Qantas is one the leading airlines with a global operational capacity. This report aims to analyze and evaluate Qantas international operational capacity with regard to the issues it faces which has lead to a major decrease in the market share in the last decade. The intent is to study the issues through micro and macro environment analysis supported with marketing audit through a SWOT analysis.
As a result, the study reveals that Qantas high cost of operations internationally has a major effect on its bottom line and market share. Also, Jetstar’s cannibalizing Qantas business has also had an impact.
The ways forward is communicating Qantas and Jetstar business to their specific target market and also create joint ventures and alliances like Jetstar to be able to minimize cost and be able to utilize resources and turn into a profitable venture internationally.
Qantas airways was founded in 1920 and has been on a flight of great success all these years which can be elucidated from the fact that Queensland and Northern Territory Aerial Services Limited (QANTAS) is widely acclaimed as one of the world’s best long distance airline and is one of the shining lights that Australia has to offer to the world and has a tagline which defines the culture of the organization i.e. ‘The Spirit of Australia’ (Qantas Our Company, 2014).
Qantas has no parallel in the domestic market and is a strong player in the international market in view of its strong operational capability, innovative engineering, impeccable engineering and the most important aspect in the service industry i.e. customer service.
Qantas has diversified with time and has a subsidiary airlines ‘Jetstar’ which caters to the low budget airline business and also have businesses in specialist markets i.e. Q Catering. Qantas Freight Enterprises and Qantas Frequent Flyer are also part of the Group's broad portfolio of subsidiary businesses (.
As part of the group’s 33,000 employees, from a managerial perspective, the idea is to examine and analyze the challenges that Qantas is confronted with, in view of its international operations and the effect on the international market share due to Jetstar’s international operations effecting Qantas.
As stated on the Qantas website in the Qantas Story (2014), in spite of the challenges maintaining secure operations and top-notch product standards whereas building a feasible and competitive position in the long term for the airline is the priority and the international market share is the key to hold the all the pieces of competitive jigsaw puzzle.
The Case Analysis
The most important aspects for airlines are their airplanes and the network (destinations). Qantas as stated in the case study operates a fleet of 250 aircrafts which comprises of Boeing, Airbus and Bombardier aircraft. The Qantas network spans to 182 destinations in 44 countries and is rated as the 11th largest airline in terms of Revenue Passenger Kilometres (RPKs).
The brands that operate in different markets are Qantas, Jetstar and Qantas Link. In the East Asia markets there are numerous Jetstar brands in East Asia. Qantas is the standard fares airlines while Jetstar is the budget airlines.
Although in spite of the mergers and bankruptcies of airlines Qantas have been able to make profits but the crux of the case study focus on the overall group’s earnings which is mixed in view of Qantas decline in international market share due to the success of Jetstar operations since both operates on same routes and thus 8% of international traffic has been absorbed by Jetstar.
The percentage rate of international market share has seen a dramatic decline in the past decade. The airline was in leading position in 2000-01 with 34.4%, however by 2010-11 the market share dropped to 18.7%
The issue which is primary to the above mentioned predicament is the cost base of Qantas which is 20% higher than its key competitors, predominantly the Asian competitors.
Also, Qantas as opposed to Emirates, Etihad and Singapore airline doesn’t have well positioned hubs which have in essence rendered Qantas routes to Asia and Europe as loss makers.
Despite making losses on the international front the competitive advantages that Qantas offers range from, schedules, seat allocations, safety and services during the flight.
The factors which the management feels are hurting Qantas and needs to be reviewed in order to be a profitable international entity are, offshore maintenance of airplanes, international crew, low salaries of pilots.
As the manager of Qantas, the author will present recommendations and suggestions with regards to a micro and macro environment analysis for Qantas Group business in lieu with Qantas and Jetstar international operations.
As aptly stated in the first paragraph by Steve Creedy (2012), in The Australian, in his How do you mend a broken heart with regards to the plight Qantas is affronted with regards to 8 out of 10 passengers choosing to fly other airlines when going abroad.
It is of prime importance to dwell on the international operational issues and start with a SWOT analysis of the situation at hand which will help in analysing the internal issues through the strengths and weaknesses and also the external possibilities with regards to opportunities and threats.
In terms of the issues elaborated in the case study the SWOT is as follows:
Strengths: The primary strength of Qantas is its image. The network is also a significant aspect and has been operating in strategic market which will help in gaining market share.
