UNIT 401 MARKETING

QANTAS AUSTRALIAN AIRWAYS COMPANY

Lecturer:
Submission: 16.04.2014

Student name: Olena Zaterka

Student ID:

869165

EXECUTIVE SUMMARY

TABLE OF CONTENTS
Executive summary
1. Introduction
2. Definition of SWOT and PEST analysis
3. Qantas Airways SWOT analysis
4. Qantas airways PEST analysis
5. Qantas macro-environment
6. Qantas micro-environment
7. Marketing research
8. Segmentation
9. Positioning
10.
Buyer Behavior
11.
Marketing strategy and planning
12.
Conclusion
13.
References

1. INTRODUCTION

http://en.wikipedia.org/wiki/Qantas
Qantas is one of the biggest and the second oldest company in the world. The company has been
found in 1920 but it began running international flight a bit later. Company is a holder of 65%
share of the Australian domestic market. The headquarters are located in Sydney, Australia. The
company has 20 flights within Australia and 21 international destinations all over the world
across Africa, Asia, Europe and America. In the entire Qantas group it serves 65 domestic and 27
international destinations. The Qantas Group's main business is the transportation of customers
using two complementary airline brands - Qantas and Jetstar. Qantas operate subsidiary
businesses including other airlines, and businesses in specialist markets such as Q Catering. The
airline brands operate regional, domestic and international services. The Group's broad portfolio
of subsidiary businesses ranges from Qantas Freight Enterprises to Qantas Frequent Flyer.
They employ over 33,000 people with 93 per cent of them based within Australia.
The company has built a reputation for excellence in safety, operational reliability, engineering
and maintenance, and customer service.
http://www.qantas.com.au/travel/airlines/company/global/en

http://www.slideshare.net/lovebaby193/competitve-analysis-presentation

2. DEFINITIONS OF SWOT AND PEST ANALYSIS

A tool that identifies the strengths, weaknesses, opportunities and threats of

an organization. Specifically, SWOT is a basic, straightforward model that
assesses what an organization can and cannot do as well as its potential
opportunities and threats. The method of SWOT analysis is to take the
information from an environmental analysis and separate it into internal
(strengths and weaknesses) and external issues (opportunities and threats).
Once this is completed, SWOT analysis determines what may assist the firm
in accomplishing its objectives, and what obstacles must be overcome or
minimized to achieve desired results.

Figure 1.

When using SWOT analysis, be realistic about the strengths and weaknesses
of your organization. Distinguish between where your organization is today,
and where it could be in the future. Also remember to be specific by avoiding
gray areas and always analyze in relation to the competition (i.e. are you
better or worse than competition?). Finally, keep your SWOT analysis short
and simple, and avoid complexity and over-analysis since much of the
information is subjective. Thus, use it as a guide and not a prescription.

http://www.investopedia.com/terms/s/swot.asp

In addition to the industry factors that can affect a company's performance, there are also a
number of outside factors that play a role in how successful businesses can be. In order to
determine how big a role those external factors play, many organizations conduct a PEST
analysis. PEST is an acronym for political, economic, social and technological.
To get the most out of a PEST analysis, businesses must understand what each of the four factors
is analyzing.

Figure 2
Political
This factor looks at how government regulations and legal issues affect a businesses chance to be
profitable and successful. Issues that must be considered include tax guidelines, political
stability, trade regulations, employment laws and safety regulations.
Economic
This factor examines the outside economic issues that can play a role in a company's success.
Items that must be looked at include economic growth, exchange, inflation and interest rates, the
current business cycle of the country where the company is located in and unemployment
policies.
Social
This issue analyzes the demographic and cultural aspects that can help determine whether a
business can compete in the current market. These factors help businesses examine consumer
needs and what pushes them to make purchases. Among the items that should be examined are
country demographics, population growth rates, age distribution, attitudes toward work, lifestyle
changes, education and environmental and health consciousness.
Technological
This factor takes into consideration the technology issues that impact how an organization brings
its product or service to the marketplace. Depending on the technology available, it can make it
easier or harder to enter the industry and increase production level. Among the specific items that
need to be considered are any new technology advancements, government spending on
technology research, the life cycle of current technology, the role of the Internet and any changes
to it play and the impact of potential information technology changes.
http://www.businessnewsdaily.com/5512-pest-analysis-definition-examples-templates.html

