Executive Summary
This study recommends that Qantas outsource its heavy machinery services to Asia in order to reduce the company’s costs of operations. Also key in the success of the company is a focus on the development of the company’s strategies around four major areas of competency which are attraction of new customers, management of company fleet of planes, management of employees and management of finances. These findings have been developed through a comprehensive analysis of Qantas’s core business strengths and competencies together with an analysis of the Australian aviation industry.
Preliminary findings identified that Qantas is heavily reliant on the development of the Australian economy as well as an increase of passenger demand. Additionally, the company’s performance is greatly boosted by the fact that it has developed good bilateral relationships with other leading airline market leaders. These competencies together with upcoming new opportunities in the aviation industry are set to see the company post increased growth and revenue. However, as this progress is expected, the company is bound to experience a number of legal and union barriers. These factors are further discussed in detail.
Qantas Business Strategy and Corporate Mission
Launched in 1920 as Queensland, Australia’s Qantas undertakes both local and international flights across the globe. The company boasts of being among the largest global airlines in the world; propelled by its prudent strategies as well as an upheaval of its mission statement of being the leading provider of global transport and logistic services in Australia and the world at large (Martin, 1997, p. 53).
Qantas reports that the industry has just come out of an all time low in financial performance, although the aviation industry still remains challenged in light of increasing competition and volatility. With regards to these developments, the company’s latest annual report maintains its two-airline strategy to counter the industry’s unpredictable nature. Qantas is of the opinion that this strategy provides some sense of flexibility where it can ride through the different economic cycles of the aviation industry and leverage the various cycles existent in the market.
In addition, the company upholds the opinion that the two-airline strategy will help it maintain a robust business strategy in coming years. The two-airline strategy incorporates the low fare Jetstar and the full service Qantas which the company hopes to sustain in the long run (with regards to the stiff competition that is characteristic of the aviation industry) (Business Day, 2010).
The main goal of creating jetstar was to provide the lowest costs airline in the world. This strategy was expected to sustain growth in the coming few years and live to be a positive and energetic brand as the company’s corporate mission demanded of it. This strategy has been tried out in 2010 through the adoption of the iPad as an in-flight entertainment system. This was only unique to the airline because no other company had undertaken such an initiative (Business Day, 2010).
Plans are still underway to improve this corporate strategy with fifty recent purchases of Boeing 787 to effectively rejuvenate the two brands. The first batch was expected on June 2010. Fifteen of the new planes will be allocated to the Jetstar brand while the A330-200s will be reallocated to the Qantas brand and the B767-300s will be eliminated from normal operations (Business Day, 2010).
Elimination of old planes brings us to another of Qantas’s core business strategies which is cost cutting and grounding of old airplanes. In this regard, the company has had a good record of diligence and discipline in minimizing its costs over the past few quarters. For instance, in the last quarter, revenues fell by close to 13.4% but the costs were equally slashed by approximately 16.2% (Business Day, 2010).
This measure has enabled the company realize minimal costs as compared to previous years but it has also been supplemented by suspension of flights to unpopular routes. This strategy has enabled the company experience full flights even in light of the recent recession; though its low fares have also been identified to enhance the same (Nigam, 2010).
Industry Structure
Key success factors for the Australian aviation industry and indeed the world have had a positive impact on Qantas. Through a comprehensive strategic analysis of Qantas, the key success factors for the Australian industry have always been the analytical tools for the aviation industry in which the company operates. Considering Qantas majorly relies on the Australian market for its primary customers, this industry analysis is essentially inspired by the tremendous progress the Australian aviation industry has had over the past few years.
The Australian aviation industry has largely endured the motions of the recent financial crisis better than most aviation markets did. While other aviation industries recorded a significant drop in passenger and cargo services, the Australian aviation industry grew. Of the total domestic and international passenger volumes, the Australian passenger volume increased by 1.4% in the year 2009 when the world was experiencing a decrease in passenger volumes. For instance, America recorded a drop of 5.2%; United Kingdom (UK) recorded a drop of 7.2% while Spain recorded the highest drop of 8.1% while other major aviation markets like Germany posted even lower drops (Australian Government, 2010).
