Qantas Report Essay Example

attacks in 2001 had a major impact on Qantas, as the demand for international travel greatly declined (Qantas web site, 2008). The company was spared financial losses due to the demise of Ansett Australia Qantas’s major domestic competitor on September 12, 2001 (Qantas Annual Report, 2002).

This immediately increased Qantas’s domestic market share compensating for the loss of international tickets (see Appendix B). World events, including the war in Iraq and the SARS epidemic collaborated in devastating Qantas’s profitability in 2003 (Qantas Annual Report, 2003) (see Appendix C). These events had a drastic impact on Qantas’s international operations with the number of passengers falling by up to 45% on some routes. The company responded by reducing flights, reducing staff members, increasing redundancies and reducing capital expenditure by retiring old aircraft (Boyle, 2003).

In 2004 the international tourism market improved, lifting Qantas’s profits (see appendix D). Qantas responded by introducing two new airlines; Jetstar, a low cost domestic airline and Jetstar Asia, a low cost airline to supply the growing intra Asian tourist market with a budget option (Qantas web site, 2008). Following these introductions, Qantas gained record net profit increases. In 2006 however the rapidly increasing price of fuel nearly doubled Qantas’s fuel bill in three years (see Appendix E). This threat of further increasing fuel prices poses a greater challenge to Qantas than any international disaster. Qantas recognised that change was necessary in order to remain successful in this volatile industry.

In 2006 Qantas launched Jetstar international, expanded freight and restructured catering (Qantas web site, 2008). In 2007 Qantas had a successful year despite a failed takeover bid, fierce competition, aircraft delivery delays and record fuel prices

(Qantas Annual Report, 2007). Qantas must ensure that controllable, internal factors affecting the business are managed to minimise impact from unexpected external factors.Internal factors that must be addressed are poor industrial relations and human resource management.

The company must also attract a greater proportion of the corporate market share from its competitors and reduce CO2 emissions to ease government and public pressures. 4. Who is the Customer/Market and how are we giving value Target market is the market segment to which a particular good or service is marketed. It is generally studied and mapped by an organization through lists and reports containing demographic information that may have an effect on the marketing of key products or services.

Qantas is a global company whose primary operation involves carrying passengers, however it also has other functions that are crucial to the success of the business, including its freight and catering departments (Qantas web site, 2008). Qantas mainly uses Behavioural segmentation (Mortished, 2003) to select its target market. Customers are divided based on the purpose of their travel and separated into two main groups; namely business and leisure/non-business travellers. The market segmentation of Qantas is complex, due to the variety of its customers needs (Robertson, 2007).Qantas divides their two primary groups into subcategories to overcome this.

The Business group is broken down into conferences/seminars, routine business and emergency business. The leisure group is separated into visiting friends and relatives and holiday travellers. The holiday segment is further broken down into a tour segment, weekender segment and multi-destination touring segment (Qantas web site, 2008). Since the customer requirements are constantly changing, Qantas has adopted a strategy where new airlines are established to

target specific markets when needed (Qantas Annual Report, 2007). . 1 Segmenting Market Variables: Demographics: -Most customers are aged between 25 to 50 years old.

Qantas passengers are comprised of 50% males and 50% females -Jester targets lower-income family’s whereas Qantas targets higher income business people. Psychographics: -Qantas is divided into First Class, Business Class and Economy Class catering for a wide variety of passengers with varying incomes and travel needs. -Qantas has strong brand recognition derived from years of high customer satisfaction and safety standards. This attracts customers with a high brand preference. Jetstar International targets leisure travellers to international destinations -Jetstar International offers star class which is marketed to travellers wanting extra comfort -Jetstar Domestic targets cost sensitive travellers on leisure routes within Australia Geographics: -Qantas and Jetstar carry passengers from both rural and regional Australia to various domestic and international destinations.

Qantas carries international passengers to Australia from various regions around the world. -Jetstar Asia and Pacific Airways are targeting the growing intra Asia market, hence increasing the number of Asian Customers flying with Qantas.Product Use: -Flights, Catering, Freight There are two ways for customers to purchase a ticket, directly or indirectly. The direct (B2C) option involves the direct sales by a Qantas retail outlet, telephone sales, airport ticket sales and online booking. For the indirect source of purchasing, customers can use an outside source such as a travel agent. This method decreases Qantas’s revenue due to agent’s commissions.

