Question:
Discuss About The Stiff Competition Different Low Cost Carrier?
Porter’s five forces analysis is taken into account for comprehending the overall performance of the firm Qantas Airlines and various factors that might perhaps affect the same.
Bargaining Power of Purchasers: For the purchasers, it can be considered to be a win-win condition when it comes to selection of the airline service. The selection is based on the condition of offering premium class service, low cost and level of comfort accounting many others (Entwistle 2015). According to Moutinho and Huarng (2015), in today’s days purchasers have different alternatives to select from and the subsistence of diverse service providers in the airline sector offers them with augmented bargaining as well as purchasing power.
As rightly mentioned by Bolton et al. (2015), suppliers functioning in the airline industry have comparatively less bargaining power since there subsists a higher number of suppliers delivering somewhat identical services. Again, in case of Qantas Airlines, supplier’s power is low since there is existence of other big players in the airline industry namely Virgin Airlines
Airline industry truly enjoy a lower level of threat of substitution since it is a very rapid way of travelling to different long distances that is not always to travel through waterways and roadways. Customers avail the specific airline service even for short distance routes in a bid to save time and enjoy comfortable journey (Wagner and Eggert 2016).
Analysis of reports reveals that the Australian Airlines Industry can witness a tussle between specifically the airline service provider Qantas Airlines and the Virgin Airlines in the regional market. In this case, both the corporations suffer losses in operations due to existence of intense competition (Armstrong et al. 2015).
In Australian airlines industry, the threat of entry of different new players is normally low. This is so because new corporations have the need of huge investments as per the requisite infrastructure for designing the structure of the airline corporation, which sometimes is tricky (Armstrong et al. 2015).
The Australian airline segment experiences strong competition among different airline service providers. The airline operators essentially contest with each another for acquiring higher share of the market. A detailed market research reflects the fact that Virgin Airlines can be considered to be one of the most important rivals of the company Qantas that operates in the Australian airline market, apparent from the price cuts for different services for attracting new customers and retaining the existing customers (Armstrong et al. 2015). Analysis of the current company declarations, both the business firms Qantas as well as Virgin is experiencing losses and in spite of that there is steep decline in the overall number of passengers owing to issues such as competitiveness of the industry as well as terror attacks in US and many others.
Nevertheless, there are several measures that essentially make the airline service provider Qantas an clear choice for diverse travellers. For example, the flyer program of the company that is exclusive to the company helps in gaining customer loyalty. Again, the management of Qantas has also declared that the firm’s frequent flyer program has nearly 7 million loyal members and it is developing with time. As such, the specific purpose of this program started by the company Qantas is to inspire travellers to select Qantas for their requirement of airline service (Armstrong et al. 2015). Again, if they necessarily go on gaining higher number of points, the management of the firm can utilize it for different alliance stores for up gradation of the baggage weights and for acquiring admittance to particularly OneWorld agreement lounge for foods, drinks along with other lucrative provisions. Again, Qantas also relates the firm’s frequent flyer program with yet another Australian player that is Woolworths and through collect points of Woolworths Everyday Rewards that necessarily offers competitive advantage to the two corporations (Investor.qantas.com 2017).
The airline company Qantas have assumed multi brand stratagem that permit the administration of the firm to position the effectual domestic network as the best operator. The company can establish itself as the premium service provider that can operations provide business associated travels backed by the Jetstar delivering service at low fares (Investor.qantas.com 2017).
The management of the firm Qantas delivers transportation services across diverse geographical borders by means of two complimentary airline operators namely Jetstar and Qantas, functioning globally and delivering domestic services.erse industrial activities
The business operations of Qantas are highly vulnerable to different rows related to industrial activities. Particularly within the Australian market, extensive industrial exploits along with union campaigns to discredit the Qantas brand caused notable harm to the corporation during the financial year 2012. For instance, effort of the Transport Workers’ Union in utilizing bargaining procedure for a new business concern contract for dictating the way definite parts of Qantas need to accessed (Investor.qantas.com 2017). In addition to this, there is need to ascertain the way business concern Qantas manages the employees of different subsidiaries and discomforting Qantas from accessing.
Qantas Group declared about the up gradation of the fleet plan and capitalizes on rate of growth in the domestic market in Australia. Particularly, under this arrangement, Qantas leased five extra Boeing Aircraft together with this bought three Bonbardier Q400 aircraft (Investor.qantas.com 2017).
The main objective of Jetstar is necessarily to strengthen the position of the firm as a pan Asian carrier. Presently the company has expended its operations in Singapore, Vietnam as well as Japan by means of franchises. The transnational network of the Jetstar might influence the overall growth of the company Jetstar that is a brand airline delivering the traffic between Asia as well as Australia, strengthening the strong competitive position of the corporation Qantas Airways in specifically the leisure travel area of Asia- Pacific’s (Investor.qantas.com 2017).
