Study On The Airline Industry Structure Management Essay

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Qantas is a long history aviation company founded in Queensland, Australia and served in Airline industry for 90 years since 1920 (Qantas Annual report, 2010, p. 4). It was privatized in 1995 and traded in Australian Securities Exchanges (ASX) as QAN (ASX, 2010). Qantas provided passenger air transportation, courier in both domestic and international market with the strong focused on Safety, strong commitment for environmental friendly and social responsibility (Qantas Annual report, 2010, p. 2). They are the first airline and dominated in Australia market but since airline deregulation, they were pressure by others competitors from global market and faced downturn of growth, profitability and market share. So to survived and bring Qantas back to the forefront of this industry, it is time for them to regenerating the new edge and competitive strategies to gain competitive advantage among competitors in this highly rivalry business from young generation leader, Mr. Allan Joyce as the company CEO since 2008, former CEO of Jetstar Airline brand.

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This paper will provide information of Qantas vision and their business strategy, including critical thinking about this aviation industry structure using Michael Porter’s five forces, following by the analysis of company situation, their strengths, weaknesses, opportunities and threats. In addition with Qantas’ core competencies and competitive advantage analysis. At last, these reviews will give of some recommendations and Potential fallout for Qantas.

Company Mission

Qantas seems not to have a formal mission statement but it can see seen from their provided company information (Qantas Web site & Annual report, 2010) that Qantas has vision and goal to be the best premium airline for Qantas and to be best low fares airline for Jetstar in the world (Qantas Business Practice, 2010, p. 1) with the safety first priority by using dual brand complementary supported by experience, well-trained and service-minded people. By using the forward thinking as a part of Qantas organization culture, Qantas use these as a drive to regenerate newer and better services to the aviation industry during the past period and continue to move forward for meet the need of customers as one of their goals. Those can be describing by the figure below:

Source: Qantas’ investor briefing on 23 Nov, 2009

Business strategy

As the Alan Joyce, Qantas’ CEO mentioned in 2010 annual report, their business strategy is to create two airlines branding and to be the best in their positions (Qantas Annual Report, 2010, p. 8) to fulfilled all target markets which are Qantas as the premium or full service airline (FSA) and Jetstar as low fares (Low cost) carrier (LCC). According to business strategy identifying method from Michael Porter’s generic strategy, it seem that Qantas is using differentiate strategy which aim to be the world best in safety practices, services (Qantas Annual Report, 2010, p.15) with focusing on both international and domestic travellers while Jetstar is using cost leadership as its strategy aiming to be the best low fares airline in the world (Qantas Annual Report, 2010, p.9) to compete with others low cost airline brands and to covered Qantas’ lower market segment and originally operated in the domestic flights but later on starting serviced in New Zealand and international routes or long-haul travel as the competitive pressure from Asian and Gulf State providers (Whyte & Prideaux, 2008). Also, they tried to complement and synergy those two brands in the same company using the right fleet with the right route to optimal networking between both brands with the improvement in operation efficiency and productivities to reach the best-class in customer services (Qantas Investor Briefing, 2009).

Airline Industry Structure

Varies industry has their own characteristic and structure differentiation, like aviation industry, they are different from consumer business. This paper will analyze these by using Michael Porter’s five forces (Michael, 1979) which can be explained as;

New Entrants is the first factor for this aviation business that play the important role which effect to today industry structure because in the past, before the deregulation of aviation, most of the airline has been controlled and regulated by the government or some even previously own by the government in each airline’s origin country so this industry seems to had very high entrance barrier, not only in the huge capital investment but also to operated airline products and services such as the service route or even pricing (Gowrisankaran, 2002). However, after airline deregulated in many countries and regions, this barrier was declined which new comers are able to enter more easily with more products and services, routes, to served customer demand especially lower pricing. This deregulation can be counted as the turning point for this industry. There are more airlines from others countries or regional served in the same routes to compete with that original-established company in those countries. In this case, the original country of Qantas is Australia but in the current situation, they have to compete with others airline such as Singapore airline, Thai Airways in premium or full service airline segment and Virgin, Tiger in low cost airline market sector from others country of origin or others region (Whyte & Prideaux, 2008).

Another force is Bargaining Power of buyers. As mentioned about the deregulated in aviation industry. Previously, before deregulated, the buyers (airline customers) seems to have less bargaining power which is there are few products and services (Gowrisankaran, 2002), flight, for customers to choose. If there were choices, the switching cost to move to other airlines will be very high such as more hops or more connecting flight and time need to be considered and totally cost even more expensive than to choose from the dominated airline in those country. But after liberalized in the airline business, this force should be a major concern for the airline. Customers have more varieties options to select; the differentiation in services between each airline is less and more standardization. The switching cost of the product is lower than before.