Attracting the market does not exist purely online, however, people within Australia and around the world can book their flights over the internet and this is fast becoming the most preferable way to buy a ticket.Qantas’s

market is worldwide and the company flies to 25 international destinations (Qantas web site) (see Appendix G). The number of destinations was originally much greater, however due to the OneWorld alliance and Qantas’s codeshare agreement these routes are now carried by more local airlines (Doganis, 1991). The company services 55 domestic destinations (Qantas web site, 2008) (see Appendix H), carried by Qantas, Jetstar and QantasLink. Qantas’s total number of domestic passengers increased by 2.

3% between august 2005 and august 2006.The company’s total number of international passengers increased by 2. 2% in the same period (Monthly traffic and capacity statistics, 2005) (see Appendix I). This clearly shows that the market is growing substantially year by year. Qantas uses four main strategies to ensure that the product reaches customers. Qantas strives to create goods and services to specifically satisfy the customer’s needs.

This is acheived by enhancing features such as; scheduling features, comfort based features, the frequent flyer scheme, intangible benefits and brand name (Kennedy, 2001) (see Appendix J).In the past airline prices were regulated (King & Hyde, 1989) but today Qantas uses a variety of pricing methods; cost plus margin, market and competition based pricing (see Appendix K). Promotion is used as a primary means of attracting customers (Dorman, 2004). Promotional strategies include; advertising, sales promotion, opinion leaders, publicity and personal selling (see Appendix L). Qantas must ensure that the product is easily accessible and purchasable via effective placement. This is achieved by direct and indirect product placement (see Appendix M).

Qantas has one of the most effective advertising campaigns in Australia. They use a wide range of advertising media, such as television, brochures, and magazines. Qantas is

aiming to use more direct marketing as opposed to blanket marketing (Berry, 2003) as it is more cost-effective and more narrowly targeted to customers. The reason for this move is that blanket advertising is available to many people who are not necessarily the target market. Qantas introduces sales promotion in times where demand may be lacking (Titelius, 2004). 5.

Analysis of the global marketplace 5. 1 Financial Influences Qantas is exposed to fluctuations in exchange rates, as the majority of its capital goods are sourced from overseas (Creedy, 2004). The majority of Qantas’ debt is borrowed offshore, meaning that an increase in foreign interest rates relative to Australian rates increases interest repayments on offshore borrowings (Financial Report, 2007). 5. 2 Social and Cultural Influences. Qantas is currently working in 37 countries speaking over 100 different languages (Qantas web site, 2008).

As a result of this, Qantas must overcome many cultural differences. Qantas employs host country nationals as part of their human resource management (Milne, 2002) in order to improve cross-cultural literacy. Flight attendants undergo training to interact and communicate with different cultures appropriately. Additionally, in order to help the customers feel welcomed, Qantas’ in-flight entertainment and announcements are always bilingual (Rochfort, 2005). 5. 3 Legal Influences The Australian employment market is heavily regulated and has much-defined minimum terms and conditions.

A small change in Australian labour laws could increase wages and hence operating costs (Dixon, 2001). Disagreements about employment issues may lead to strike action, which may disrupt Qantas service. Qantas is subject to local laws and regulations in each of the 37 countries that it is currently operating in (Rochfort, 2006). 5. 4 Political Influences Of the

40 airliners that fly to and from Australia, 70% of them receive bureaucratic and financial assistance from their governments, contributing to a less efficient market (Qantas Annual Report, 2007).In the majority of countries, government permission is required to serve individual routes.

The domestic airline industry is largely deregulated, whereas the international airline industry remains regulated giving Qantas protection for its key international routes (Qantas Annual Report 2007). The ever-changing political and environmental situations in other countries can influence Qantas’ operations significantly. The terrorist attacks on September 11, resulted in an 11% reduction of Qantas’ international flying capacity (Qantas Financial Report, 2002).The Bali bombings in 2002 led to a decrease in capacity from its Indonesian services (Qantas Financial Report, 2003). 5.

5 Technological Influences One advantage with the newer planes is that they have a greater seating capacity and are more fuel efficient. The newly purchased Airbus A380 generates half the noise of the Boeing’s 747, uses much less fuel and carries 120 more people (Qantas Annual Report, 2007). By using the Airbus A380 Qantas will be able to achieve economies of scale by lowering its fixed costs per passenger. 5. 6 Geographic InfluencesAustralia’s distinctive geographical features and many natural heritage sites incluing Ayers Rock and the Great Barrier Reef make Australia one of the most attractive destinations in the world.

Australia is situated in such a remote area in the world, making flying the most attractive method of travel. 5. 7 New Systems, E-Commerce and Procedures Qantas continually develops its web page by increasing booking engine speed, improving alternatives for customers looking for the lowest prices and access to alternative fares (Boyle, 2002). Qantas has moved its entire

booking system online.

