majority of Qantas to be in Australian hands. There is a demand for its relaxation as capital injection resulting from any increase in foreign equity would help Qantas’ growth (Sunday Business, 2001).
  • Environmental factors: Pricing is dependent on its oil resources and according to latest news Qantas is raising its fuel surcharges on international routes for the second time in less than a year. The airline said the increases of as much as 16.7 percent, to take effect from January 17, 2008 were in response to record fuel prices (Reuter, 2008).

Conclusion

The environment in which Qantas operates continues to evolve with changing times. There is presently a demand for leisure travel but it may take some time for Qantas to really achieve the level of profitability seen in the year 2000, which benefited from the Sydney Olympics. However, it is expected that Qantas will continue to journey along its success track due to the flexibility and foresight of its management and financial structure.

Bibliography:

Daily Post (2007). Qantas A380 Seating Plan Has Leg-Room and Luxury; IN ASSOCIATION WITH Rensburg Sheppards EC Dismisses US Claims over Subsidies for Super-Jumbo. Daily Post. Page Number: 2.

Durie, John (2007). Qantas upgrade reveals ‘pot of gold’. The Australian Business. Web.

Gregg, Peter (2002). . Deutsche Bank: Australasian Transport Conference. Web.

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Haugh, David and Hazledine, Tim (1999). Oligopoly Behavior in the Trans-Tasman Air Travel Market: The Case of Kiwi International. New Zealand Economic Papers. Volume: 33. Issue: 1. Page Number: 1.

Langmead, Tim (2007). Media Release: Qantas Airways. Web.

Qantas (2007). Official Website. Web.

Reuters (2008). Qantas hikes international fuel surcharges. The International Herald Tribune. Web.

Kronos Incorporated (2007). Kronos Helps Qantas Airways Plan Long-Range Requirements for Crew Resources. Web.

Sunday Business (2001). Qantas Wants Foreign Help to Expand Share of Skies. Sunday Business Publishing.

CF (Century of flight) (2007). Aviation comes of Age. Web.

Doganis, Rigas (2002). Flying off Course: The Economics of International Airlines. Routledge Publishers. London. Page number 57

Business Asia (1999). Qantas Traveling Well, despite Asia’s Turmoil. Business Asia. Volume: 7. Issue: 10. Page Number: 14.

Doganis, Rigas (2001). The Airline Business in the Twenty-First Century. Routledge Publishers. London.

FU (Funding Universe) (2007). Qantas Airways Ltd. Web.

Cameron, Nadia (2000). Asia’s Best Airlines. Business Asia. Volume: 8. Issue: 16. Page 8.

Williams, Stephen (2006). Aircraft Business on a Roll: It’s Boom Time for the Region’s Aviation Sector as Passenger Numbers Soar and Airlines Place Multibillion Dollar Orders for New Equipment. The Middle East, No. 364. Web.

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