Qantas Airlines External Environment

Threat of New Entrants -- Medium

Supplier Power -- Medium

Buyer Power -- High

Threat of Substitute Products - Low

Competition -- High

Strengths

Weaknesses

Opportunities

Threats

Qantas's Strategy for Competitive Advantage

Recommended Strategy

Cutting Costs

Finding New Innovation

External Environment

Threat of New Entrants -- Medium

Australia has deemed that it is good for the public if any international airline that is foreign owned is allowed to operate in Australia's domestic markets. While this may be good for the overall level of competition, it opens the door for some of Qantas's competitors to enter the market. However, each international market has its own rules and these vary from place to place.

There are many layers of bureaucracy that must be traversed in a new competitor is to enter the marketplace. This works to add a buffer to slow firms entering the marketplace quickly. However, firms can also enter through acquisition or leave through liquidation which also provides some volatility to the industry.

Supplier Power -- Medium

There are basically two suppliers in the aircraft industry; Boeing and Airbus (Mustoe, 2010). Furthermore, although these two firms compete against each other they are also rather closely affiliated. For example, they share many of the same suppliers and have actually acted together to pressure their supply chains to expedite the manufacturing of equipment and other aviation items. Yet the competition that is present gives firms some options and leverage against the two main suppliers.

Buyer Power -- High

In the airline industry, there is only a small fraction of the consumer base that exhibits any significant amount of loyalty to any one airline brand. Generally, consumers view different airline services as relatively equal and as substitute products. Furthermore, with the bulk of airline tickets now purchased online, consumers are generally either price conscious or look at the flight availability. If there is ever a level playing field in terms of price and availability then consumers may have a preference of one brand over the other however this is usually a subsidiary decision. Therefore the buyer power in this industry is relatively high.

Threat of Substitute Products - Low

While travelers may consider different airlines as close substitutes, there are generally only a few options available to travels. Travelers can opt to drive themselves, take a bus, or in some cases a train. However, the convenience that air travel offers makes it the first choice in most of the consumer market. Furthermore international and long trips can also make other choices unfeasible altogether.

Competition -- High

There are several other players in the market that make for a rather high level of competition in the marketplace. There are at least two other domestic competitors in the market as well as a host of international airlines that compete for business as well.

SWOT

Strengths

Qantas is consistently rated in the top ten airlines in the world and has been steadily improving its rating (CNN Money, 2011); it is also one of the world's most admired companies. It has a relatively good safety record when compared to other airlines and is often rated highly in regards to customer service

Qantas also has one of the most developed ecommerce sites among its airline competitors. It boosts some of the highest user ratings of all airlines from industrialized markets.

The frequent flyer program is another asset. This program performs well over the industry average in terms of customer acceptance.

Weaknesses

Qantas Airlines was identified to be overly reliant on the Australian market. A majority of its flights are domestic or regional. The international market should be pursued heavily in order to grow and diversify service lineups.

Another weakness is that Qantas's main line has decreased in total passengers carried. However, Qantas other brand, Jetstar, was able to pick up some of the slack. Still Qantas should focus on growing its premium line, not just the budget lines.

Figure 1 - Qantas Passengers Carried (Qantas, 2011)

Opportunities

Qantas has a lot of room to grow in the international marketplace. Furthermore, there is also substantial opportunity in regards to the global tourism industry. This industry could help Qantas smooth its international transition if strategic partnerships could be formed with key partners in the tourism industry.

There is also an opportunity to invest in more modern and efficient equipment. It is likely that the airline industry will become more regulated in the future and any investment in efficiency measures now would give Qantas a strategic advantage.

Although there are really no threats of substitute products, given the rising prices more people are opting to not fly as frequently. Many former business travelers will now have online meetings as opposed to face-to-face contact. Leisure travelers are also not taking as many personal flights. This could have increasing implications for future demand.
Regulations in the industry are also predicted to rise as measures to stem climate change are slowly being implemented. Although the last international deal in Durban did not set a legally binding agreement until the year 2020, consumers are also applying pressure through restricted demand in regards to environmental concerns (Herskovitz, 2011).

Qantas's Strategy for Competitive Advantage

Qantas's primary strategy for gaining a competitive advantage in the markets in which they are operating is primarily consistent of a strategy of diversification. Qantas offers consumers two differentiated products that it markets through entirely different channels. One is the Qantas line which represents the premium product. This is the primary line that the company was founded on. The JetBlue line represents a lower cost alternative that can be marketed to different consumer segments.

The Qantas main airline is generally target at business class or first class travelers and offers more amenities than the lower grade brands. For example, there may be more customer service and amenities provided such as food and beverages. The seating areas are generally larger as well as the seats themselves are plusher and more comfortable. JetBlue by comparison doesn't offer the same level of amenities. On the budget line there are few choices for beverages or meals and the seating arrangement is more compacted to fit more travelers into one plane in order to reduce costs.

Recommended Strategy

It is likely that the remnants of the global recession will linger for quite a while and could also potential get worse (Stock Market Today, 2011). This has drastic ramifications for the airline industry since it is often a luxury service that may people can avoid if it doesn't fit into their budgets. While some travel is necessarily essential to business, other travelers are utilizing web meetings and other technologically driven mediums to avoid flying when possible. The consumer segment is also subject to decrease its demand in times of an economic downturn. As opposed to taking vacations that require a flight, many consumers opt for a more local vacation or no vacation at all in order to save money.

In this environment it will be challenging for Qantas to maintain its current levels of a customers. If the entire market for airline travel is down then in order to keep its current level of revenue it must either cut costs or growing in regards to its market share. Under the circumstances, each tactic must be employed in its fullest feasible capacity to ensure that the airline doesn't suffer from dismal economic conditions.

Cutting Costs

There are several ways in which airlines can cut costs. One way is simply to lighten the load on each flight (Airline Tickets, 2011). Since gas prices are so high this method can have benefits in more than one way. Airlines have been limiting the weight for such items as food and beverage services which can increase fuel economy. Some airlines have been charging for excess baggage since it can not only increase revenues but also saves weight and fuel costs as well (Thokalath, 2011). Keeping staff at minimal levels not only saves money payroll but can actually result in fuel economy as well.

Another way airlines can save money is through automation of many of the key administrative business functions. Qantas has already integrated such systems in many of its major airports and it has worked to reduce the need for human resources and can provide more efficient check in times (Talyor, 2011). If Qantas utilizes this technology widespread that it could considerably cut the payroll budget and help reduce costs. However, though these systems may be good for the bottom line, many customers have failed to accept the systems (Schneider, 2011). Some of the complaints have included a general sense of confusion and many travelers have become extremely frustrated with the process which also causes cases of disruptive passengers.

Qantas has also had to cut flights and staffs to minimal levels due to the state of the economic environment, rising fuel costs, and the implications of natural disasters in the hemisphere (Schneider, 2011). Reducing various scheduled trips that have become economically inefficient due to passengers filling these flights below the required capacity serves as a sensible cost cutting strategy.

Finding New Innovation

To grow revenue in such economically challenging times Qantas will undoubtedly have to focus on innovation. Cutting costs can only do so much to appease investors…