Qantas Airlines in the Past

Qantas Airlines In the past few years, the chosen business strategies of various airline carriers have emerged as one of the most pressing concerns for airline personnel, travelers, and government officials alike. The airline industry is a highly competitive one where the business model of one competitor may serve to lock that airline in the top position.

Unfortunately, the recent terrorist attacks and suspected future attacks involving traveling and aircraft carriers has shed a negative light on commercial flying, and airlines have tried various attempts to combat their resulting low sales and air travelers. After the vicious terrorist attacks of September 11, 2001, the airline industry experienced nearly $40 billion in losses, bankruptcies, and the loss of approximately 10 different airlines.

Additionally, more than 150,000 airline jobs were cut; however, in 2006, the state of the airline industry has improved as a result of assistance by government and aggressive cost-cutting measures applied by the industry in the wake of the disaster. Thus, increased competition, global economic aspects, and terrorist attacks have forced both domestic and international airlines to significantly cut costs, to reduce their scope of operations through outsourcing to subsidiaries, and to improve flexibility and responsiveness through the empowerment of management.

Many airlines have decided to go the route of offering low fare domestic and international subsidiaries as a way to lure potential air-flight consumers. Brief History of Qantas Qantas is the second oldest airline carrier in the world, and has demonstrated continuous, very successful statistics. Fir the year 2006, Qantas reported profits before tax of $483.5 million, net profits after tax of $352.6 million, revenues of $6.8 billion, interim dividend of 11 cents per share, and earnings per share of 18.4 cents.

Operationally, Qantas has achieved turnaround times of less than 30 minutes and its on-time performance has consistently topped the other major players. In addition, dispatch reliability on its A320s is said to be ahead of the Airbus global average (Creedy, 2005). In the six-year period under the current Management team, Qantas has grown employment by 25 per cent, or 7,000 jobs, with more than 90 per cent of our 38,000 staff based in Australia.

The carrier's "Be safe! occupational health and safety program" has delivered a 70 per cent reduction in lost time injuries in the last four years, creating a safer workplace for all employees. Finally, the major flying businesses, particularly Qantas Domestic, QantasLink and Jetstar, all have been shown to perform well in the face of competition and cost pressures. This paper will discuss the strategic options available to such airlines as a method of maximizing their overall competitive advantage.

It will examine the global strategy of Qantas Airlines, JetStar, and Virgin Blue under Porter's Five Forces Analysis, utilizing the successes and failures of previous strategic attempts by these airlines. Competitive Advantage of Qantas One of the main competitive advantages of Qantas Airlines is that the airline has been able to successfully cut-costs in areas that may be easily outsourced, allowing them to lower their fares and spreading costs elsewhere. Qantas has significantly cut its information technology costs, a trend of other airlines as well.

These trends are increasingly supported by new developments in information technology and information systems. Technological advances, supported by increased user expertise and familiarity with technology, has allowed information technology to break away from its' traditional constraints. In addition to difficulties in identifying and measuring potential benefits and costs, problems inflicted as a result of growing dependence on information technology have forced many airlines to establish management control mechanisms.

These mechanisms are those such as the appraisal of potential investments, the evaluation of their deliverables, and options to offer similar public services at a lower cost to consumers. Qantas has demonstrated this strategic move in outsourcing information technology by signing a 10-year, $450 million contract with IBM Global Services, that promises on-demand computing (Kontzer 2004). As a result of this strategic outsourcing move, Qantas estimated that it should be able to lower its information technology costs by paying for computing power only as it is needed.

Information Technology In the IBM contract, the deal covers primarily the infrastructure and systems that support its core applications; Qantas will continue to do its own application development, while IBM will handle change management for development and maintenance of applications and the migration of applications from testing to production (Kontzer, 2004).

Most of Qantas' 450 Unix servers will be replaced by Linux servers at IBM's Sydney hosting center, and IBM also will provide Qantas with it-system-procurement and security services and a service desk for resolving issues with all of its it-service providers (Kontzer, 2004). The deal coincides with a contract valued at more than $500 million that Qantas awarded to Telstra Corp. To convert the airline's telecom infrastructure to an IP-based network and to provide data, voice, and desktop services (Kontzer, 2004).