The Australian aviation industry has therefore been supported by increasing volumes in passenger services both domestically and internationally. However, the input of the Australian government cannot go unmentioned because through government initiatives, many Australians have been able to travel within and out of the continent for both business and leisure purposes. This was majorly undertaken through a government’s stimulus package that saw many Australian’s keep their jobs and become very confident about travelling (Australian Government, 2010).
Finally, the productivity of the Australian aviation industry has been largely supported by the growth of the Australian economy. Considering Australia is located in one of the most isolated continents in the world, the economy has been largely dependent on the aviation industry. Increasing economic performance, especially compared to other developed economies has therefore increased the demand for Aviation services and consequently led to the increase in demand for Qantas’s services.
SWOT Analysis
Qantas SWOT analysis describes the factors influencing the company’s performance and also justifies its business strategies to date. The company’s growth and future sustainability is also largely dictated by the SWOT analysis.
Strengths
As the Australian aviation industry witnessed an increase in profit margins, Qantas has also seen a significant increase in profit margins. Also key to its success strategy has been the company’s range of subsidiary businesses. This diversity has enabled the company achieve considerable gains from different business portfolios like catering, luggage handling, and engineering sectors (Plunkett, 2009). This has effectively enabled the company manage its supplier obligations and also effectively control the maintenance costs in the long run.
Qantas is also in partnership with other similar companies namely: the American, British, Canadian and Cathay airlines to form the One World Alliance which has effectively enabled the company manage its non-core business activities. Such activities include the ticketing service; advertising and maintenance procedures which have also enabled the company reduce its cost margin as well as cut down costs in certain functional areas such as ticket pricing. In addition, the company has also been able to effectively connect its passengers with different flights while on transit.
The final business strength is the company’s good record of resource management as Australia’s number one airline company. It subsidiary business entities have also provided supplementary services to the company’s main business ventures (Hierling, 2007, p. 16).
Weaknesses
One of the company’s core weaknesses lies in the fact that the company has a poor reliability record especially with regard to safety concerns. For instance, in the period 2008/09 the company had various safety incidents with some of its planes. Although nothing happened, these occurrences greatly dented the company’s image and left a lot to be desired with regard to their safety policies and procedures (Hierling, 2007, pp. 16-17). The company has also experienced one of the worst strikes in the airline industry in 2009. This almost brought the company to a near standstill because operations were uncoordinated by striking workers even though the protest was not sanctioned by their trade unions. The company’s operations were therefore marred by major delays even affecting the operations of other companies.
Opportunities
One of the company’s major opportunities lies in the open skies policy. With the Implementation of this policy, the company is set to enjoy a liberalization of the industry in light of current stringent rules and immense government legislation. Other benefits the company is set to enjoy include a liberalization of the competitive landscape, market driven pricing, equal playing opportunities for all competitors and the freedom to undertake cooperative marketing agreements with other like-minded companies.
Threats
As regards the company’s threats, Virgin Blue poses a lot competition especially with regards to market share because it is the only strong competitor in the Australian aviation market (Hierling, 2007, p. 16). This SWOT analysis can be further summarized as follows:
SWOT Analysis
Core Competencies and Competitive Advantages
Qantas has a number of core competencies that have elevated it to be a world-class market leader. First, the company enjoys some form of monopoly of the Australian aviation industry and is therefore immensely knowledgeable on how the Australian aviation market operates. This fact has even made it a highly sought target for partnership agreements with similar airline companies like British Airways and Deccan in India as a strategy for penetration into the Australian market. Secondly, Qantas enjoys sound bilateral relationships with other world leading airlines in the One World Alliance that enabled it achieve a world-class stature (Hussey, 1998, p. 375).
Strategy Recommendations
One of the most viable options for Qantas is to outsource its heavy maintenance services to Asia. Asia is a good destination because as compared to other outsourcing destinations, it is relatively cheap. Moreover, it is in close proximity to Australia. This should especially be done with regards to its long haul fleet of airplanes. This strategy is bound to increase the level of specialization and improve efficiency in the organization because specialized maintenance functions will be undertaken by a specialized company in Asia. In the same regard, the company can also reduce its operational costs because it will not be required to undertake the same services locally (Clark, 2007, p. 208). This will mean a reduction in staff and maintenance costs which are usually expensive in the long run.