Next one is bargaining power of Supplier; recently the major suppliers of aviation industry are airplane producers in which there are only two main companies in the world which are Boeing and Airbus dominating in the commercial airplane market (Thompson, 2010). So suppliers seem to have more bargaining power than others industries that there are more suppliers and do not only depend on those two companies. Although it doesn’t mean that an airline company does not have any power over those suppliers because an airline tries to reduce and overcome this bargaining power of suppliers by balanced the orders from those suppliers that can be seen from its serviced fleets from both Boeing and Airbus planes. However, all of airline companies are in the same situation and seem not to have any advantage over each other.

In addition, the Substitute products point of view in this aviation industry may consist of ground transportations such as train, bus and marine or water transportation; ships or ferry. Nevertheless if using the traveling time as a main criteria, it can be seen that their still does not have any replacing products (travelling and transportation) coming close to this current air transportation by airlines. But if they are using cost as consideration point, in some developing country the pricing gap between flight and bus or train still have significant margin for example in Thailand the traveling cost from capital city (Bangkok) to the northern city (Chiang Mai) will cost at least 4 to 5 time by air (Thai Airways, 2010) compared to the bus (Nakornchai Air, 2010). While in the case of Qantas or Jetstar, in Australia, as the information provided from their website compared to Bus (Greyhound, 2010) or Train (Translink, 2010), the traveling cost in the same route by low cost airline flight frequently cheaper than ground transportation so those substitute products may effect to the airline businesses when customer have different goal or value of that journey such as the attractive place or scenic view along the path.

Finally, the rivalry in exiting airline industry with those factors above is a very high competition environment. Especially, this aviation industry needs huge capital investment and has long-term return with the deregulated (Smith, 2007) from the government and the economy recession, pricing is one of the main concerns for customers that make every airline companies have to compete each other in cost cutting, operation efficiency while maintain the quality of service and complied with safety regulation. This competition is not only from the competitors in its own country but also from others countries or regions’ Airline Company that Qantas faced in recent situation.

Qantas’ Situations and SWOT Analysis

According to the aviation industry structure analyzed above, it shown that this industry has very high competition and high risk environment. Also it has to meet the uncertain demand from customers in seasonal variation. In addition with the increase of climate change and environment responsibilities that need the airline has to improve the business to meet these concerns such as newer plane to improve fuel efficiency, less air polluted, less noise level and the recycle policy to reduce the wastes from each flight. Those improvements produce additional cost to the airline in both monetary term and non-monetary, more time, procedures needed in which Qantas also affected by this policy that one complained about this policy delaying the flight or even seem to create another un-consensus opinions about the way to collect the waste for recycling (Mahr, 2010).

Recently it is not a good situation for Qantas in which they faced the problem of growth, losing market share and not well profitable as we can see from the financial report which reported as there will be no dividend in 2010 in same manner as last year 2009. One of the main issues is the high pressure from other competitors and high competition in the pricing war and Qantas seems has the problem to reduce their higher cost of operation. One claimed that the high cost of operation is especially came from the executive benefit as Mr. Stuart Wilson (2009) mention in his article that former CEO of Qantas, Mr. Geoff Dixon has been earned over 11 million dollars even the company is in the bad situation.

According to those situations, this paper will use SWOT analysis to study in the detail of those situations, challenges and opportunity for Qantas.

At first, the Strengths; as Qantas is a long founded and well established Airline Company in Australia, they had a very well experienced leaning from time to time that shown from company history timeline shown frequently to be the first one in introducing and implementing new products and services in aviation industry. Next strength is their experienced and well-train employees as they are long history company in this industry and have strong training procedures and learning from the past by their experience. Another, Qantas’ strength is its branding itself from perception of Qantas as premium services airline and with the well operated and got best airline based in Australia/Pacific from OAG Airline industry award announced in November 2009. Also from survey they got the highest score in term of quality of service in on-time operator (Qantas’ investor presentation, 2010). In addition, financial situation, even from the past few year Qantas seems not to have a good position but from currently report this year 2010 (ATW, as cited in Smith, 2010) which mention that though, World Airline Report of Air Transport World (2010) ranked Qantas as 13 biggest airline by revenue passenger kilometer (RPK) but from the top-ten best performing airline (compared sizing and annual net profit) found that Qantas is currently number one this year- June 2010. Strong customers’ network from members’ loyalty program is one of their strength, as they currently have more than seven million members (M2 Communication, 2010).

