Thursday, October 31, 2013

Strategic Management: QANTAS LIMITED

Introduction
Queensland and Northern Territory Aerial Services (QANTAS) Limited was founded in Queensland on November 16th 1920. A new company was formed when there was a merger between Qantas Ltd and forerunner for British Airways; the Britain’s Imperial Airways. The new firm that was known as Qantas Empire Airways was mostly operating flights between Singapore and Brisbane. In the 1960s, the airline was operating flight to major regions of the world for instance to London via Asia and the Middle East from Australia and via the US and Mexico to South America from Australia (Qantas Airways Limited, 2012). Majority of the routes that were served were later dropped due to the slump in the customer numbers due to the introduction of the wide body aircrafts especially in the 1970s. The Headquarters of the firm are found in Mascot, New South Wales, Australia.

The airline is the largest in Australia and is commonly referred to as the flying kangaroo. The paper is focused on the understanding of the strategies that are used by Qantas in the market where the firm. There are a number of considerations that are made for instance the industry understanding and analysis of the general environment in which the firm operates in, the analysis of the industry environment through the use of Porters 5 Forces model, the consideration of the competitive environment, opportunities and threats, the Internal analysis for instance the consideration of the resources of the firm both tangible and intangible, the identification of the capabilities, the core competences, value chain analysis, weaknesses and the general SWOT analysis of the firm. There is also the consideration of the current strategies of the firm. Finally, the recommendations will be provided to take advantage of the opportunities that exist in the firm and also deal with the issue of the threats that may be faced. The recommendations that are provided are to cover all the three levels i.e. the business level strategies, corporate level strategies and the international level strategies.

External analysis

The industry

Qantas operates in the airline industry whose marginal profitability has reduced significantly over the last couple of years with the marginal returns for the last 40 years averaging just over 0.3 per cent. The industry is significantly affected by a number of factors for instance the vagaries of nature i.e. the volcanic ash from the eruptions in Iceland that significantly affected the airline operations as well as the global economic conditions and the prices of the oil amongst the other factors (Capon, 2008). The industry is characterized with very fierce levels of competition between the firms that are found in the industry.

General environment analysis

There are a number of factors in the general environment that have a massive impact on the operations of the firm. The main considerations that will be made are related to the economic, socio cultural, global, technological, political-legal and demographic factors that affect the operations of the airlines in the industry. Economic factors that affect the operations include the global financial crisis that significantly reduced the peoples’ purchasing powers due to the associated rise in the unemployment rates and the decimation of the savings of the individuals. The overall effect of the above was the reduction in the demands of the services that are offered by the firms in the industry thus leading to a situation where the goals of the firms could not be reached (Carpenter, Sanders, Rice, & Martin, 2010). The rises in the oil prices in the globe also has an effect on the global airline industry due to the rises in the costs that are incurred.

It is important to note that such cost increases would significantly reduce the revenues that are realized by the firms due to the increase in the costs of the products sold thus leading to very low marginal profits. The airline industry is also affected by the state of the exchange rate for instance the Aus. $/ US $ exchange rate as this has significantly affected the operations of the firm in the last couple of years especially beginning with 2012 as the firm is not adequately hedged against the higher fuel prices. The value of the Australian dollar has traditionally risen with the rise of the oil prices thus effectively hedging the firm against the effects of the price increases; however, this has not been the case for the past couple of years.

The socio cultural factors will also be considered for instance the low levels of the loyalty amongst the customers. The main focus of the customers is low price and whenever there is a significant price differentiation that is found in the market, the customers will focus on the ways through which they can be able to reduce the price so that they can be able to capture the customers. The reduction in the prices and the low cost operations find their validation in the above factors. Secondly, there is the fact that the Australians usually require the air travel so that they can be able to travel the distances that are too big to be covered by road or by the rail. The global factors will also be considered especially the stability of the different countries and the global competition between the different airlines that are found in the industry. This has a significant impact on the operations of the firm in terms of the levels of the profitability and the revenue levels that are realized by the firms that operate in the industry (David, 2009).

Technological factors are mostly related to the booking and the check-in process of the airlines. The focus of the airlines in the industry is always to reduce the costs of the operations thus majority have adopted the online or automated booking and check-in so that they can be able to support the low cost model of the operations that are highly accepted by the customers who are found in the market (David, 2009).

