Describe about the Market Issues In Relation To Bluejet Joint Venture.
In Dominions Corp v Bryan Pty ltd (1985), the high court gave a definition of a joint venture[1]. A joint venture is an association of persons or trading organizations who come together with a view of making profits, and each partner will contribute some aspects of capital for purposes of meeting their objectives. Hence, one of the benefits of a joint venture, is the financial benefits that the parties to the association benefit from one another. They do not only share financial contributions, but also expertise and technologies that can be used to make theme competitive within the given market. However, the main disadvantage of a joint venture is that it may frustrate the level of competition within an industry. To mitigate against these negative effects of joint ventures, the Australian government has developed laws aimed at regulating the level and nature of competition within the industry.
Companies such as Jetstar and Virgin Blue have decided to merge their marketing departments for purposes of ensuring they find a solution to the low profits these companies make. The proposed marketing arm is BlueJet Australia. To come up with an efficient strategy that can help these organizations to develop policies that will make them profitable, BlueJet Australia must identify the market competition issues that are affecting the Australian airline industry.
Certainly, the first step towards understanding the competition issues facing the airline industry in Australia is to understand the Australian law regarding competition. As a matter of fact, business competition in Australia is regulated by the Australian Competition & Consumer Commission (ACCC). This institution was formed in 2010, through an act of parliament called, the Competition and Consumer Act. Section 50 of the 2010 Competition and Consumer Act regulates the level of competition that emanates through merger and acquisition. The section denotes that a company should not acquire the shares of another organization, if the acquisition or merger may result to reducing the level of competition within the industry. With this in mind, chances are always high that the ACCC will refuse to recognize certain mergers, joint ventures and acquisition in Australia[2]. This is in a bid to ensure that there is competition in the given industry.
However, when the merger will lead to the benefit of the public, or when one company is failing, ACCC may approve the merger or the joint venture. Blue Jet comprises of Jetstar and Blue Virgin. These companies are not making good profits within the market. In fact, the financial performance of Jetstar is poor; hence, chances are high that the joint venture will be allowed by ACCC. This is because the venture will not be a threat to competition, but it will ensure there is competition within the Australian airline industry. Therefore, understanding the rules of competition guiding Australian airline industry will help to determine the approaches and policies that BlueJet Australia initiates, for purposes of enabling the airline companies to become competitive. It is important to denote that the regulation of competition in Australia is aimed at ensuring that companies do not take advantage of their dominant positions, to initiate policies that will force other companies out of the market, or will be harmful to their customers.
To be efficient in developing marketing policies that will ensure the success of BlueJet, the joint venture must understand the effect of the deregulation of the airline industry that began in the periods of 1980s[3]. The deregulation of the airline industry in Australia has made the sector to be very competitive, and this is because there is the introduction of new companies offering airline services[4]. This has led to an increase in competition; hence, companies are forced to come up with policies aimed at making them to be competitive, and to increase the percentage of market they control. Because of an increase in competition, companies in the airline industry are engaged in price wars, and this reduces the amount of profit they can get. Low prices ensure that companies do not get value for their investments, and it is the customers who are benefiting. Basing on these facts, the deregulation of the airline industry helped in advancing the provisions of the Competition and Consumer Act (2010) which supports the implementation of policies that benefit the customer.
On this note, having an understanding of the price wars in the Australian airline industry, will enable BlueJet to come up with a pricing strategy that will benefit its customers, and also the company itself. A pricing policy that benefits the company is one that does not lead to losses, or low profits that cannot sustain the organization. It is important to note that in a s much as cost leadership strategy, is one of the most efficient strategies that can lead to profitability of the organization, the company must provide high quality services, to be guaranteed of customers. This is because customers are prepared to pay a significant amount of money for a quality service. Furthermore, the BlueJet must know the demand elasticity of the different market segments, as this is an important factor that determines the pricing policy of airline companies.
For instance, there are two important market segments in the airline industry. These segments are the leisure travelers, and the business travelers. Leisure travelers are people who are very flexible with the dates of travel, and the prices of air tickets. Therefore, they are very sensitive to changes in the prices of air tickets. This is as compared to the business travelers. Hence, when initiating the cost leadership pricing strategy, the company must be targeting leisure travelers. On the other hand, business travelers are not sensitive for prices[5]. Furthermore, customers are always well informed of the prices that airline companies charge. This is because of the availability of the information concerning airline companies in Australia. Most airline companies normally publish information concerning their company through their websites or magazines.
This information is accessible to customers and the employees of these airline companies. Because of these policies aimed at capturing customers, there is an intense competition in the airline industry[6]. Indeed, entry of low cost airlines has shifted the advantage to these airline companies. In fact, a company such as Tigerair is emerging as a leader in offering low cost air services in Australia. Other potential competitors include Airnorth, Rex Airlines and Jetstar. BlueJet has to study the pricing and managerial policies of these competitors, for purposes of ensuring that it comes up with the best marketing strategy that will give it a competitive edge over these rivals[7]. It is important to denote that without information about these competitors, BlueJet may initiate policies that may not be effective in penetrating the market segment held by these competitors.
