Term Paper on "Qantas Airlines"

Term Paper 9 pages (3175 words) Sources: 5 Style: Harvard

[EXCERPT] . . . .

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… READ MORE

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