There is also the consideration of the political legal factors for instance the regulation on the number of hours that the pilots can be able to work as maximum thus restricting the working hours for the pilots of the varied airlines that are found in the industry. The other consideration is the pay rates for the flight attendants and the crew ((David, 2009). Qantas has been doing exceptionally well as the attendants take home in excess of Aus. $100,000 while the pilots take up to Aus. $500,000 as compared with the paltry Aus. $20,000 that is taken home by the pilots for the other airlines.

Finally, there are the demographic factors that are considered. In many cases, the firms usually consider the changes in the demographics in the world and the airlines are considering the destinations that have high populations ((David, 2009). China is a famous destination for the airlines due to the demand that will be offered for the airlines that operate.

The Industry Environment

The industry environment is considered through the understanding of the Porter’s five forces. There are a number of elements that are considered. The rivalry between the existing firms in the industry is high due to the high levels of the competition that is found in the international and the domestic market. There has been a slowdown in the rate of the growth in the industry due to the high levels of the competition. The bargaining power of the buyers is high due to the low costs that are associated with switching from one airline to another. The customer loyalty is low as the main focus of the customers is the low prices and they will readily move to the airline with the lowest rates. The use of the frequent flier programs by the firms in the industry is geared towards imposing switching costs on the customers. The bargaining power of the suppliers is also high due to the significant integration of the suppliers who are found in the market especially Boeing and Airbus (Dess, Lumpkin & Eisner, 2008).

There is a massive threat to the new entrants due to the market concentration and the high capital outlays that are required to undertake the operations in the firm. The firms in the industry already have many strategies and ways of reducing costs i.e. through the airport terminal arrangements thus making the other firms to be unable to compete with the firms already in the industry. The threat of substitution is medium as the customers can use road or rail for the short travels but they cannot make the intercontinental travels on the alternative modes as they are more expensive and take up a long period of time.

Competitive environment

There is a high level of rivalry between the firms in the industry and the focus of the firms has been on the reduction of the costs that are incurred. The capabilities of the firm are on the reduction of the costs of the offering through the reduction of the frills and the use of efficiency methods of the operations i.e. the online booking and check-in etc. The firms also have fuel hedging arrangements that are focused on the reduction of the costs that are incurred in the firm (Faulkner & Campbell, 2003). The strategies followed by the firms are the low cost differentiation to be able to give them an edge over the other competitors who are found in the industry. The threats imposed are the increase in the competition as the firm must focus on reducing the costs otherwise the customer numbers will reduce significantly.

Opportunities and threats

There are a number of opportunities that exist for instance the use of e-commerce to be able to reduce the costs and enhance the efficiency of the operations that are being undertaken in the firm. There is also the element of the expansion into new markets due to the liberalization of the global airline operations in the world. There are the threats that are faced in terms of the high costs of the operations. The above are brought about by the weaknesses in the Australian dollar that are significantly preventing the firm from having the favorable fuel prices. The other threat that is faced is the government anti-trust laws that protect the smaller firms from the competition that is found in the industry (Grant, Butler, Hung, & Orr, 2011). The government protects the small firms from the effects of the route cannibalization.

The firm’s resources

The intangible resources of the firm include the highly skilled workforce that ensure the efficiency of the operations that the firm is involved in. secondly, there is the element of the alliances that the firms enter into that allow for the sharing of the lounges, joint bookings and the frequent flier points. The firm is a part of the One World Alliance (Grant, Butler, Hung, & Orr, 2011). The management capabilities especially under Allan Joyce have also played an important role in the success of the airline. The tangible resources of the firm include the fleet of the aircrafts that are used by the airline and the financial standing of the firm. The hubs which Qantas operate from is also a good point of consideration as the firm has been able to negotiate goof deals that have led to the reduction of the costs that are incurred in the firm.

Capabilities analysis

The firm has a number of capabilities for instance the on-time perfromances and the superior lounges through which the customers of the firm can wait for their flights. The firm also has a capability in the cost reduction i.e. through the reduction of the frill service that is offered to the customers thus allowing the airline to be able to charge the customers very low costs (Gupta, Gollakota, & Srinivasan, 2007). The cost reduction is undertaken through the use various strategies for instance the maximization of the amount of time that the crew of the plane works, but ensuring that the time is in compliance with the aviation regulations in the globe.

