Discuss about the Qantas Airways for Growth and Operation.
Strategic Management refers to a set of inter-related steps or actions that the management authority of an organization implements to increase the company’s performance and production (Hill, Jones and Schilling 2014). If the strategies followed by a company results in superior performance, it is known to have competitive advantage. Successful strategies enable a company to reduce its cost structures, charge low prices, achieve market share and gain more profits than its competitors.
This report examines the growth and operating strategies of Qantas Airways Ltd. the number one domestic airline of Australia and a leader in the Asia-Pacific region (Kumudha and Bhunia 2016).
The assignment, firstly gives an overview of the above-mentioned airline company and the factors related to its operation and growth. Then it goes on to evaluate the company’s strategies and the competitive advantages it has achieved over its rivals. Lastly, the paper examines whether further, more innovative strategies are required in order to maximize the company’s performance, and if any, then the required strategies should be implemented to achieve success over its competitors.
Qantas is one of the ten largest airlines in the world and has been established in the year 1920 (Referenceforbusiness.com 2017). Qantas provides extensive domestic services in both Australia and New Zealand, and connects Australia to eighty-one destinations in forty other countries. The Qantas group comprises of five major segments, that is, Qantas Domestic, Qantas International, Jetstar Group Qantas Loyalty and Qantas Freight, generating over 15.8 billion dollar. The group strategy of Qantas is to deliver consistent and sustainable returns to share holders with safety being their first priority always. The company maintains a number of alliances and code share arrangements and a member of the one world global airline led by American Airlines and British Airways and is largest shareholder with eighteen per cent interest (Referenceforbusiness.com 2017).
The term macro environment is used to describe the boarder national, regional and international context within which markets operate (Ellis 2016). This helps marketers to identify the main participants in any market; and how the forces of the wider world influence them.
For Qantas Airways, the main factors are the socio-cultural, political and technological factors (Miqdadi 2017). In the case of Qantas, political factor plays an important role as it focuses on the domestic market. Most of the decisions taken by Qantas revolve around Australians, as is seen from their slogan, ‘Spirit of Australians’. They need to be sure that such initiatives are worthwhile and will not incur any financial losses in the domestic business in the face of competition. Socio-cultural factor is again important since Qantas is only focusing on the domestic market and they need to ensure that the aircraft satisfy the basic needs of its passengers by providing them with comfortable seat having decent space in between the rows for the tall Australians. In the case of technological factors, the competitors of Qantas are providing their employees with phone and email connectivity, whereas Qantas refuse to provide on flight entertainment to economy class passengers.
Micro environment is made up of the immediate factors related to the particular industries or markets in which the organisation operates (Miqdadi, 2017). They are the organisation itself, existing and potential environment, value chain partners and market intermediaries, customers, competitors and publics. In the case of Qantas, the most important factors the organisation itself and the competitors. Comparing Qantas to British Airways raises the factor of choosing the organisation itself, because at certain point of time both the airways resisted change and lost a part of their market share to budget line subsidiary. This gave them certain satisfaction, leading the core business to remain the same and resist change. Due to the emergence of competitors, Qantas international market share dropped massively and they should focus on the issue to gain competitive advantage and thus remain ahead in the game.
Quantas Airways is considered one of the best airline companies in Australia. The Company is subjected to competition from Singapore Airlines and Virgin airlines. It uses its strategies to gain advantage over its competitors (Sollfelner 2016). They had been suffering from increased fuel prices overtime and had a hard time to maintain advantage over its competitors. In order to analyze the competitive advantage of Quantas both internal and external factors of the company has to be considered. The company gains competitive advantage over its rivals through minimizing threats and using opportunities. In order to do so Quantas regularly analyzes the external environment along with generating projections and modifying trends. The company uses a resource-based model in order to analyze costly to substitute, rare, non-substitutable and valuable resources and take strategic decisions in relation to its capabilities along with focus on core competence to develop competitive advantage, which is sustainable (Fröhlich et al. 2016). The company also uses the strategy of acquisition and mergers to gain more value than average for the services provided buy it. The company also ensures competitive advantage over its competitors by operating in high demand locations and markets indicating potential growth.