The airlines industry in Australia is currently witnessing stiff competition with the existence of low cost carriers operating in the East Asian district. Essentially, these low budget airline service providers have the tendency to charge low fares, thereby making Qantas less competitive (Levinson 2014).
The cost of Jet fuel essentially plays an important role in forming the total cost of the corporation Qantas. Particularly during the financial year 2012, the jet fuel increased from approximately AUD 645 million to nearly AUD 4329 million recorded during financial year 2011 (Investor.qantas.com 2017).
The core stratagem of the group is to enhance profitability of two different flying brands of the company that includes the Qantas and the low cost carrier namely Jetstar. However, in different premium markets, the company strengthens the position while Jetstar takes into account both the regional as well as global leisure market. As such, the strategy developed by Qantas helps in decreasing the overall capital strength by maintaining partnership with diverse carriers in specific uneconomical segments. Essentially, during June 30, 2011, the NOPAT of the business concern Qantas was enumerated to be $250 million with considerable amount of revenue generated from certain ordinary services was documented to be $14.8 billion (Investor.qantas.com 2017). Thus net profit after tax of the corporation increased by approximately 8% as compared to the figure recorded during the previous year. During the year 2011, the company Qantas invested around $2.4 billion for capital expends (Investor.qantas.com 2017).
During the year 1992, the Australian Government allowed the airline corporation Qantas’s bid of worth AUD 400 million for different Australian Airlines along with different subsidiaries (Investor.qantas.com 2017). In addition to this, the government also declared that the group can be completely privatised. As such, the merger of two different airlines also enhanced the carrying potential of passengers, airline’s efficient utilization and maintenance of economies of scale between transnational and domestic airline services.
In addition to this, the corporation Qantas persistently evolved and attained growth. Again, during the year 2002, the business firm Qantas established low cost regional airlines that is the Jetstar. The company commenced the regional functions during the year 2004, pursued after the Tasmanian services during the period December 2005 (Investor.qantas.com 2017). According to the opinion of Bragg (2014), the Qantas Group has depended on fruitful partnerships as well as successful alliances to acquire biggest share of the transnational airline market. Besides services related to transportation of passengers, Qantas makes available other services that include businesses portfolios such as engineering, freight services as well as catering services.
The corporation also implements cost leadership strategy, concentrating on the stratagem of differentiation in which the cost leadership policy stresses on the need of gaining competitive advantage among the rivals in the industry. In essence, this refers to the fact that identical products are delivered at low cost, something that Qantas follows for the Jetstar airways. Additionally, at the time when a single segment of customer is targeted then the strategy is more concentrated. Basically, Jetstar delivers similar service as that of the airline Virgin but necessarily at a comparatively low cost (Bragg 2014).
The policies followed for recognition of revenue necessarily varies founded on the nature of service delivered by the company Qantas Airlines. On the whole, the treatment to passengers and revenue from freight is also analogous. However, for the purpose of attracting more number of customers, Qantas offers tickets of passengers well in advance of service. The entire amount accepted in advance can be taken into consideration for unjustified revenue (Entwistle 2015).
The business concern at fair value of the accepted consideration, discount on sales of the firm, passenger as well as freight commission enumerates proceeds from passenger and freight (Investor.qantas.com 2017). Again, other sales commission that are paid by Qantas can be taken into consideration by Qantas as expenditure (Titman and Martin 2014).
The accepted revenue is necessarily deferred as liability (accepted in advance) until these points are transformed in case of Qantas Group. Essentially, redemption revenue is accepted grounded on the approximation carried out by the administration of the anticipated fair value rewards (DeFusco et al. 2015).
The receivables of the corporation Qantas comprises of trade debtors, acquired loan from parties as well as other debtors. In addition to this, the net receivable is also recorded as its unique amount after deduction of provision of specific debts that are not collected. The management of Qantas Group also carry out approximations of different doubtful debt at the time of compilation of entire amount is no longer attainable (Trugman 2016). However, bad debts by the corporation are necessarily written off. Nonetheless, it can be regarded to be risky on the part of the corporation for not specifying the provision of specific bad debts that are in line with the credit sales percentage, thereby making it an unstable matter
(Jenkins and Williamson 2015).
The complete idea of selecting these two facets takes into account different effects that they essentially exert on the operations of Qantas in the Australian airline industry. The airline also makes certain proper handling of the identified issues, influencing it internally. Essentially, these policies can be considered as the primary factors that help in the process of determination of performance of the corporation, company strategies and schemes that the business concern implements (Phuong 2013).