Secondly, the Weaknesses, Whereas the report of ATW showed that Qantas is the best performing in profitability this year 2010 but in the criteria from SkyTrax, air travel advisor group, ranked Qantas as four stars in term of products and services quality instead of five-star (SkyTrax, cited in Smith, 2010). Another concern point and may related to quality issues is their employees or union relationship as Kochan (2008) mentioned that employees’ engagement and labors relations are the key factors that can increase productivities and services quality that also lead to profitability. Because their employees play important roles as mentioned in Qantas vision, goal and strategy, it is also the weak point for them. One situation they faced in 2009 is that the Association of Professional Engineers, Scientists and Managers, Australia (APESMA) voted to refused to work overtime or take calls outside normal hours and nighttime (Anonymous as cited in Airline industry information, 2009) and Qantas’ engineers also a part of the union and these may consider as concerning issue. In addition weakness is the high cost of Qantas operation, labor cost especially in management positions (Wilson, 2009), that decrease the competitiveness with competitors. Furthermore, dual brand strategy appears to be strength for Qantas but in same time, it may be a weakness for them if they cannot synergy to each other and appealing to different customer segments.

Third, Opportunities: In term of politic, policy and regulation environment, Qantas as Australia base company seems to have positive environment from quite stable government even less stable than the previous that hold slightly majority seats in the congress but with the same government, continuing policy would be positive for the company compared to others unstable or discontinue government countries. In addition with global aviation industry regulation, airline de-regulation looks to be positive for the industry that is a factor to increase the number of air travelers and more innovative products and services, more routes, to the market which consistent to a recent research from Research and Markets in airline industry (Research and Markets, cited in M2 Presswire, 2010) reported that global airline industry grew since 2008 and forecasted to have a value increased by 30.4% ($609.3 billion) and a passengers’ size increasing to 2.6 billion persons (23.6%) in year 2013. However, there is some discussed issue about re-regulation airline industry such as the case in United State of America in which united airline and Continental airline merger propose but this may be a opportunities for some airline to reduce the rivalry or avoid bankruptcy from high pricing competition or to improve competitiveness with others international airline (Lowy, 2010) whereas Qantas also faced this high pricing war from others too. Another aspect in economic situation, global recession seems to past the lowest point. These may encourage people to traveling more frequently, business activities may return to expand with increasing air passengers. Additional with a demographic view, increasing the population with more affordable for traveling, especially for senior citizens, air traveling with comfortable, quality of services and safety may be priorities instead of only pricing which corresponded with Qantas goal and will be opportunities for them.

Fourth, Threats: Even though, stability of Australia government provided positive environment for Qantas but some more strict policy for migration, visa applying to entering the country seem to affect to less traffic of international passengers. Furthermore, with the growth of Australia economic and stronger Australia’s dollars compared to others country such as the United States of America or Europe, making products and services more expensive compared to those and may reduce the international customer traffics to Australia. In addition, the environment situation such as volcano disruption in the past few month in Iceland that impacted directly to European countries and airline industry including Qantas that some studies claimed that this impact even bigger than the effect from terrorist attacked on September 11, 2001 (Mazzocchi, Hansstein ,& Ragona, 2010). Additional threats for airline industry may include technology, as today communication even more convenience and efficiency such as video conference that makes everyone able to meet each other everywhere and any time which reduced the chance of traveling and passengers traffic of the airline too.

Core competencies and competitive advantage

Using the notion of core competencies by Prahalad and Hamel (1990), from the figure below it can be seen that Qantas has their core competencies to develop their core products and provided many products and services to customers through their different business unit which can be describe as:

Source: The Core Competence by C.K. Prahalad and Gary Hamel (1990)

The first company’s competency is their safety priority policy as the safety first oriented airline which can be seen from the safety perceptions from customers’ survey at the average rate of more than 80 % (Qantas investor briefing, 2009).

Second competency is their experience in long history aviation industry that provided proper products and services, right fleets and right routes, and operation efficiency.

Another competency is great teams to provide customers’ quality of service that can be seen from the BITRE survey (2009) as the most reliable (on-time) airline.

In addition, with the two branding, as their important competencies, made them be able to utilize resources, provided them flexibility to deliver products and services to cover and capture all market segments.

From those competencies, the company has Qantas and Jetstar Brands themselves as their core products. These two core products were utilized and synergy with different business units such as Qantas commercial, Qantas international, Qantas domestic, Qantas Link, Jetstar, JetstarAsia, Qantas Freight , Jetstar Travelworld (Qantas investor summary, 2010) to products varieties end products to customers including domestic/international air traveling in premium or budgeting , currier services, travel arrangement; accommodation, ground transportation etc.

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Qantas’ competitive advantage

According to Michael Porter Competitive advantage (1996) concept, it can be described that the Qantas Company use both differentiation advantage and cost advantage as their business strategy by using two branding, Qantas and Jetstar to create competitive advantages over others competitors.