With the operational focus on customers of both premium and budget consumers, Qantas Group has been able to satisfy the needs and wants through Qantas and Jetstar in an effective manner.
Weakness: The biggest strength of Qantas is also one of the biggest weaknesses in view of its main revenue stream. Although the group has been doing well the international market share has declined.
Another strength of having a subsidiary brand Jetstar to focus on budget customers have a major effect on Qantas market share by absorbing 8% of international traffic leaving in and out of Australia.
This leaves Qantas in a very vulnerable position.
The cost base of managing the international operations is the biggest weakness as it is 20% higher than the key competitors. The offshore maintenance, international employees and also pilots on lower salaries, deems it unattractive from an operational aspect.
Another weakness from an international perspective is the lack of Hubs which is imperative in terms of running smooth operations and also it effects the cost and thus the routes to Asia and Europe are loss making.
Opportunities: The sky is the limit for Qantas, a focus on the international market operations, also strategic alliances, joint ventures; stand alone operations should be copied from the Jetstar set up. From a strategic perspective the proposed partnership with Emirates is the way forward as with the losses in international operations crossed $216 million. It is evident that Qantas international is not a viable entity working alone and needs partners (SMH, 2012)
Threat: The main threat is posed from Emirates, Etihad and Singapore airline who have better hubs in terms of passenger movements. Low budget airlines are the main competition of Qantas and the threat is also posed to the subsidiary business Jetstar.
The biggest threats are posed from within, the operational issues which Qantas faces internationally with regards to pilots low salaries, overseas flight crew and maintenance of airplane as all three aspects can make or break an airline on an international route.
Like any other business, Qantas aim and objective is to grow volumes in terms of customers and profits. The globalized economy has made the aviation play ground in terms of business and revenues a tough environment in view of the multitude of low budget airlines competing hard to gain the attention of the all important customer.
The macro analysis will help size up factors that are influencing Qantas operations and how the factors which are not in Qantas control affecting the bottom line.
A PEST analysis will help in focusing on the issues that needs to be taken into account from a strategic perspective to help Qantas regain the lost ground both in terms of market share and also cost wise.
Political: The Political impact of the government relations with the outside world has a significant impact on Qantas as Australia is as neutral as it gets and hence enjoys cordial relations with every country which in essence helped Qantas in gaining entry in terms of route. The political environment on an international level has impacted Qantas operations. The subsidies affected by some governments are heavily focused due to changing priorities of sovereign owners, commercial investors, and tax impacts of different countries have in essence impacted Qantas international operational capability which also compliments Jetstar’s operations (Ron Rosalky, 2013).
Economic: The economic impact world over with regards to volatility associated with recessions, fuel prices, currency fluctuations, industrial disruptions has affected Qantas on a significant level (Ron Rosalky, 2013). Due to Qantas 20% high operational cost it is imperative that the company takes into account the above mentioned economic impacts in a manner which helps Qantas in not only reducing its operations cost but also operate on a profitable level in time. However, the key is to not cannibalize the business of Jetstar.
The economic impact most importantly affect the customers buying power and with new low budget airlines on the rise it is imperative that they ne tackled in a manner which helps Qantas be perceived as value for money and the preferred choice for commuters.
Socio Cultural: The socio cultural impacts are significant when it comes to international operations for Qantas, this is with reference to the cultural sensibilities and taboos of markets that Qantas operates in and any policy or strategy not in tune with the environment it operates in, will affect attitudes and beliefs systems of the customers of that particular country which in turn impact negatively on the business.
The key is to focus on policies which affect the customers of a country emotionally and create an emotive connect with Qantas will give it a great chance to better its position on the international platform from a business and brand perspective since a standardized business policy cannot be implemented globally.
Technological: From a technological viewpoint Qantas have been innovating in terms of improving the fuel efficiency and lower emissions technology will contribute immensely to the cost and environmental saving affecting the long terms sustainability of the group (Qantas Fuel Efficiency, 2014).
Being a player in a technological era where systems and processes are changing constantly the key for Qantas is to save cost as mentioned above to be able to cope up with the international players and recreate the market share of the early 2000’s when it used to rule the roost.
The Qantas International Brand Image
The most important aspect for Qantas is to create an image which helps in conquering new frontiers where the key is to ‘reinvest in the brand’ (Simon Canning, 2009).
In an international market where the competitor especially Emirates and Etihad are investing big, it is very important to leverage Qantas assets in a smart manner with regards to cost cut being the main priority in the international operations, marketing needs to be done in a way which creates buzz and an eventual footfall in flights (Simon Canning, 2009).
