2013

[QANTAS AIRLINES: STRATEGIC ANALYSIS]

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EXECUTIVE SUMMARY

In this report we make a strategic analysis of Qantas Airlines and look at various factors

affecting the business. The report first looks at the background of the airlines where the case is

being built and various internal and external factors affecting the business. In the external

analysis, we would do an internal and external environment analysis which would help us in

understanding the influences that affect the business. We also conduct an internal analysis where

we identify the core competencies, key strengths and major weaknesses based on which the

recommendations have been made.

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TABLE OF CONTENTS

Executive Summary ................................................................................................................................................................ 2

1.0 Introduction .......................................................................................................................................................................... 4

1.1 Brief Overview ............................................................................................................................................................... 4

1.2 Report Objectives and limitations ............................................................................................................................ 4

1.3 critical Company information ................................................................................................................................... 5

2.0 External Analysis ............................................................................................................................................................... 5

2.1 Environmental Analysis .............................................................................................................................................. 5

2.2 International Environment .......................................................................................................................................... 7

2.3 Competitive Environment ........................................................................................................................................... 7

2.4 Porters Five Forces Analysis ..................................................................................................................................... 8

3.0 Internal Analysis ................................................................................................................................................................. 9

3.1 Core Competancies ....................................................................................................................................................... 9

3.2 SWOT analysis .............................................................................................................................................................. 9

4.0 Conclusion .......................................................................................................................................................................... 10

References ................................................................................................................................................................................ 12

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1.0 INTRODUCTION

1.1 BRIEF OVERVIEW

Qantas Airways limited is Australia’s largest airlines and is based out of Sydney. They dominate

the Australian Domestic market with around 65% market share and 18% travelling in and out of

Australia through them. Qantas is an acronym of Queensland and Northern territory Aerial

services. In the year 1992, the Australian government has sold its domestic carrier and has made

the airlines privatized which was later merged with British airways with its 25% stake in the

business became owned by the Australian got with an overall stake of 55%. Later with the

deregulation scenario unfolding and at the same time with the shutdown of Ansett Airways,

many low cost competitors entered into the market and this has intensified the competition

within the market. Qantas had to take some drastic steps to ensure that they put a hold on their

losing market share and at the same time they had to make sure that they find a way to woo the

customers back into their fold with some tough decisions that the management had to take.

1.2 REPORT OBJECTIVES AND LIMITATIONS

In this report we aim to strategically analyze the market position of Qantas Airlines and the ways

in which the market share of the same may be improved. We would look at the external factors

that are affecting the business with the help of the environmental analysis and at the same time

we also have to look at how the industry has evolved over a period of time and the competition

and the factors that can influence the business from the perspective of the competition. We

would use all these data to understand the opportunities and the threats that the company has and

the ways to improve the market share. In this report we also would conduct an internal analysis

of the company and identify the core competencies that have helped the airlines in becoming the

market leader. We would also look at the value chain of the airlines where we would understand

various steps that can be changed to make the processes much smoother and non redundant. In

this report we would analyze the company by means of SWOT and look at the current strategies

that are being adopted by them and at the same time make various recommendations that can be

beneficial for them.

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1.3 CRITICAL COMPANY INFORMATION

Qantas operates out of Sydney as its major aviation hub and connects to all the major airports

across the world. In the event of competition from its customers they have ensured that they

improve the connectivity across all the major cities thus giving them an edge over their major

competitors. They have also expanded their line of business to other areas such as holiday

tourism and catering to improve the bottom lines and at the same time this has differentiated

them with respect to their competitors. They also have two subsidiaries by the name Snap Fresh

and Qantas Catering group who takes care of their catering requirements. They supply food

materials to all major airports in Australia and at the same time they have also started supplying

the food materials to others also. Qantas Holidays is also a subsidiary of Qantas who have been

offering exciting holiday options for their customers which has been one of the highlights of the

airlines as compared to its competitors (Bowman, 2007). Jet star is another major wing of Qantas

which has been focusing on offering low cost flight options for the customers and has been

mainly focusing on the Asia Pacific and Australian region. Other than this they have their own

airlines maintenance decision which has extended its services to the states defense and other

government airlines maintenance also. The company has been investing on new airlines over the

years and has brand equity built over trust from its customers and at the same time they have

managed to look at the customer satisfaction levels and the factors affecting the same and make

the necessary changes to match the same (Treacy, 2003).