Source: Competitive Advantage, Strategic Management from http://www.quickmba.com

Looking into the detail of this notion and reversing defined the competitive advantage of Qantas and Jetstar, it can be seen that one of the value creations that Qantas and Jetstar were perceived by customers are the most reliable (on-time) and most Safety priority airline which make them gain competitive advantage from any others airline. By using differentiation advantage for Qantas brand that provide premium or full services to cover premium or business customers and cost advantage for Jetstar brand providing affordable and meet minimum industry standard quality to seize budgeting market. These also make competitive advantage over others that cannot provide varieties products and services to meet different customer value perception. In conjunction with synergy resources of fleets, well-train staffs, know-how in aviation industry and capabilities and flexibilities to utilize and optimize those resources by strong management – integrated and remove duplicate function, experienced – fast decision making, financial – cost efficiency and economy of scale make them have distinctive competencies (Qantas investor briefing, 2009).

Strategy recommendations

Even recently Qantas seems to gain positive position but compared to one of their competitor, one of the best airlines in both quality service excellence and pricing, Singapore Airline (SIN), Loizos and Jochen (2010) revealed that SIN is the most cost effective airline; its operation cost, costs per available seat kilometer (ASK), was just only 4.58 cents. It is less than half of the industry average in both aviation categories: full service airline and low cost airline. Surprisingly, they (SIN) can combine incompatibility strategies into the same business operations that is differentiation and cost leadership strategy with significant profitability. Even one of the management experts, Michael Porter argued that it is impossible to use this dual strategy successfully which is contradictory for a sustained period but from their research found that SIN never posting annual loss since it was established in 1972, instead consistently dividend paid. (Loizos & Jochen, 2010).

Currently, Qantas also used similar strategy which are differentiate and cost leadership strategy but the different is that they use two branding (Qantas & Jetstar) instead of one brand with company-wide strategy like SIN. An idea that this paper would recommend for Qantas is being both leader and follower (Loizos & Jochen, 2010). This notion suggested that in some situations which the products or services are directly impact or perceived by customers should be the main focus while in some conditions that those provided products and services are not be able to apparent to customers can be discard or follow others industry’s standard.

Another point that is not obvious from Qantas is the diversification as Qantas reported (2010) more than 93 percent is Australian. It is good to be unique in the team but recently the business has to serve and compete globally, diversify might be a good way for organization to learn new ideas and cultures from others that may create new innovation or standardization for the industry.

Last but not least, to be the best in class of services as their excellence service strategy; training is another most important part for Qantas to concern and be a part of their cultures. They can be imitate some concepts or follow from their rival, such as Singapore airline, that training is 40 percent from overall focus point compare to 30 percent in efficiency improvement and 30 percent in new products and services innovations (Loizos & Jochen, 2010). Not only intensive in training by time perspective but also the contents of the training as they have to deal with more globally customers, such as culture different and etiquettes: for example in western or Oceana countries may not concern and recognize the significant different between eye-level communication and talk-down or standing discuss when contact with sitting passengers in the fleets but for Asian countries may perceived as impression and carefulness. It looks like very small point and too personalization but one of the best airlines, SIN, takes these into account.

Potential fallout

From strategy recommendation which compared to one of their competitors (SIN) using both differentiation and cost advantage in the same brand while Qantas used cost advantage by Jetstar brand but it seems that Qantas cost still less efficiency than Singapore airline so one of their action was done by cutting cost on labor cost mainly in management level as in March, 2009, Qantas reviewed organization’s structure and planned to remove 90 senior management positions, halt salary and revised role for more productivities (Anonymous, cited in Airline Industrial Information, 2009) and additional cutting of 500 management position in Apr, 2009. Those actions decreased costs and increased the profits for the company in the short term but this may reduce relation, motivation and engagement of employees to the company which will effect to performance and productivities in long-term (Bamber, Gittell, Kochan, & Nordenflycht, 2009).

Furthermore, by increasing diversify environment to create new innovation or new idea may be good but this may increase the complexity for management to learn or understand the culture different which has to take into account for working diversifying environment.

Another issue that Qantas has to concern is the challenge of using disruptive business model (Differentiation and Cost advantage strategy) in the same time and same company as suggested from the studied of Markides and Oyon (2010) that using both strategies may damage existing brand and dilute company culture for innovation and differentiation (Porter, cited in Markides & Oyon, 2010) and even cannot synergy both units (Qantas and Jetstar) to gain competitive advantage and sometime failed. Finally, to overcome and utilize both dual business models, they suggested that company should be questioned and answered the question of what culture, structures, incentives and people that a company needs to implement dual strategies in the same time and in same organization (Markides & Oyon, 2010).