As a result, Qantas was able to reduce its information technology staff by at least 200, and some former employees took jobs with IBM and Telstra. More significantly, this was a competitive advantage for Qantas because the IBM deal sets a baseline usage that represents less than half what Qantas had been paying in fixed information technology costs. As a result, Qantas can focus resources on core business issues.

Outsourcing for Competitive Advantage Outsourcing its information technology work also enables Qantas to predict its computing needs based on how it's filling aircraft seats; as a result the airline can to use booking information to accurately anticipate its need for technology resources. In addition, the airline's reduction in fixed information technology costs will free up Qantas' information technology workforce to pursue other technology-modernization projects (Kontzer, 2004). In the global marketplace, this strategy has placed Qantas in an ideal position as compared to other airline carriers.

Other carriers have resorted to using force majeure clauses and the threat of bankruptcy as powerful tools to lay off workers, rewrite labor contracts, cancel aircraft orders and outsource maintenance, catering and others services. Statistics indicate that over the past five years, six of largest airlines took 816 planes out of service, a 23% reduction that is beginning to pay off as full flights make it easier for carriers to raise fares.

For example, these measures still were not enough to prevent Chapter 11 filings by Delta Air Lines Inc., Northwest Airlines Corp., UAL Corp.'s United Airlines and (on two occasions) U.S. Airways Corp, in addition to smaller airlines, including FLYi Inc.'s Independence Air, to fold up entirely. Competitive Position of Qantas & Jetstar in Relation to Virgin Blue review of the research indicates that Qantas stands in a better competitive position than Virgin Blue.

Following four years of solid growth during which it acquired almost 35% of the market, domestic budget airline Virgin Blue faces tough competition from Qantas' new low-cost carrier Jetstar (Shea, 2004). Jetstar's competitive strategy consisted of offering 100,000 tickets for the low price of $29 as a one-time offer, shortly after the new carrier was launched. Virgin Blue countered the offer by placing 200,000 tickets on the market at the same low price.

Both of these sales were available online only, and despite the intense competition between them, both carriers have claimed they are growing the market and are increasing their jet fleets, rather than taking business from each other (Shea, 2004). Jetstar is currently running 14 jets with plans to increase this by 23 over the next two years, with the strategic plan of changing Australians' changing attitudes toward airline travel. Jetstar, through promotions such as these, plans to change the assumption that air travel is expensive.

Their goal is for all Australians to adopt the travel habits of their European counterparts, where weekend getaways to fun locations are considered routine rather than special (Shea, 2004). An advantage that Qantas has over Virgin Blue in domestic travel is that Jetstar is also partnering with state tourism boards to encourage more local travel. The domestic carrier is examining strong associations with key tourist service providers, from hotel chains through to state-based tourism bodies, such as Tourism Victoria, Tourism Tasmania and Tourism Queensland.

They are also looking at growing destinations, through the strategy of a low-cost model. If the competitive position of Qantas is to remain both profitable and sustainable, the company must continue offer low fares through a low-cost business model. Jetstar's Strategies One of the most commonly cited strategies of Jetstar is that the carrier defined the marketplace in terms of Jetstar and Virgin Blue being the budget airlines and Qantas being the full-service airline.

Jetstar's strategy slowed down Virgin Blue's growth in the overall domestic market, and Jetstar and Qantas mainline continue to make money domestically and grow. Jetstar has also been able to smooth over a few problems that the carrier had at the beginning of its launch. For example, Jetstar started out with no frequent-flyer scheme but was forced by a customer backlash and a fear it would lose business to Virgin Blue, to offer Qantas points on its fully flexible fares (Creedy, 2005).

Jetstar also now gives customers with more expensive tickets priority boarding, although it plans to retain unallocated seating for reasons of efficiency. The airline buys the points from its parent but strategically recovers costs by prompting people to buy more expensive tickets and attracting back customers (Creedy, 2005). The carrier's frequent-flyer scheme has produced a revenue gain that offset its cost, such as big business routes, an immense amount of the business traffic that was lost (Creedy, 2005).

Virgin Blue's Strategy Virgin Blue's competitive strategy is similar to Qantas, in that changing people's attitudes toward air travel is the key to growth of budget airlines. Virgin Blue has cut their costs by cutting extras on flights, such as paper tickets and free meals. The danger that Jetstar faces in cost-cutting is that the number of airline tickets sold may not outweigh the costs of the domestic carrier. Jetstar needs to make up in volume for the losses in ticket prices.