The unique position of the company in the market is not the lone factor for providing sustainable competitive advantage. The company also has a valuable and established position in the industry, which makes the competitors imitate the services provided by the company however the company maintains an upper hand in the industry through cost effective strategies. A company can only maintain a competitive advantage when the production cost of the company is lesser than the market value of its services. Quantas effectively offers lower price for its services as compared to its competitors.
The company uses techniques like differentiation and cost leadership to operate in the industry. It does so by utilizing its unique position and advantage to cover different destinations around the world along with diverse services, which provide for different levels of service (King 2016). The services provided by Quantas are differentiated with respect to traffic in-order to reduce the operational cost of the company. This results in increased profit and revenue for the company along with a sustainable cost reduction and competitive advantage.
The company uses all five forces provided by Porter towards its general strategies. The aviation industry faces lot high amount of competition both from domestic as well as international companies (Sarpong). This completion between the companies is mainly based on pricing, discount cycles, service improvements and market campaigns. Quantas in this case uses the strategy of diversification, produces diverse services, and maintain a huge diverse market to gain advantage in the industry (Özman 2017).
Service users are generally price sensitive and chose company based on the price provided by it with respect to its services. Service users also pay price on the basis of utility and quality of services provided by the company. The aviation industry is subjected primarily to service users who belong to the middle and upper class. They have ample choices when it comes to choosing in which airlines they want to travel. Because of such reasons, the company has chosen to operate with two braches namely Quantas and Jetstar for product differentiation and value respectively. The company however has to be careful so that this strategy does not confuse its service users.
The company is highly recognized in the industry, which makes it trustworthy for the suppliers to do business with it. This helps the company to work along with them in order to reduce the operational cost along with preserving the existing margins. The suppliers of the company are dependent on it and therefore they comply with the terms and conditions provided by the company. However, when it comes to assets like jet fuel and construction suppliers hold a great or bargain power over the company. In such situation, Quantas binds the suppliers to contractual obligation for a specified period. Quantas effectively uses its manpower as labor is one of the key assets of the company without which it cannot function properly (Shukla 2016).
The aviation industry demands large capital investment form companies who are willing to enter the market. However, there are many existing airlines companies in the industry, which force each other to operate at low margin costs resulting out off price reporting and price competition. The industry is also subjected to volatile prices of jet fuel. This discourages new companies to enter the market. Quantus have further been able to develop a loyalty program with the process of brand development, which helps them bind their customers to the company (Saglietto). The cost leadership and differentiation strategies of Quantas help the company to ensure that the customers are not switching to substitutes like road, rail and sea travel.
The value of corporate strategy is mostly by the fact whether the business under the management is of greater value than if they were managed by a competitor or independently. In its dominant business strategy, Qantas operates with low level of diversification (Milan Pintar E-Portfolio 2017). Almost eighty-four per cent of its revenue generated from its passenger business airlines emphasis on a core set of capabilities and competences to generate above average returns in a single industry market. Through tangible and intangible resources, Qantas derive value neutral benefits (Milan Pintar E-Portfolio 2017). For example, external companies are attracted to its Loyalty products, not only to reach out to the crowd but also for a reputed association with Qantas. There are also several other diversified business line operated by Qantas such as Q-catering, QantasLink, Engineering and its in-flight magazine (UKEssays 2017).
In order to increase their stakeholder value, companies pursue mergers and acquisitions; for growth, eliminate competitive threats, market expansion, operational synergies or to diversify (Milan Pintar E-Portfolio 2017). Qantas has included mergers and acquisitions in its organizational strategy over the last twenty years, which has led to an increase in its market power, diversification, vertical expansion, reorganized its competitive scope and expand capabilities. However, when Qantas went into joint ventures with JetSet Travelworld Limited in 2008, it had to incur huge financial losses. Thus, it can be said that these mergers and acquisitions have created very limited gain for Qantas, consuming capital investment and distracting strategic focus.