Qantas is a long history aviation company founded in Queensland, Australia and served in Airline industry for 90 years since 1920 (Qantas Annual report, 2010, p. 4). It was privatized in 1995 and traded in Australian Securities Exchanges (ASX) as QAN (ASX, 2010). Qantas provided passenger air transportation, courier in both domestic and international market with the strong focused on Safety, strong commitment for environmental friendly and social responsibility (Qantas Annual report, 2010, p. 2). They are the first airline and dominated in Australia market but since airline deregulation, they were pressure by others competitors from global market and faced downturn of growth, profitability and market share. So to survived and bring Qantas back to the forefront of this industry, it is time for them to regenerating the new edge and competitive strategies to gain competitive advantage among competitors in this highly rivalry business from young generation leader, Mr. Allan Joyce as the company CEO since 2008, former CEO of Jetstar Airline brand.

This paper will provide information of Qantas vision and their business strategy, including critical thinking about this aviation industry structure using Michael Porter’s five forces, following by the analysis of company situation, their strengths, weaknesses, opportunities and threats. In addition with Qantas’ core competencies and competitive advantage analysis. At last, these reviews will give of some recommendations and Potential fallout for Qantas.

Company Mission

Qantas seems not to have a formal mission statement but it can see seen from their provided company information (Qantas Web site & Annual report, 2010) that Qantas has vision and goal to be the best premium airline for Qantas and to be best low fares airline for Jetstar in the world (Qantas Business Practice, 2010, p. 1) with the safety first priority by using dual brand complementary supported by experience, well-trained and service-minded people. By using the forward thinking as a part of Qantas organization culture, Qantas use these as a drive to regenerate newer and better services to the aviation industry during the past period and continue to move forward for meet the need of customers as one of their goals. Those can be describing by the figure below:

Source: Qantas’ investor briefing on 23 Nov, 2009

Business strategy

As the Alan Joyce, Qantas’ CEO mentioned in 2010 annual report, their business strategy is to create two airlines branding and to be the best in their positions (Qantas Annual Report, 2010, p. 8) to fulfilled all target markets which are Qantas as the premium or full service airline (FSA) and Jetstar as low fares (Low cost) carrier (LCC). According to business strategy identifying method from Michael Porter’s generic strategy, it seem that Qantas is using differentiate strategy which aim to be the world best in safety practices, services (Qantas Annual Report, 2010, p.15) with focusing on both international and domestic travellers while Jetstar is using cost leadership as its strategy aiming to be the best low fares airline in the world (Qantas Annual Report, 2010, p.9) to compete with others low cost airline brands and to covered Qantas’ lower market segment and originally operated in the domestic flights but later on starting serviced in New Zealand and international routes or long-haul travel as the competitive pressure from Asian and Gulf State providers (Whyte & Prideaux, 2008). Also, they tried to complement and synergy those two brands in the same company using the right fleet with the right route to optimal networking between both brands with the improvement in operation efficiency and productivities to reach the best-class in customer services (Qantas Investor Briefing, 2009).

Airline Industry Structure

Varies industry has their own characteristic and structure differentiation, like aviation industry, they are different from consumer business. This paper will analyze these by using Michael Porter’s five forces (Michael, 1979) which can be explained as;

New Entrants is the first factor for this aviation business that play the important role which effect to today industry structure because in the past, before the deregulation of aviation, most of the airline has been controlled and regulated by the government or some even previously own by the government in each airline’s origin country so this industry seems to had very high entrance barrier, not only in the huge capital investment but also to operated airline products and services such as the service route or even pricing (Gowrisankaran, 2002). However, after airline deregulated in many countries and regions, this barrier was declined which new comers are able to enter more easily with more products and services, routes, to served customer demand especially lower pricing. This deregulation can be counted as the turning point for this industry. There are more airlines from others countries or regional served in the same routes to compete with that original-established company in those countries. In this case, the original country of Qantas is Australia but in the current situation, they have to compete with others airline such as Singapore airline, Thai Airways in premium or full service airline segment and Virgin, Tiger in low cost airline market sector from others country of origin or others region (Whyte & Prideaux, 2008).

Another force is Bargaining Power of buyers. As mentioned about the deregulated in aviation industry. Previously, before deregulated, the buyers (airline customers) seems to have less bargaining power which is there are few products and services (Gowrisankaran, 2002), flight, for customers to choose. If there were choices, the switching cost to move to other airlines will be very high such as more hops or more connecting flight and time need to be considered and totally cost even more expensive than to choose from the dominated airline in those country. But after liberalized in the airline business, this force should be a major concern for the airline. Customers have more varieties options to select; the differentiation in services between each airline is less and more standardization. The switching cost of the product is lower than before.