The issue of security has become of paramount importance since September 11, and new procedures for all flights and cabin crew have been introduced, including more intense screening and bomb detection procedures(Dixon, 2001). 6. Analysis of the Competitors Qantas has maintained a strong hold, at times even a monopolistic hold, over the domestic aviation market (see Appendix B). In the last decade however competition within the domestic industry has increased. While Qantas is known for a premium form of air travel, the market has expressed a need for cheaper more accessible flights. Companies such as Virgin Blue and Tiger Airways have entered to meet the demand for this budget flight market.

Qantas countered this threat by developing a ‘two brand strategy’, with the creation of its own economy flight service in Jetstar. However as Virgin Blue has grown and acquired the funding to offer more premium products, and with the emergence of Tiger Airways, Qantas faces increased competitive pressure (Creedy 2005). Indirect competitors such as bus and rail companies present little competition to Qantas. These methods of transport are not as effective due to rising petrol prices, less flexibility and higher travel times.Qantas’s main competition is from Virgin Blue and Tiger Airways its direct competitors.

6. 1 Virgin Blue Virgin Blue’s main objective is to offer a low cost air service, aiming to find a competitive advantage and attract customers by being significantly cheaper than Qantas (Virgin Blue web site, 2008). Virgin Blue grew dramatically due to the success of this marketing strategy. In 2007 Virgin Blue’s profit margin was 14.

2% compared to 6. 8% by Qantas. In 2007 Virgin Blue’s profit rose 92. 9%

demonstrating that Virgin Blue’s strategy is successful. (Virgin Blue Annual Report, 2007).

Currently Virgin Blue holds 30% of the domestic market share compared to a 68% market share by Qantas (see Appendix B). It is Virgin Blue’s goal to devise strategies to gain customers from Qantas. Brett Godfrey, CEO of Virgin Blue said at the 2007 Annual General Meeting, that it was Virgin Blue’s aim to “pinch and pilfer parts of the industry Qantas has control of or aren’t competitive in” (Brett Godfrey, 2007). Qantas has responded by introducing Jetstar which has been very competitive with Virgin Blue.

The primary threat to Qantas however is Virgin Blue’s intention to enter the corporate market (Bartholemeusz, 2004).Qantas are still considered to offer the most premium air service. This is achieved by offering better flight services and amenities as well as airport lounges and a frequent flyer system. Virgin Blue has also introduced a flexible frequent flyer program, in flight entertainment and ‘The Lounge’ in capital cities.

Furthermore, Virgin Blue has plans this year to launch ‘premium economy’, which will directly compete with the Qantas business class (Rochfort, 2003). Qantas maintains a strong hold on government contracts within Australia.Virgin Blue has pressured the government by arguing that the tax payer’s money would have greater value by flying with them. Virgin Blue intends to acquire more government contracts and if successful could threaten Qantas’s revenue.

‘V Australia’ is an initiative by Virgin Blue to create an international carrier. It aims to supply 10 non-stop flights from Australia to the US by the end of 2008. This is competition for Qantas from an international perspective. 6. 2 Tiger Airways Tiger Airways is a low

fare airline funded largely by Singapore Airlines and was launched in 2004.

They began flights within Australian in 2007 (Channel News Asia, 2007) and have entered the market with the intention of being direct competitors to both Qantas and Virgin Blue. The company’s strategy aims at keeping costs to a bare minimum to allow it to offer its customers lower fares. Tiger’s fleet of aircraft is new, and incorporates new technology which minimises costs. Qantas struggles to compete in the budget airline market due to its high legacy cost structure. Virgin Blue has planned to grow its fleet by 25% this year in response to the entry of this new competitor (Stensholt, 2007).Qantas also plans to increase its fleet by 70 using its $10 billion capital investment program.

Further increases in the number of planes will add pressure on the already restricted terminal space at capital city airports (Hutton, 2007). Additionally, Tiger is sure to initiate a price war upon its entry to build its customer base, and in the short term this will impact the cost strategy and profits of Qantas. Tiger aims to gain a competitive advantage by packaging other services with its main product, including accommodation, car rental and travel insurance at discounted rates.Tiger has stripped from its product all luxury features, even excess luggage, meals and entertainment.

Qantas still maintains a superior product with Tiger posing little threat to its premium customer base. Currently Tiger’s operations are small, but as it grows it will challenge the 65% market share Qantas holds. This concerns the directors of both Qantas and Virgin Blue. Tony David, Tiger Airways CEO stated recently, “When you see some of your

competitors acting like headless chickens it’s very telling”. 7.