2.0 EXTERNAL ANALYSIS

2.1 ENVIRONMENTAL ANALYSIS

Technological: Technologically the sector has been improving over the years and the

competition increased after the merger of Boeing with McDonnell Douglas and they have been

investing huge amounts of money in improving the technology and at the same time both Boeing

and the Airbus have been coming up with many new models. Not only in terms of the flying

experience have these companies improved. They have also made sure that they are equally

focusing on the in house improvements that have transformed the airline industry to be looked at

as one of the main means of transport. The airport terminals have been renovated and the flights

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have been made cheap over the period of time have all contributed to the growth of the industry.

With all these factors in picture airlines has become the substitute means of transport for many

travelers (Prahalad, 2000).

Economic: Qantas Airways has been affected by the financial crisis that has hit the market and

with the rise in the oil and crude prices and the instability in the economic scenarios across the

globe the airlines industry also would be affected for obvious reasons. The Australian

government has been supporting the carrier with many subsidies and cuts to ensure that the

nation’s primary airline carrier goes through without having to meet the same fate as Ansett.

There is a huge competition that they are facing from the low cost carriers and this has resulted

in them launching the Jet star. Another major blow for all the major carriers is that their first

class and the business class travel rates have come down drastically and this has been happening

over the last few years as all the major companies find reducing the business class travel as one

of the major means of reducing the costs for the company. The Airline operator’s n the other

hand has been reducing their costs by finding out the flaws in the system and reducing the

redundancies in an effort to reduce the operational costs (Porter, 2005).

Political: Australian government has passed many subsidies to help the Qantas Airlines to

survive in the industry and one of the potential things that can happen in the coming year’s s the

merger of Qantas with the British airways as this can help them in improving the network of

coverage that both the airlines can offer. This can also help them bringing down the operational

costs drastically by reducing the overall no of flights in the same region and can expand their

network to other areas where they don’t have enough networks. The political scene in Australia

is stable with stable government operating and the only cause of concern here is the economic

crisis that has hit the world economy that the airlines has to tide over with the help of the

government.

Socio Cultural: The Australian public has taken up airline travel as one of the important means

of transport and this change has lead to the growth of the industry. To add to this there are many

inlands in the island where there are no other transport system and the people are wholly

dependent on the airline travel. There are many industries in Australia where they are entirely

dependent on Airways to supply their goods. This makes the scene conducive for the growth of

the aviation industry in the country (Gale, 2006).

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2.2 INTERNATIONAL ENVIRONMENT

The issue of HIN1 Visa has affected the aviation industry across the world. There is a drop of

more than 18% in the travelling rates just because of the same reason. The competition from

other airlines like the Qatar Airways and the Singapore Airlines covering more routes and at a

lesser cost has forced the management of Qantas to think on the lines of changing their strategy

of operations. The companies across the world are forced to reduce the operational costs mainly

because of the fact that the crude oil prices has been volatile and it is linked to the political unrest

that is happening across the world. There are more takers amongst the customers who would take

up the air travel but the major change that we have seen over the years has been that business and

the first class travel has come down drastically (Porter, 2007).

2.3 COMPETITIVE ENVIRONMENT

Qantas has always been a premium airline offering the best in the class facilities to its customers

and they have that unique position in the Australian Markets. They have made use of this

positioning and have been doing well but with the reduction in the business class travelers

reducing and the customers being more price conscious they have lost that advantage that they

had earlier. They have faced severe competition from Qatar Airways and the Singapore airlines

in terms of price and their international travelers have dropped down by almost 4% in the last

one year (Ansoff, 2005). In the domestic travel scenario also they are faced with challenges from

the local competitors and they had to come up with Jet star which is a low cost option for the

customer. This has actually worked for them as the number of passengers opting for Jet star has

increased in the last three years. One differentiation that they had been able to make with respect

to the otters has been that the convenience and the premium service levels that they have

maintained inspire of the financial troubles that they had (Johnson, 2011). The in house

entertainment and the terminal services has been world class and Qantas has been improving

their service quality levels based on peer comparison and taking regular inputs from the market

(Hall, 2004). They have created a unique position for themselves in the market where they are

being looked at as the premium service provider and the customers for their service experience

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don’t mind getting them at a premium price. In terms of Cargo they face a huge competition

from Lufthansa and in this space the company has to ensure that they have a lot to do as they just

managed to grab the 10th

spot amongst all the airline carriers. This is mainly because of the

pricing and the coverage that Lufthansa has to offer and the management has to take this up

seriously and work towards the benefit of the organization (Abell, 2000).