Next one is bargaining power of Supplier; recently the major suppliers of aviation industry are airplane producers in which there are only two main companies in the world which are Boeing and Airbus dominating in the commercial airplane market (Thompson, 2010). So suppliers seem to have more bargaining power than others industries that there are more suppliers and do not only depend on those two companies. Although it doesn’t mean that an airline company does not have any power over those suppliers because an airline tries to reduce and overcome this bargaining power of suppliers by balanced the orders from those suppliers that can be seen from its serviced fleets from both Boeing and Airbus planes. However, all of airline companies are in the same situation and seem not to have any advantage over each other.

In addition, the Substitute products point of view in this aviation industry may consist of ground transportations such as train, bus and marine or water transportation; ships or ferry. Nevertheless if using the traveling time as a main criteria, it can be seen that their still does not have any replacing products (travelling and transportation) coming close to this current air transportation by airlines. But if they are using cost as consideration point, in some developing country the pricing gap between flight and bus or train still have significant margin for example in Thailand the traveling cost from capital city (Bangkok) to the northern city (Chiang Mai) will cost at least 4 to 5 time by air (Thai Airways, 2010) compared to the bus (Nakornchai Air, 2010). While in the case of Qantas or Jetstar, in Australia, as the information provided from their website compared to Bus (Greyhound, 2010) or Train (Translink, 2010), the traveling cost in the same route by low cost airline flight frequently cheaper than ground transportation so those substitute products may effect to the airline businesses when customer have different goal or value of that journey such as the attractive place or scenic view along the path.

Finally, the rivalry in exiting airline industry with those factors above is a very high competition environment. Especially, this aviation industry needs huge capital investment and has long-term return with the deregulated (Smith, 2007) from the government and the economy recession, pricing is one of the main concerns for customers that make every airline companies have to compete each other in cost cutting, operation efficiency while maintain the quality of service and complied with safety regulation. This competition is not only from the competitors in its own country but also from others countries or regions’ Airline Company that Qantas faced in recent situation.

Qantas’ Situations and SWOT Analysis

According to the aviation industry structure analyzed above, it shown that this industry has very high competition and high risk environment. Also it has to meet the uncertain demand from customers in seasonal variation. In addition with the increase of climate change and environment responsibilities that need the airline has to improve the business to meet these concerns such as newer plane to improve fuel efficiency, less air polluted, less noise level and the recycle policy to reduce the wastes from each flight. Those improvements produce additional cost to the airline in both monetary term and non-monetary, more time, procedures needed in which Qantas also affected by this policy that one complained about this policy delaying the flight or even seem to create another un-consensus opinions about the way to collect the waste for recycling (Mahr, 2010).

Recently it is not a good situation for Qantas in which they faced the problem of growth, losing market share and not well profitable as we can see from the financial report which reported as there will be no dividend in 2010 in same manner as last year 2009. One of the main issues is the high pressure from other competitors and high competition in the pricing war and Qantas seems has the problem to reduce their higher cost of operation. One claimed that the high cost of operation is especially came from the executive benefit as Mr. Stuart Wilson (2009) mention in his article that former CEO of Qantas, Mr. Geoff Dixon has been earned over 11 million dollars even the company is in the bad situation.

According to those situations, this paper will use SWOT analysis to study in the detail of those situations, challenges and opportunity for Qantas.

At first, the Strengths; as Qantas is a long founded and well established Airline Company in Australia, they had a very well experienced leaning from time to time that shown from company history timeline shown frequently to be the first one in introducing and implementing new products and services in aviation industry. Next strength is their experienced and well-train employees as they are long history company in this industry and have strong training procedures and learning from the past by their experience. Another, Qantas’ strength is its branding itself from perception of Qantas as premium services airline and with the well operated and got best airline based in Australia/Pacific from OAG Airline industry award announced in November 2009. Also from survey they got the highest score in term of quality of service in on-time operator (Qantas’ investor presentation, 2010). In addition, financial situation, even from the past few year Qantas seems not to have a good position but from currently report this year 2010 (ATW, as cited in Smith, 2010) which mention that though, World Airline Report of Air Transport World (2010) ranked Qantas as 13 biggest airline by revenue passenger kilometer (RPK) but from the top-ten best performing airline (compared sizing and annual net profit) found that Qantas is currently number one this year- June 2010. Strong customers’ network from members’ loyalty program is one of their strength, as they currently have more than seven million members (M2 Communication, 2010).