Qantas ventured into Asia market after liberalization move that gave it a opportunity to create partnership between different investors (UKEssays, 2017). It gained competition in market with many start-up airline by holding majority share of Jetstar Asia, based in Singapore. Substantial population with large middle-class, increasing leisure activities and absence of competitive transport, helped in the constant growth of the industry in Asian markets. With the liberalization of bilateral services the market conditions in Asia improved, encouraging airlines to compete, improving the competitive condition and creating operational efficiencies. Qantas entry into Asian markets was very beneficial as it provided opportunities for revenue growth, increased market share and higher return profit due to increased scale of economy and lower salary cost in the Asian countries (Yimga 2017). To establish a strong hold in Asia, Qantas has leveraged its partnership, but should also make use for opportunities of acquisition and mergers in order to increase its above average returns. Qantas has many other alliances where they work together to deliver the same product. This strategy gave Qantas many opportunities to enter various markets with limited investment.
Conclusion:
The primary threat, which has been identified through this analysis, is the bargaining power of the suppliers. The main workforce of Quantas, which handles the operations, is unionized. Pay cuts and job reduction in the industry due to financial challenges have scared the unions. This has already resulted in strikes and loss of goodwill for the company. In order to operate successfully the company must establish a closer relation with the workforce and unions so that these events do not occur in the future.
The division of the company into Qantas and Jetstar has led to confusion among the service users. Moreover, the customers are willing to use Jetstar more than Qantas because of lesser price offered by it resulting in the loss of brand value for Qantas itself. This concept has to be fixed by the company so that the value of its own premium airlines is not reduced.
Qantas must keep up the good work and shift its focus on providing increased returns on the investments made by the shareholders along with increasing the profit margin of the company.
The company through third parties provides travel insurance at present and in return, the company receives a very insignificant margin for referral. The company in this respect should either bargain with the third party providers or involve another service provider for the purpose of insurance in order to gain increased margin.
References:
Ellis, D., Global Airline Cooperation: Equity Stakes, Strategic Partnerships and Alliance Membership. In The 3rd International Aviation Management Conference 2016 (p. 63).
Fröhlich, K., Grimme, W., Hellmers, J., Holtz, M. and Németh, A., 2016. an assessment of the Success of Cross-border airline Mergers and acquisitions in europe. Liberalization in Aviation: Competition, Cooperation and Public Policy, p.197.
Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.
King, J., 2016. european Liberalization: a view From afar. Liberalization in Aviation: Competition, Cooperation and Public Policy, p.371.
Kumudha, A. and Bhunia, A., 2016. Customer relationship management and marketing practices in airlines industry-An empirical study. IJAR, 2(11), pp.39-43.
Lafuente, E., Szerb, L. and Rideg, A., 2016. A System Dynamics Approach for Assessing Business Competitiveness.
Milan Pintar E-Portfolio. (2017). Strategic Management – Group report: Qantas case study analysis. [online] Available at: https://milanpintar.com/2015/10/25/strategic-management-group-report-qantas-case-study-analysis/ [Accessed 4 Feb. 2017].
Miqdadi, S. (2017). Qantas – Marketing Case Study. [online] Academia.edu. Available at: https://www.academia.edu/9278526/Qantas_-_Marketing_Case_Study [Accessed 4 Feb. 2017].
Özman, M., 2017. Strategic Management of Innovation Networks. Cambridge University Press.
Referenceforbusiness.com. (2017). Qantas Airways Ltd. – Company Profile, Information, Business Description, History, Background Information on Qantas Airways Ltd.. [online] Available at: https://www.referenceforbusiness.com/history2/40/Qantas-Airways-Ltd.html [Accessed 5 Feb. 2017].
Saglietto, L., Competitiveness.
Sarpong, M.M.D., Journal of Strategy and Management. Journal of Strategy and Management, 9(4), pp.511-526.
Shukla, U.K., 2016. International Business-Competing in the global market place. St Theresa Journal of Humanities and Social Sciences, 2(2).
Sollfelner, B.H., 2016. How various macroeconomic and financial risks influence corporate strategic decisions in the global airline industry.
UKEssays. (2017). The Corporate Mission Of Qantas Group Management Essay. [online] Available at: https://www.ukessays.com/essays/management/the-corporate-mission-of-qantas-group-management-essay.php?utm_expid=309629-42.KXZ6CCs5RRCgVDyVYVWeng.0&utm_referrer=https%3A%2F%2Fwww.google.co.in%2F [Accessed 4 Feb. 2017].
Yimga, J.O., 2017. Airline code-sharing and its effects on on-time performance. Journal of Air Transport Management, 58, pp.76-90.
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