2.4 PORTERS FIVE FORCES ANALYSIS

Industry Rivalry:

There is intense rivalry in this field where the operators are competing with each other in terms

of price and at the same time the service levels have gone up thus making all of them to reduce

the operational costs to minimal levels to maintain the margin of operations. One of the major

differentiators in this field is the number of direct flights that are being offered where the major

players will have an edge but with the price factored into this calculation; this advantage is also

being taken out these days (Stalk, 2002). In terms of the relationships, even though there are

many airlines which have loyalty programs for the customers, the switching costs being low for

the customers they cannot dictate much in such circumstances.

Entry for New Players:

For domestic players the entry can be much easier in terms of licenses and the fact that in the

initial stages most of the other peripheral operations may be outsourced. But the capital outlay

involved and the time taken to break even in this case has held back many from entering into this

field. In terms of international routes the entry barriers are high and one need to plan out the

entry in this industry as the competition is so huge that it is so very easy to be sidelined in the

market.

Substitutes:

There are many substitutes for airlines especially in the shorter routes likes’ bus, train and other

land modes. This may not be true for the long distances anyways but with the advent of

technology there are many options like the net meetings, video conferences and video messages

that has been a substitute but not as effective.

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Power of Suppliers:

In terms of the supplier power the aviation industry mainly because it is polarized is huge. The

investments that these manufacture make for the suppliers and considering the high value orders

there is very little chance that they would move or can increase the prices to a great extent.

Another factor that affects the aviation industry is the fuel prices where the suppliers doesn’t

have much of a control and is decided by the political factors across the globe.

Buyer Power:

In aviation industry the buyer power is more as most of the routes are being covered by more

than one operator and at the same time there is a huge competition in terms of the prices which

gives sufficient power to the customers

3.0 INTERNAL ANALYSIS

3.1 CORE COMPETANCIES

Qantas has always been offering the customers the best in the class services and have upgraded

the fleet to the latest available in the market. Thus for them premium service to the customers

and the network across the world has been one of the core competencies that they have. They

have upgraded the in house entertainment to match the best in the class and also have improved

the terminal service offerings to the customers. They have been always looked at as a premium

brand and this has resulted in them charging a premium from the customers,

3.2 SWOT ANALYSIS

Strengths:

Premium Brand Value and recognition

Good Connectivity across the world

Excellent terminal facilities and in house facilities.

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Zero Accident Record

Best in the class operational facilities.

Weaknesses:

Increased operational costs in comparison to competition

Disputes with major unions in the country.

Instability in the management with British Airways merger.

Opportunities:

Operations into more international routes and inland domestic routes.

Major overhaul in market share after the Ansett Collapse.

Better Online promotions and loyalty bonus for customers to increase the travels

Jet star operations to be increased on routes where price competition is huge.

Threats:

Price Competition reducing the operational margins.

Change in domestic policies to protect the new entrants.

Increase in the fuel costs and huge volatility of the same in the market.

Global economic crisis and weakening of AUD.

4.0 CONCLUSION

Qantas has been the leading airline carrier in Australia and they have managed to build their

brand effectively over the superior services that are being offered and at the same time have also

made their presence in the low budget carriers with Jet star. In the past few years the operational

margins have been on a low mainly because of some of the global factors but the management

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was well aware of the situation and has been focusing on reducing the operational costs by

cutting down some of the features that has been considered not important for them. Overall they

are all set to rein the Australian air in the days to come provided the management is flexible

enough to make the changes and is flexible with its decision making based on the dynamics of

the market.

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REFERENCES

Hall. W. 2004, Review of research: Competency-based training and assessment, Adelaide,

National Centre for Vocational Education Research

Porter, M.E. 2006, What is Strategy? Harvard Business Review, Vol.74, No.6, pp. 57-76

Prahalad, C.K. 2000, The Core Competence of the Corporation, Harvard Business Review, Vol.

68, No. 3, pp. 79-91

Stalk, G. 2002, Competing on Capabilities: The New Rules of Corporate Strategy, Harvard

Business Review, Vol.70, No.2, pp. 57-70

Abell, D.F. 2000, Defining the Business: The Starting Point of Strategic Planning, Englefield

Cliffs, N.J., Prentice Hall

Ansoff, H.I. 2005, Corporate Strategy, McGraw-Hill, New York

Bowman, C. 2007, Competitive and Corporate Strategy, Irwin, London

Gale, B.T. 2006, Value-Based Marketing and Pricing, Customer Value Inc., Boston

Johnson, V. 2011, Exploring Strategy, 9th ed., Prentice Hall, Essex

Porter, M. 2001, Competitive Strategy: Techniques for Analyzing Industries and Competitors,

The Free Press, New York

Porter, M. 2005, Competitive Strategy: Creating and Sustaining Superior Performance, The Free

Press, New York

Treacy, M. 2003, The Discipline of Market Leaders, Perseus Books, New York