Secondly, the Weaknesses, Whereas the report of ATW showed that Qantas is the best performing in profitability this year 2010 but in the criteria from SkyTrax, air travel advisor group, ranked Qantas as four stars in term of products and services quality instead of five-star (SkyTrax, cited in Smith, 2010). Another concern point and may related to quality issues is their employees or union relationship as Kochan (2008) mentioned that employees’ engagement and labors relations are the key factors that can increase productivities and services quality that also lead to profitability. Because their employees play important roles as mentioned in Qantas vision, goal and strategy, it is also the weak point for them. One situation they faced in 2009 is that the Association of Professional Engineers, Scientists and Managers, Australia (APESMA) voted to refused to work overtime or take calls outside normal hours and nighttime (Anonymous as cited in Airline industry information, 2009) and Qantas’ engineers also a part of the union and these may consider as concerning issue. In addition weakness is the high cost of Qantas operation, labor cost especially in management positions (Wilson, 2009), that decrease the competitiveness with competitors. Furthermore, dual brand strategy appears to be strength for Qantas but in same time, it may be a weakness for them if they cannot synergy to each other and appealing to different customer segments.

Third, Opportunities: In term of politic, policy and regulation environment, Qantas as Australia base company seems to have positive environment from quite stable government even less stable than the previous that hold slightly majority seats in the congress but with the same government, continuing policy would be positive for the company compared to others unstable or discontinue government countries. In addition with global aviation industry regulation, airline de-regulation looks to be positive for the industry that is a factor to increase the number of air travelers and more innovative products and services, more routes, to the market which consistent to a recent research from Research and Markets in airline industry (Research and Markets, cited in M2 Presswire, 2010) reported that global airline industry grew since 2008 and forecasted to have a value increased by 30.4% ($609.3 billion) and a passengers’ size increasing to 2.6 billion persons (23.6%) in year 2013. However, there is some discussed issue about re-regulation airline industry such as the case in United State of America in which united airline and Continental airline merger propose but this may be a opportunities for some airline to reduce the rivalry or avoid bankruptcy from high pricing competition or to improve competitiveness with others international airline (Lowy, 2010) whereas Qantas also faced this high pricing war from others too. Another aspect in economic situation, global recession seems to past the lowest point. These may encourage people to traveling more frequently, business activities may return to expand with increasing air passengers. Additional with a demographic view, increasing the population with more affordable for traveling, especially for senior citizens, air traveling with comfortable, quality of services and safety may be priorities instead of only pricing which corresponded with Qantas goal and will be opportunities for them.

Fourth, Threats: Even though, stability of Australia government provided positive environment for Qantas but some more strict policy for migration, visa applying to entering the country seem to affect to less traffic of international passengers. Furthermore, with the growth of Australia economic and stronger Australia’s dollars compared to others country such as the United States of America or Europe, making products and services more expensive compared to those and may reduce the international customer traffics to Australia. In addition, the environment situation such as volcano disruption in the past few month in Iceland that impacted directly to European countries and airline industry including Qantas that some studies claimed that this impact even bigger than the effect from terrorist attacked on September 11, 2001 (Mazzocchi, Hansstein ,& Ragona, 2010). Additional threats for airline industry may include technology, as today communication even more convenience and efficiency such as video conference that makes everyone able to meet each other everywhere and any time which reduced the chance of traveling and passengers traffic of the airline too.

Core competencies and competitive advantage

Using the notion of core competencies by Prahalad and Hamel (1990), from the figure below it can be seen that Qantas has their core competencies to develop their core products and provided many products and services to customers through their different business unit which can be describe as:

Source: The Core Competence by C.K. Prahalad and Gary Hamel (1990)

The first company’s competency is their safety priority policy as the safety first oriented airline which can be seen from the safety perceptions from customers’ survey at the average rate of more than 80 % (Qantas investor briefing, 2009).

Second competency is their experience in long history aviation industry that provided proper products and services, right fleets and right routes, and operation efficiency.

Another competency is great teams to provide customers’ quality of service that can be seen from the BITRE survey (2009) as the most reliable (on-time) airline.

In addition, with the two branding, as their important competencies, made them be able to utilize resources, provided them flexibility to deliver products and services to cover and capture all market segments.

From those competencies, the company has Qantas and Jetstar Brands themselves as their core products. These two core products were utilized and synergy with different business units such as Qantas commercial, Qantas international, Qantas domestic, Qantas Link, Jetstar, JetstarAsia, Qantas Freight , Jetstar Travelworld (Qantas investor summary, 2010) to products varieties end products to customers including domestic/international air traveling in premium or budgeting , currier services, travel arrangement; accommodation, ground transportation etc.

Qantas’ competitive advantage

According to Michael Porter Competitive advantage (1996) concept, it can be described that the Qantas Company use both differentiation advantage and cost advantage as their business strategy by using two branding, Qantas and Jetstar to create competitive advantages over others competitors.