Another danger that Jetstar faces in potentially losing customers is that it closes flights 30 minutes before departure but charges a fee of $50 for individual latecomers and $100 for families to book on another flight. This may be too harsh of a policy and research indicates that at the start and it had caused the airline several difficulties. For example, Jetstar lost customers as a result of this policy, and such customers switched to Virgin Blue because they were so angry and dissatisfied with the departure policy.

However, Jetstar planned to win over new and old customers by adding new services to the Northern Territory, Perth and New Zealand by the end of the 2005 and early 2006. It continues to grow as it replaces its fleet of Boeing 717s with 177-seat Airbus A320s, and the bigger planes will allow it to reduce frequencies on some leisure routes and redeploy the aircraft to new destinations (Creedy, 2005).

Five Forces Model applied to Airline Industry Michael Porter's Five Forces Model can be applied to the airline carrier industry, which consists of a group of firms that market products which are close substitutes for each other. Porter, in his theory, explains that there are five forces that determine industry attractiveness and income generating profit. The five forces are: 1) the threat of entry of new competitors, 2) the threat of substitutes, 3) the bargaining power of buyers, 4) the bargaining power of suppliers, and 5) the degree of rivalry between existing competitors.

The threat of new competitors can be applied to the airline industry in that new competitors will always emerge, for example although now there are only a handful of airline carriers servicing the Australia area, more are sure to be formed. The threat of substitutes can be applied to the medium of the ticket sales on the Internet, because the cost of switching Internet providers and Internet sales in general is very cheap.

The presence of this type of substitute products can lower industry attractiveness and profitability because it can limit price levels. The bargaining power of buyers is greater in the airline industry when there are few dominant buyers and products are standardized. Finally, the intensity of rivalry between competitors in the airline industry is at an all-time high. This is a result of the structure of the airline industry - since there are many equally sized competitors, the rivalry is more intense.

It is in this instance where a company's success largely depends on its business plan, revenue models, core competencies, and competitive advantage. SWOT Analysis of Qantas In conducting a SWOT analysis of Qantas, the first step is to identify the company's resource strengths and competitive capabilities. Next, Qantas' resource weaknesses and competitive deficiencies must be identified. These results are then used to determine where the attractiveness of the company's situation ranks, as well as the attractive and unattractive aspects of the company's situation.

The next step is to identify Qantas' market opportunities, and to identify external threats to the company's future well-being. All of these steps are then used to improve the company's existing strategy, where the market opportunities that are best suited to company strengths and capabilities are pursued. Weaknesses and deficiencies are corrected, and the company's strengths are used to lessen the impact of major external threats.

One of Qantas' resource strengths is that the carrier has strong brand recognition in its name, as it is the second oldest airline company in the world. In 2001, Qantas re-branded its four wholly owned subsidiary airlines; Eastern Australia Airlines, Southern Australia Airlines, Airlink and Sunstate Airlines, into a single name, QantasLink.

The creation of QantasLink is a strategic re-branding exercise, which allows Qantas to draw on the strength of the Qantas brand to enhance the marketing of the regional airlines and the destinations they serve to the rest of the world (Qantas Airways Limited, 2001). One of QantasLink's competitive capabilities is that it will offer a range of competitive airfares similar to those offered on the mainline Qantas domestic fleet as well as Frequent Flyer, lounge, oneworld, and through check-in benefits (Qantas Airways Limited, 2001).

Qantas' market opportunities are also strong, as its future depends on the moves and choices that the company makes in planning various mergers or acquisitions, research studies and new designs. Qantas implements research and design strategies that stretch out over the next several years, as a result of the nature of the aerospace industry. In late 2007, Qantas will open the doors to its glamorous new first class lounges in Sydney and Melbourne international airports.

Designed by famous Australian born industrial designer Marc Newson (who's designed everything from airplanes to bags), the lounge, which is rumored to have cost around $20 million dollars, boasts features usually seen only in super-luxurious designer hotels (Demassi, 2007). The lounge will feature fine dining, a full concierge service, a day spa where 1st class passengers can indulge in facials and massages for free, and individual marble lined shower suites stocked with cosmetics and hair products.

The first class lounges will also feature a library stocked with best selling books, magazines, newspapers and board games; and an 'entertainment zone' with plasma TVs and Sony play stations, as well as fully.