Analysis of the financial assertions of the corporation Qantas Group reveals that the business’s profit before tax stands at AUD 192 million, statutory tax is essentially AUD 17 million and Statutory Profit After Tax stands at AUD 6 million as on the period ending June 30 of the year 2013 (Investor.qantas.com 2017). Again, this outcome illustrates that development of business strategy of Qantas is quite challenging as there is increase in cost of fuel, stiff competition in the market as well as excessive capacity in the regional market. Essentially, the accounting year witnessed a gain in operations of Qantas as well as Jetstar, on the other hand Qantas successfully reduced its losses to approximately half the amount (Easton et al. 2015).
The accounting year 2013 presents both positive as well as negative reflections. The negatives of the business functionalities include carbon tax, transition of particularly Dubai hub and pilot back reimbursement. Contrarily, the positive sides of the operations of the business include the settlement of the Beoing’s with particularly AUD 134 million (Investor.qantas.com 2017).
In essence, the business concern has fortified the financial position with positive net cash worth AUD 372 million on June 2013 and liquidity worth AUD 3.4 billion and this consists of AUD 2.8 billion cash and AUD 630 million is undrawn amenities of debt. However, the net capital of expends was recorded to be approximately AUD 1.4 billion during 2013 that represented a decline of nearly AUD 200 million as compared to prior year (Investor.qantas.com 2017).
Qantas declared an underlying PBT (profit before tax) of approximately AUD 367 million and a statutory PAT (profit after tax) of around AUD 206 million (Investor.qantas.com 2017). The company also experienced a decline of 4.8% in the related cost per unit and 2.1% increase in the company’s revenue. As such, financial reports reveal that Qantas has made swift advancement and progress and simultaneously recovered well is a stable environment (Healy and Palepu 2012).
For the first time ever since the occurrence of GFC (global financial crisis), the company Qantas International has acquired profit with EBIT of AUD 59 million approximated biannually, with a turnaround of nearly AUD321 million as compared to year ago period (Investor.qantas.com 2017).
It can be hereby mentioned that the growth has been stable although Qantas has serious liquidity concerns, and the corporation has difficulties in acquirement of assets that can be easily transformed into cash. As rightly put forward by Palepu et al. (2013), liquidity issue in any business directs towards insolvency, however, the airlines is exclusively susceptible. The corporation is gradually getting into grooves after few lean seasons and it does not represent the financial position of the corporation. Again, the flying kangaroo necessarily could manage to deal with losses specifically when the debt of the corporation is carrying a scrap position.
It can be hereby suggested from the standpoint of investor that Qantas Airways is having huge potential compared to other airlines in the business with respect to efficiency, commercial stability as well as productivity. However, in the current scenario, investment in the firm Qantas can be considered to be very worthy and advantageous. The factors of profitability and financial stability are developing with passage of time and this can be regarded as a positive sign for financiers. The dividend was last disbursed by the firm during 2009. Detailed analysis of the overall financial position of the firm reflects that the corporation could again start disbursing dividends in the upcoming years. Qantas can be considered to be a risky corporation to invest in as share prices are increasing in straight line in the year 2015. Essentially, the company traded at nearly AUD 3.5 in 2015 from a small amount of AUD 1 in 2014. This is because shareholders are relying on the corporation again. Particularly, the company also has the capability to improve and endeavour on their path to success.
References:
Armstrong, G., Kotler, P., Harker, M. and Brennan, R., 2015. Marketing: an introduction. Pearson Education.
Bolton, L.E., Bhattacharjee, A. and Reed II, A., 2015, May. The perils of marketing weight-management remedies and the role of health literacy. American Marketing Association.
Bragg, S.M., 2014. Financial Analysis: A Business Decision Guide. Accounting Tools.
DeFusco, R.A., McLeavey, D.W., Anson, M.J., Pinto, J.E. and Runkle, D.E., 2015. Quantitative investment analysis. John Wiley & Sons.
Easton, P.D., McAnally, M.L., Sommers, G.A. and Zhang, X.J., 2015. Financial statement analysis & valuation. Cambridge Business Publishers.
Entwistle, G., 2015. Reflections on Teaching Financial Statement Analysis. Accounting Education, 24(6), pp.555-558.
Healy, P.M. and Palepu, K.G., 2012. Business analysis valuation: Using financial statements. Cengage Learning.
Investor.qantas.com. 2017. Qantas Investors | Investor Centre. [online] Available at: https://investor.qantas.com/investors/?page=annual-reports [Accessed 7 Sep. 2017].
Jenkins, W. and Williamson, D., 2015. Strategic management and business analysis. Routledge.
Levinson, M., 2014. The Economist Guide to Financial Markets: Why they exist and how they work. The Economist.
Moutinho, L. and Huarng, K.H. eds., 2015. Quantitative Modelling in Marketing and Management. World Scientific.
Palepu, K.G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition. Cengage Learning.
Phuong, D.L., 2013. Business analysis & valuation Gia Lai Cane Sugar thermoelectricity Joint Stock Company (Doctoral dissertation, International University HCMC, Vietnam).
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