The marketing focus should be affixed on the factors mentioned below:
Brand style will have factors such as:
- Culture: An airline company based in the Australia.
- Personality: Confident, convenient.
- Self image: Quality of service.
Then the theme of marketing should reflect:
- Physical: Superior flights across the world.
- Relationship: Dependability, safety and comfort. Simon, M. (2011).
It is important to understand the one basic ingredient i.e. value for customers and relationship building which according to Philip Kotler (2012) is the key in building business and then loyalty.
On a concluding note the author will focus a simple mode of marketing process elaborated by P. Kotler and G. Armstrong (2012), which focus on one basic ingredient i.e. value for customers and relationship building.
The process starts with understanding the marketplace and customers needs and wants, then comes the design of a marketing strategy focused on the customer, the IMC plan follows, which beings the relationship building and creating customer delight and finally capture value from customers i.e. purchase and repeat purchase and building brand equity and loyalty (Daily News Brief, 2014).
The Jetstar Conundrum
With the focus on Qantas international decline in market share, Jetstar’s unintentional cannibalization needs to be taken into account and as discussed above with regards to brand image, needs to be separated from Qantas in terms of product differentiation. When a company is setting a product strategy is considering a lot of elements till it decide which one is the more appropriate to employ.
Qantas product strategy has to come in terms with its objectives and mission to maintain the first position as the largest airline in Australia catering to the world. To keep this position Qantas has to keep looking for customer’s expectation and needs for comfortable flight which is totally opposite to the service offered in low budget airlines where the primary factor is cost cut.
With Jetstar as one of the issues in international operations, the positioning strategy will be the key for Qantas.
Qantas has taken a position of a high quality focus. As a customer-focused airline striving to consolidate its position within the sector, the primary intent of Qantas is to delivering high quality services, charging high prices.
With regards to segmentation Qantas targets a group that is comprised of travellers who are looking for more comfort, an almost perfect service quality, and most importantly are less price sensitive in terms of buying behaviour.
Qantas as opposed to Jetstar provides each category specific benefits to match their needs and requirements. These users benefit from Qantas high quality service and thus by targeting travellers of high social categories and with high financial capacities, the buyer behaviour is addressed.
Qantas differentiates itself by offering customised channels and premium catering. Ssegmentation of customers is the bedrock of successful marketing and thus it is imperative that Qantas and Jetstar do it accordingly (McDonald, M. and Dunbar, I., 2012).
The buyers of Jetstar are only focused on price; it is important to note that with Middle East and Asia the new hubs of business, most high profile sportsman, actors and leading business men travel frequently and thus herein lies the opportunity for Qantas to forge a new market on a global scale.
The following recommendations are given by the author for increasing the international market share for Qantas:
- Cost cutting measures should be prioritized in terms of operational issues that Qantas face, as without it would be impossible to impact on a global scale.
- The need is there to activate brand Qantas in the minds of the consumers through integrated marketing communication Percy, L. (2011), which will include Advertisement and on ground promotions with social media as a part element.
- The auditing done through SWOT and the planning done is in line with the corporate strategy which according to the Qantas Annual Report (2011) is to focus on world’s fastest growing region i.e. Asia Pacific and to maximize productivity and competitiveness Qantas meet customer needs and realize growth.
- Business resilience is pursued in international operations to negate any impact on performance and profitability. This will enable to respond quickly to unexpected happenings.
- Create new alliances and retain old alliance, like Emirates to be able to have smooth running of operations and sharing of resources in a win-win situation.
- With sustainability a buzz word nowadays, focus on sustainable programs and communication in view of the target markets sensibilities towards sustainability.
- The low pay of pilots and crew are the primary ethical issues which need to be taken care of. In service industry it is the employees who make the first impression in the minds of the consumer and thus a happy employee will go a long way in creating a positive image.
- Feedback from the customers about the quality of service from Qantas and recommendations on the areas they would like to see improvements will help to continuously redefine its positioning, promotion, and distribution strategies.
- The next step is for Qantas as recommended will be to set channel objectives and constraints to satisfy customers’ requirements.
In the Qantas Annual Report (2011) in the outlook section, it is stated that with considerable uncertainty in global economic conditions, fuel prices, foreign exchange rates and the industrial relations environment, it is imperative that the Group continues to administer capital efficiently.
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