Another issue to consider are factors that are beyond the control of airlines, but which have an impact on the competition within the airline industry. One of these factors is fuel. There has been a rising cost of fuel, and reducing these increases is beyond the capacity of the airline industry[8]. This is basically because of the availability of very few suppliers of fuel, and the inelastic demand of the commodity. It is important to denote that the price of an airline ticket is very sensitive to the costs of fuel. Furthermore, the cost of fuel in an airline industry covers a third of the operating expenses of the airline. Labor is another factor that takes a considerable amount of money, and it contributes to a quarter of the operational expenses of the airline company. Another factor that may affect the competitive capability of BlueJet is the cost of maintaining the fleet of its airplanes. These costs are very high, especially, when the airplanes are aged[9]. Indeed, after paying all these costs, the operational expenses of the company will be high, affecting the overall profitability of the business organization. It will imply that the margins of profits will be very low.
Therefore, the inability of the company such as BlueJet to control these costs would mean that it will be operating at very high operational costs. But still, to be competitive, the company will accept to charge low prices for its air tickets. However, the existence of these uncontrollable costs does not mean that the airline industry is not profitable[10]. With proper policies and programs, BlueJet can make profits. An example is a company such as the Emirates Airlines. The company has a fleet of young airplanes, and this means that they are fuel efficient and require low maintenance costs. Furthermore, the company is able to get cheap labor because it is based in Dubai, and it pays low taxes[11]. In the view of this, the government of Australia should assist BlueJet by coming up with subsidy programs aimed at reducing the costs of operation for the company. While pursuing this policy, the government should target the whole airline industry, as it will enhance competition.
Then, the use of government assistance may provide the airline industry with the needed money that can be used in research and development. In every organization, R&D department is crucial, in ensuring that the company achieves its profitability[12]. It is through research and development that the BlueJet will collect and accumulate data regarding the policies pursued by its competitors. Furthermore, it is through R&D that the company may know the various needs of its customers, and come up with a service that satisfies those needs[13]. Knowledge of these needs, and development of services that satisfy these needs, is crucial and important in making the company to be highly competitive[14]. Therefore, the government has an important role to play in the airline industry, in terms of the provision of resources and development of infrastructures that may make it possible for airline companies to operate and compete with one another[15].
Finally, the competitive issues that BlueJet will face includes the pricing policies pursued by the competitors of the company, the costs the company cannot control, the involvement of the government in regulating competition within the industry, and the marketing strategies employed by the competitors of the company. Air ticket prices are a very sensitive issue in the airline industry. This is because of the high operational costs that these companies face, and the intense competition emanating from other companies. BlueJet will therefore consider the level of competition emanating from these airline companies, before coming up with the right prices for its air tickets. Government control is an important issue that arises, because the Competition and Consumer Act of 2010 prohibits companies from engaging in any activity that frustrates competition within the industry. To facilitate competition, the government may provide the necessary resources and infrastructures that will encourage BlueJet to engage in extensive R&D. Research and development is an important process that will determine the development of high quality services that carter for the needs of the target market.
Books, Journals and Articles
B, Clarke and Sweeney B, Marketing and The Law (LexisNexis Butterworths, 2011)
Barron, Margaret, Fundamentals Of Business Law (McGraw-Hill, 2012)
Davenport, Shayne and David Parker, Business And Law In Australia (Thomson Reuters (Professional) Australia, 2011)
Forsyth, P, Competition Versus Predation In Aviation Markets (Ashgate in association with the German Aviation Research Society, 2005)
Freeman, Michael D. A, Law And Bioethics (Oxford University Press, 2008)
Gibson, Andy and Douglas Fraser, Business Law (Prentice Hall, 2005)
Haque, Tariq, “Lead–Lag Effects In Australian Industry Portfolios” (2010) 18 Asia-Pacific Financial Markets
Kotler, Philip et al, Marketing (2015)
P, Gillies and Selvadurai N, Marketing Law (Federation Press, 2008)
P, Latimer, Australian Business Law (CCH Australia Ltd, 2012)
Peoples, James, Pricing Behaviour And Non-Price Characteristics In The Airline Industry (Emerald, 2012)
Tierney, Alison J., “Matching Up To The Airline Industry” (2008) 63 Journal of Advanced Nursing
Towards A National Aviation Policy Statement (Dept. of Infrastructure, Transport, Regional Development and Local Government, 2008)`
Zeller, Bruno and Bill Cole, “Australian Trade Agreements – A Divergence Between Trade Policy And Business Outcomes – Can They Deliver Trade-Related Growth For Australia?” (2014) 3 Global Journal of Comparative Law
B Cases and Legislations
Competition and Consumer Act (2010)
Dominions Corp Ltd v Brian Pty Ltd (1985) 157 High Court (1985)
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