3. QANTAS SWOT ANALYSIS

Strengths:
1. Qantas is the one of the most famous and oldest brand name all
around the world;
2. Frequent Flyer Program is the most popular loyalty program in the
Southern part of the planet. The marketing strategy of it is to retain the
costumers and create brand loyalty to new passengers;
3. High quality level of customer services provided by company in terms
of wide range of outstanding services;
4. Corporate social responsibility: Qantas takes care in protecting the
environment. They launched the program Fly Carbon Neutral and
established the Qantas Environment and Fuel Conservation group to be
responsible for the environmental issues;
5. Diversity of business: Qantas invests not just in Flying Activity but also
non flying one such as food catering, travel agency, airport and aircraft
engineering etc.;
6. The company has numerous flights of domestic and international
destinations;
7. Provides both premium and low-cost flights and services to satisfy
needs of different income level costumers;
Weaknesses:
1. Employees conflicts make the reduction of the trust of employees to
their company and that brings negative effects to operations of
Qantas;
2. Mostly Qantas depends on local market that built the main revenues of
company;
3. The growing cost of fuel makes negative impact on competitive
position in the market.
Opportunity:
1. Qantas took direction on approving an open skies agreements with US
and New Zeeland;
2. Development in Asia Pacific market will give new opportunities to
increase companys revenues and profits;

3. Under the influence of technology improving Qantas can utilize in

many ways including diversification of the service to customers and
improving aircrafts design;
4. The work on growth of strategic alliances will lead the opportunity to
have wider route network, increase frequency of flight etc.
Threats:
1. Strong competition with other low-cost airways companies
2. Qantas has been affected directly by the increasing in security cost
(especially after the accident on the 11 September 2001);
3. Shortage of pilots and staff;

4. QANTAS PEST ANALYSIS

Political impacts:
1. The liberal policy environment has also favoured new entrants;
2. While domestic airline industry is largely deregulated, Australias
airline industry remains quite regulated at the commonwealth level;
3. Australias international aviation policy has been multiple
designations
4. The industry deregulation in 1990s has given way to a more restrained
form of competition between Qantas and others;
Economic impacts:

The recent past events like 11september and SARS has affected flight
security in the eyes of the customers
Every environmental issue including the impact of increase of fuel, which
either affects basic costs of flights or affects the likeability of customers to
book a flight;
Since the demised on Ansett, the potential for increase competition in the
domestic airline industry through the emergence of new carriers is generally
more favorable now than in the past.

Macro environment

Most Important Macro Environment Factors In Qantas

Tourism Essay
Corporate strategy of Qantas has been supporting all its business objectives and also
employee level individual objectives so that the company produces better results for the
satisfaction of customers. Airline industry is a huge place where different companies are

working and if planning and strategic decisions do not meet the needs of the current
environment of the business than it would be bad for the company. Marketing and
Auditing are the key areas where the strategic decisions of the Qantas have to focus. In
Australia the airline industry has been under crisis since 2000 so the Qantas had to
tackle the situation by strategic moves and proper planning has to be done for that.
Marketing auditing has been done by the company several times to check the
effectiveness of the strategic decisions that were being made to support the marketing
activities regarding new and old customers (Kain and Webb, 2003). In addition to these,
a significant worldwide leaning in rapid look of low-cost transporter was empirical and
the challenge for Qantas to maintain both the low cost and high quality standards was
difficult but workable and it worked on it. Australian airline industry was not opposed to
this, two reasonably priced airlines that is to say wish and Virgin Blue Airlines were
launched in 2000 and so they created a sense of competition in terms of marketing
activities for the company and thus auditing was becoming necessary.
USE OF BUSINESS TOOLS TO UNDERTAKE FORMAL MARKETING, AUDITING AND
PLANNING