The company’s strategy should also seize to be general or specific on only a few functional areas. Studies have affirmed that the airline industry is supported by the pillars of customer attraction, finance management, fleet management, and human resource management which need to be supported by all airline companies that want to withstand the highly competitive nature of the aviation industry (McCabe, 2010).
Thus, the success of Qantas will lie on the company’s strategy to attract many customers, how it will manage its fleet, how it will manage its people and how it will manage its finances. However, with regards to attracting its customers, Qantas has been able to sustain low prices even in light of increasing costs of operations although more still needs to be done with regards to management of the other three core areas. However, this does not mean that it will be smooth sailing all the way after adoption of these strategies because a number of hurdles still lie on the way.
Potential Fallout
Outsourcing a majority of the company’s maintenance services may probably cause a number of job losses. The rough approximation is about 2500 jobs (Rochfort, 2006). Most of this impact will be felt in Australia because approximately 90% of the company’s workforce is based in the locality (Rochfort, 2006). In addition, there a number of legal barriers expected to be advanced by the Australian Licensed Engineers Association which is likely to surface in protection of Engineers’ rights if the company seeks to outsource its services.
The Qantas sales act is the major legal barrier to this kind of strategy because its enactment preceded Qantas’s privatization in 1995. The act stipulates that “of the facilities, taken in aggregate, which are used by Qantas in the provision of scheduled international air transport services (for example, facilities for the maintenance and housing of aircraft, catering flight operations, training and administration), the facilities located in Australia, when compared with those located in any other country, must represent the principal operational centre for Qantas” (Rochfort, 2006).
Qantas’s management is therefore expected to prove that it is not in breach of the law as its tries to strike out a balance between caring for the needs of its employees and stakeholders while also ensuring the company’s prospects for growth is on course. The sales act therefore needs to be reevaluated with regard to the company’s rights in legal foreign ownership. Without any legal amendments to the act, existing legislation is likely to limit Qantas’s access to capital. A lot of union activity should also be expected if the company intends to pursue this strategy (Rochfort, 2006).
References
Australian Government. (2010). Opening Address To Airservices’ 2010 Waypoint Conference. Web.
Business Day, (2010). Qantas Affirms Its Two-Airline Strategy. Retrieved from: https://www.smh.com.au/business/qantas-affirms-its-twoairline-strategy-20100903-14t4o.html
Clark, P. (2007). Buying The Big Jets: Fleet Planning For Airlines. London; Ashgate Publishing, Ltd.
Hierling, M. (2007). The Australian Airline Industry and the Case of OzJet – A Strategic Analysis Report: Case Study about OzJet and the Airline Industry in Australia. Sydney: GRIN Verlag.
Hussey, D. (1998). Strategic Management: From Theory To Implementation. London: Butterworth-Heinemann.
Martin, S. (1997). The Impact Of Privatisation: Ownership And Corporate Performance In The UK. London: Routledge.
McCabe, R. (2010). The Ability For Airlines To Succeed Today Is Measured According To Several Key Success Factors. Retrieved from: https://gbr.pepperdine.edu/2010/08/airline-industry-key-success-factors/
Nigam, S. (2010). Australia’s Qantas Airways – The World’s Most Agile Airline Brand? Retrieved from: http://simpliflying.com/2010/australias-qantas-airways-the-worlds-most-agile-airline-brand/
Plunkett, J. W. (2009). Plunkett’s Transportation, Supply Chain and Logistics Industry Almanac 2009 (E-Book): Transportation, Supply Chain and Logistics Industry Market Research, Statistics, Trends and Leading Companies. New York: Plunkett Research, Ltd.
Rochfort, S. (2006). Legal Barrier To Qantas Strategy. Retrieved from: https://www.smh.com.au/business/legal-barrier-to-qantas-strategy-20060220-gdn034.html