Core competency analysis

Resource capability Valuable (V) Rare (R) Costly to imitate (I) Exploited (O) Core competence Hub and spoke operational channel Y Y Y Y Y Customer value and service quality Y Y Y Y Y Strategic alliances N Y Y N N Corporate values Y Y Y Y Y Low pricing strategy. Y N Y Y N Operations in international markets N Y N N N Supporting technological interface and the route innovation Y Y Y Y Y Marketing N Y N N N The service quality and the customer value and the route innovation and the corporate values are the main core competencies of the firm as they are valuable, rare, non-imitable, and are exploited by the firm (Haberberg, & Rieple, 2008). The others are mere capabilities that the firm has in the industry that it operates in. The core competencies allow the airline to have a sustainable completive advantage in the industry (O'Sullivan, 2009).

Value chain analysis

The primary activities will be considered first. The inbound logistics include the sustainable operations, the control of the supply chain etc. The operations include the use of the IT in the checking in and the customer booking, the travels as well as the ensuring that the luggage of the customers do not get lost or mixed up (Hanson, Hitt, Ireland, & Hoskisson, 2011). The outbound logistics of the firm include the processing of the orders, the delivery of the luggage and the consumers etc. (Hubbard, Rice, & Beamish, 2008). The sales and marketing are undertaken through the focus on the low costs and the adverts are carried on a number of media for instance the internet etc. The service that is provided to the customers is of high quality to ensure the continued operations of the firm. The firm is focused on the customers and the speed at which the service is offered to the customers of the firm (Henry, 2011). The support activities include the procurement of the aircrafts and the other facilities that are used, the focus on the innovation and the technological development i.e. the increased use of the IT in the airline’s operations (Johnson, Scholes, & Whittington, 2009). There is also the element of the human resource management as the focus is on highly trained employees. The firm infrastructure i.e. the offices and the lounges that are used by the firm are also of very high quality.

Weaknesses

The firm has a number of weaknesses for instance the militant labor unions that have led to the reduction of the profitability of the firm through the disruption of the service and operations as well as the demands for higher pay for the workers. Secondly, there is the element of the high pay for the employees of Qantas. Qantas pays a senior pilot up to $500,000 while the other industry players pay as low as even $20,000 per year. The cost structure of the airline is thus a weakness.

SWOT analysis

The strengths of the firm include the membership of the One World Alliance which plays a role in the enhancement of the extensivity of the network. Secondly, there is the element of the excellent facilities in the airports and the hubs that are used by the airline for instance the lounges that are used. There is also the ease of the access to the airports. The other is the affordability of the services offered. The brand name of the airline is also highly recognized. The firm also has very safe operations (Qantas Airways LTD, 2012). The high quality of the service is also a factor. The weaknesses of the firm include the disruptions of the service due to militant labor union and the unsustainable labor cost structures. The opportunities that exist include the use of e-commerce to be able to reduce the costs and enhance the efficiency and the expansion into new markets due to the liberalization of the global airline operations in the world. There are the threats that are faced in terms of the high costs of the operations and the increased competition in the industry.

Current strategies of the firm

The current strategies of the firm include the low cost offering or the low cost carrier that is geared towards capturing the customers as the focus of the customers is usually on the differentiation in terms of the costs that are charged for the services. Secondly, there is the element of the Frequent Flier Program which is a loyalty scheme that is being adopted by the firm to be able to enhance the loyalty of the customers and impose significant switching costs on the customers (Hill, & Jones, 2009).

Recommended strategies

There are a number of strategies that will be adopted in the firm. First, there is the corporate level strategy of the firm which will be the focus on the cost reduction. The strategy will be achieved through the focus on proper negotiations with the unions to ensure that the labor costs can be controlled. Focus will also be on the increased use of IT to increase the operational efficiency (Hitt, Freeman, & Harrison, 2005). Secondly, there is the business level strategy that is focused on the need for differentiation especially the differentiation of the services that are offered to ensure that the customer loyalty which is a major problem can be solved (Hitt, Ireland, & Hoskisson, 2009; Parthasarthy, 2007). Finally, there is the international business strategy where the focus will be on the expansion to the African and the Latin American markets where there are potentials for the firm. The firm will focus on the quality of the service and low cost operational model so that the services can be affordable to the users.