Business tools like strategies and customer services tools like software, plans and
policies if used properly for the Qantas would help undertaking the formal marketing,
auditing and planning. Formal Marketing would come if the marketing strategies are
planned based on perfect business tools that are available in the market for market
research, customer analysis and marketing strategy formulations. Similarly if we move
toward the auditing side the structure could be formalized through several business
tools that would automatically generate auditing report to analyze business strategies.
Auditing tools like software tools and business packages should always be a source of
support to undertake more formal strategies to be made, more complex analysis to be
done and more accurate planning to be done. Planning is another major part which
would generate results for the Qantas (Kotler, Brown, Adam, Burton, and Armstrong,
2007). Planning is the most critical part because if its done well, ends well and if not so
the outcome would also get disturbed Planning business tools available in the market
allow us to utilize the resources at best of the capability to make them produce best
results and this is what is needed at the point of time. Qantas has already been using
several different business tools for marketing, auditing and planning and also producing
results efficiently. If further utilized well Qantas can make it a competitive edge for the
company and an effective way to satisfy the customers.

Macro environment of Qantas

Macro environment factors are very important for each business. Economic,
social, technological environmental and legal factor influence greatly on
policies and strategy of company and they are very critical for the success of
Qantas as well. Political factors and Australias laws determines the trends
and profit of the company due to the changes in taxation from the side of
governmental authorities. So it means that the company such as Qantas
should predict and plan the possible changes to be ready for them and have
full control over the company.
Regarding the social factors such as changing trends, dislikes and likes
among customers, introduction of new products and services are essential as
well and greatly make impact on companys revenues. So the Qantas
management should prepare the strategy for company to be n the top of
wave of changes.
Day by day the technological development makes great challenge for Qantas
follow and implement them. Especially the attention should be paid to the
development and research to be the first in improving and providing the best
service and be the step ahead the competitors.
The weather and surrounding countries are considered as environmental
factors. Qantas has to design the strategies to prevent the possible
complications.
Legal factors are last but not the least factors which play part in success of
the company and they play very critical role in making such policies.

MICRO ENVIRONMETN QANTAS

In order to evaluate Qantas Airlines microenvironment, the method used is
the Porters five forces analysis which consists of Threat of New Entrants,
Power of the Customer, Power of the Supplier, Substitutes and Competitive
Rivalry.
Threat of new entrants.
Qantas as one of the oldest airways company has not been affected by
threats of new entrants and has reputation as stable and mature company
providing high level services. But if the entrants created as merging of 2 or
more airlines they can offer more cheap cost of services and the same time

provide good level of services such as Qantas does. In the local market
Qantas is dominating company but the competitors like Blue Virgin, Tiger and
Singapore airways can change the situation because these companies target
is low-cost carrier market andmade influence on performance and operations
of Qantas.
Power of customer.
The choice of the customers choosing which airlines they prefer are more
open due to its variety of offerings from these flight operators with their
competitive prices. Therefore, one company does not have the power to
monopolize the market because of customers have power to choose and
select when they want to fly at the price they are willing to pay. Based on a
research, the power of the flight operators has been decreasing in the late
1990s with business airfares decreasing drastically up to 50%.
Power of the supplier.
The dominating supplier of planes for Qantas was Boeing alongside Airbus and
smaller companies. Pilots and staff had been trained to use the Boeing systems
since the majority of planes owned by Qantas are from Boeing. Recently, Qantas
had purchased a few up to date aircrafts from Airbus, notably the Airbus A380
Jumbo, for their upgrades to their aircraft line-up. Those 2 aircraft producers are
monopolists in the market as they produce high quality planes and provide excellent
safety measures.