Source: Competitive Advantage, Strategic Management from http://www.quickmba.com

Looking into the detail of this notion and reversing defined the competitive advantage of Qantas and Jetstar, it can be seen that one of the value creations that Qantas and Jetstar were perceived by customers are the most reliable (on-time) and most Safety priority airline which make them gain competitive advantage from any others airline. By using differentiation advantage for Qantas brand that provide premium or full services to cover premium or business customers and cost advantage for Jetstar brand providing affordable and meet minimum industry standard quality to seize budgeting market. These also make competitive advantage over others that cannot provide varieties products and services to meet different customer value perception. In conjunction with synergy resources of fleets, well-train staffs, know-how in aviation industry and capabilities and flexibilities to utilize and optimize those resources by strong management – integrated and remove duplicate function, experienced – fast decision making, financial – cost efficiency and economy of scale make them have distinctive competencies (Qantas investor briefing, 2009).

Strategy recommendations

Even recently Qantas seems to gain positive position but compared to one of their competitor, one of the best airlines in both quality service excellence and pricing, Singapore Airline (SIN), Loizos and Jochen (2010) revealed that SIN is the most cost effective airline; its operation cost, costs per available seat kilometer (ASK), was just only 4.58 cents. It is less than half of the industry average in both aviation categories: full service airline and low cost airline. Surprisingly, they (SIN) can combine incompatibility strategies into the same business operations that is differentiation and cost leadership strategy with significant profitability. Even one of the management experts, Michael Porter argued that it is impossible to use this dual strategy successfully which is contradictory for a sustained period but from their research found that SIN never posting annual loss since it was established in 1972, instead consistently dividend paid. (Loizos & Jochen, 2010).

Currently, Qantas also used similar strategy which are differentiate and cost leadership strategy but the different is that they use two branding (Qantas & Jetstar) instead of one brand with company-wide strategy like SIN. An idea that this paper would recommend for Qantas is being both leader and follower (Loizos & Jochen, 2010). This notion suggested that in some situations which the products or services are directly impact or perceived by customers should be the main focus while in some conditions that those provided products and services are not be able to apparent to customers can be discard or follow others industry’s standard.

Another point that is not obvious from Qantas is the diversification as Qantas reported (2010) more than 93 percent is Australian. It is good to be unique in the team but recently the business has to serve and compete globally, diversify might be a good way for organization to learn new ideas and cultures from others that may create new innovation or standardization for the industry.

Last but not least, to be the best in class of services as their excellence service strategy; training is another most important part for Qantas to concern and be a part of their cultures. They can be imitate some concepts or follow from their rival, such as Singapore airline, that training is 40 percent from overall focus point compare to 30 percent in efficiency improvement and 30 percent in new products and services innovations (Loizos & Jochen, 2010). Not only intensive in training by time perspective but also the contents of the training as they have to deal with more globally customers, such as culture different and etiquettes: for example in western or Oceana countries may not concern and recognize the significant different between eye-level communication and talk-down or standing discuss when contact with sitting passengers in the fleets but for Asian countries may perceived as impression and carefulness. It looks like very small point and too personalization but one of the best airlines, SIN, takes these into account.

Potential fallout

From strategy recommendation which compared to one of their competitors (SIN) using both differentiation and cost advantage in the same brand while Qantas used cost advantage by Jetstar brand but it seems that Qantas cost still less efficiency than Singapore airline so one of their action was done by cutting cost on labor cost mainly in management level as in March, 2009, Qantas reviewed organization’s structure and planned to remove 90 senior management positions, halt salary and revised role for more productivities (Anonymous, cited in Airline Industrial Information, 2009) and additional cutting of 500 management position in Apr, 2009. Those actions decreased costs and increased the profits for the company in the short term but this may reduce relation, motivation and engagement of employees to the company which will effect to performance and productivities in long-term (Bamber, Gittell, Kochan, & Nordenflycht, 2009).

Furthermore, by increasing diversify environment to create new innovation or new idea may be good but this may increase the complexity for management to learn or understand the culture different which has to take into account for working diversifying environment.

Another issue that Qantas has to concern is the challenge of using disruptive business model (Differentiation and Cost advantage strategy) in the same time and same company as suggested from the studied of Markides and Oyon (2010) that using both strategies may damage existing brand and dilute company culture for innovation and differentiation (Porter, cited in Markides & Oyon, 2010) and even cannot synergy both units (Qantas and Jetstar) to gain competitive advantage and sometime failed. Finally, to overcome and utilize both dual business models, they suggested that company should be questioned and answered the question of what culture, structures, incentives and people that a company needs to implement dual strategies in the same time and in same organization (Markides & Oyon, 2010).

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