Substitutes
For a long distance travelling, substitutes are not possible as there are no
other form of transportation that can compete with what airline companies
can offer which is comfort, the ease of travel, the speed of travelling and also
affordability as compared to other source of travelling such as by car, train,
busses or by sea. Travelling through air is also more environmentally friendly,
able to save a lot of travelling time and can be considered affordable in the
current time.
Competitive Rivalry
Qantas competitors are Blue Virgin and Tiger airways and Singapore airline in
the market. Singapore Airlines has been offering attractive promotions and
discounts to their customers and these have affected Qantas Airlines
operations and profitability in the full-service carrier market. The only way for
these companies to survive is through merging with other airlines company.
Prospects

Qantas Airlines has been collaborating with many other airlines operators to
share international routes for example with Malaysian Airways, where
Malaysia Airlines can fly to more routes that provide them with more profits.
Qantas should also monitor its performance for the unprofitable routes and
cut them off from their offerings so that they could avoid huge losses in the
future.

MARKETING RESEARCH
Qantas is the old experienced company which makes profits from providing
services in aircraft industry. A lot of companies of the same field have great
losses and has to make merges with bigger companies to survive.In spite of
the apparent flushed first impression, the real profitability depiction across
the Group has been diverse, with Jetstar's domestic and global operations
usually performing well, while the Qantas partition of the business has been
performing less than them. This has been critically because business
intelligence is very important. Market research has to be on priority to earn
priorities and thus if company falls down the major issue is low research of
market. Qantas's market share has declined piercingly in the last decade. At
the same time as the airline was in a leading market place with 34.4% of the
passage to and from Australia, from 2010 to 2011 its market share had
declined to 18.7% (Bamber, Lansbury, Rainthorpe, and Yazbeck, 2005).
Intense market research has let it happen and the Qantas has always been
very concerned about that and in response to market needs the launch of
Jetstar was planned, which has fascinated 8% of global passage into and out
of Australia parting the in general Qantas Group with a 26.5% market share
at the end of 2011.
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9.POSITIONING
The dual positioning, as low fare and full service airline, along with an almost
recession proof FFP, offers sound risk management opportunities. But, aside

from the complex direct competitive issues it must deal with, Qantas and
Jetstar have suffered major setbacks in their long-term planning as a result of
aircraft failures - matters well outside their control.
These go much deeper than recent engine problems with the A380. The
delays in delivery of the super-jumbo were not initially particularly painful for
Qantas, as they would otherwise have arrived in the midst of the global
financial crisis. And spare capacity can temporarily be pulled in to cover
much of the gap left by grounding six of the larger aircraft. If that problem is
resolved in weeks rather than months the situation should be retrievable. But
damage containment is not where management's chief priorities would wish
to be right now.
The continuing delays to the B787 are however providing a real drag on the
potential of long-haul Jetstar operations. In addition to the 50 firm orders,
Qantas group originally had more than 50 additional purchase orders but
later cancelled 15 of them, along with adjusting the mix of B787-8 and B7879s. Using cost-effective A330s in their place as an interim measure has been
a consolation, but the core long-haul policy was woven around the
capabilities of the Dreamliner. Each delay is hurting. Meanwhile though, the
multi-layered profile of the Qantas group is so far fortunately showing much
greater resilience than the complex fibres that make up the next generation
machines it plans to fly.

http://www.finance.wa.gov.au/cms/uploadedFiles/Government_Procurement/Publications
/Buyer/bbr_fourth_quarter_2011.pdf?n=1084

MOST IMPORTANT MICRO-ENVIRONMENT FACTORS IN QANTAS

Micro environment has been also very important and several factors are part of micro
environment like strengths, weakness, opportunities and threats of the company.
Qantas Airways, a national Australian airline established in 1920 is the worlds second
oldest airline heading towards a century of age in 2020 (Harcourt, 2004).
Strengths

Along with its subsidiaries served destinees, a number of international flights includes
almost all the continents like Africa, Oceania, Asia, Europe and the Americas.
Being the most oldest in age, Qantas airways is far ahead in experience, operational
accountability, technology and services.
For all classes including economy class a luxurious entertainment system is provided
along with in flight internet facility and with every seat having a LCD screen.
Promising a comfortable journey, traveling by Qantas airlines is cost effective.
A complete cabin system is provided with First class, business class, premium economy
class and economy class categorization.
A paramount commitment is assured through a proper customer charter including
customers safety, in time departure and arrival, proper caretaking in case of any
mishap and securing personal information of their customers.
An environment friendly approach through group environment policy considering all
contemporary issue regarding environment for the attainment of green planet.
Airway team has always been working for providing every possible route that is
extending day by day.
Shows their goodwill gestures at the time of emergency in their own region or for their
own people settled abroad in the course of evacuation charter.

Qantas airways had been declared as World Skytrax Airline of the Year (for five
consecutive years), Skytrax Best Airline Australia (2005, 2006, 2008), and Skytrax Best
Regional Airline Australia (2006, 2008) for their services along with several wine design
and entertainment awards.
Weaknesses

A conservative policy is implicated while flight that children traveling unaccompanied are
not allowed to sit along with male travelers, which compels the men to feel sex
discriminated as females can equally be suspected for child abuse.
Despite being the oldest among the airlines, Qantas airways had gone through one air
accident in almost each decade which indicates inefficiency in technicality.
Due to environmental constraints, some long route direct flights are often delayed.
Opportunities

Proper policies are launched for regular flyers by points earning through any type of
activity that includes money spending, either through hotel staying, credit card usage,
car rentals, dining and much more. Members are also given different types of bounties
time to time. Growing points increases customer value from silver, gold to platinum.
Leases has been announced for new aircraft fleet to cater more passengers,
employment opportunities, services efficiencies and extending flying business.
For promoting businessmen access to world with no trouble a club has been organized
for uninterrupted and luxurious travel with priority check in and certain business related
and personal facilities. Subscription can be made from one to several years.
Threats

Strong response to global fuel price increase, by approximately half doubling the ticket
on nearly 10% increase in fuel prices that has recently been noticed.
Certain attempts of extortion have been made that had an adverse effect on airline
reputation but now they are almost sorted.

Qantas has been accused in 2006 and had been proved guilty for price fixing. They had
to pay they were fined a huge deal of money, if this happens in future will prove a dire
threat to airline reputation.
MARKETING RESEARCH AND MARKETING INTELLIGENCE

Presently the Qantas Group is among one of the few major airline groups in the world
that are still making profits. Several airlines are making considerable losses, and few
mergers have also been seen in past (for instance KLMAir France), takeovers by some
big companies and bankruptcies of firms (e.g Northwest and American Airlines). In spite
of the apparent flushed first impression, the real profitability depiction across the Group
has been diverse, with Jetstar's domestic and global operations usually performing well,
while the Qantas partition of the business has been performing less than them. This has
been critically because business intelligence is very important. Market research has to
be on priority to earn priorities and thus if company falls down the major issue is low
research of market. Qantas's market share has declined piercingly in the last decade. At
the same time as the airline was in a leading market place with 34.4% of the passage to
and from Australia, from 2010 to 2011 its market share had declined to 18.7% (Bamber,
Lansbury, Rainthorpe, and Yazbeck, 2005). Intense market research has let it happen
and the Qantas has always been very concerned about that and in response to market
needs the launch of Jetstar was planned, which has fascinated 8% of global passage
into and out of Australia parting the in general Qantas Group with a 26.5% market share
at the end of 2011.
SEGMENTATION AND SPECIFIC SEGMENTATION VARIABLES

Segmentation is very important and critical for Qantas as it has been targeting the
domestic and international markets together. The economic capability of the Qantas
international business is, nevertheless, vital to the Qantass aims and goals. Dazzling
this, a need to lower the costs is an essential resident of the Group's plan for Qantas.
According to the airline, the cost base is around 20% higher than major competitors
(Porter, 1979). Segmentation should be done accordingly so that the needs are met and
no spaces are left for the competitors to take over. But side by side it is also very
important that the company follows its own capacities while targeting a market segment.
It just does not have the little cost formation of many of the competitors, in particular the
Asian competitors. Segmentation needs to be on the basis on geographic as age,
gender and other factors do not really matter. Segmentation and specific segmentation
variables like demographics, psychographics, buyer-graphics and geographic are
critical if marketing of the company is planned. Pricing standards should be set
according to the needs of the customers and segmentation can be based upon that as
well.
UNDERSTANDING OF MARKET POSITIONING

Positioning has been very critical part of marketing strategy which has to be decided by
the Qantas and it already has done it well. It has positioned its product domestically on
the basis of price penetration while international the positioning is based over quality
more. The major step of positioning policy is to be familiar with likely violent profits.
Qantas has many times for differentiating its extent and augmented insistent benefit
against its rival Virgin Blue from side to side product and service division (Coyne, and
Sujit 1996). We know that Qantas is a most important provider of air transport; the
central advantage that a client will take release of is time-critical transport.
UNDERSTANDING OF BUYER BEHAVIOR

Buying behavior of customer is another major factor which it considers well and
behavior of clients towards the airlines. Customers have always thought of having
privileges in terms of prices and quality of services. Customer behavior has always
been a critical phenomenon to study when it comes to success or failure of a company
(Brandenburger, and Nalebuff, 1995). Customer would like to have proper services and
facilities during the flight with the sense of security and safety during the journey.
Customers preference should always be the center of attention for the company.
Customer is always right and his attitudes and behaviors are always critical for the
success of the Qantas. Behavior of the existing customer of Qantas toward the brand is
loyal but the new customer or the customer who is using competitors services are not
aware of the company strengths completely and this makes it difficult for them to
choose Qantas among all. For this Qantas has to design a very strong marketing
campaign that would bring benefit in terms of customer base and the societal
awareness about Qantas. Customer base when increases bring a lot of benefits for the
company and this should be the focus of Qantas right now.
CONCLUSION

The overall assessment of different factors of Qantas have made us realize that the
market analysis and research is very critical and strategic decisions, planning,
assessments and audition could be done fairly and more accurately after you have
complete knowledge about internal and external factors of the company. Position of the
product plays very significant role in its success or failure so Qantas should take care
about that. Customer behavior also plays very important role and studying customer
behaviors would again be done through the market research activities. Qantas if
focuses all above precisely would get privilege to get success shortly and for long term.

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A formal marketing planning and marketing audit by Qantas would help the airline in getting the
information an understanding of the demands of the customers, market demand, analysis of
competitors in the market, dealers and other forces present in the international market. The formal
marketing planning of the Qantas airline will help it in forecasting the market situations that would
help it in devising strategies for the future. The information obtained through the marketing audit
and planning will not only helps it in the decision marketing process but it would enable Qantas
airline to make strategic decisions and plans. It is important to understand the differences and
linkages between the marketing audit, marketing planning and corporate strategy in order to
recommend a marketing approach to Qantas. The marketing audit requires an organization to
expand the assessment process of market in order to include the whole marketing process in it. A
marketing audit examines the company or a business unit of the company comprehensively,
systematically and periodically.

The Qantas airlines can use the marketing audit in order to re examine its strategies, objectives and
activities that would lead to the improvement in the marketing performance of the company and in
this way it would be able to achieve a larger market share in the international ...

Recommendations:
All things considered, after studied both marketing mix and SWOT analysis, I would like
to recommend the company to improve its operations as follows:

Focus on both domestic and international markets to diversify the risk of domestic
economic, politics, social situations.
Offer new promotions to passengers. For example, when it nearly reaches the date the
flight taken place, company should discount air fare if those flights have remained too
many seats to offset the cost of operations per flights. Consider about employees
relationship, providing proper training, wages or benefits and number of working hours.
Use new technology and well-trained employees for improving airlines services.
Find new alliances and retain the relationship of current alliances that can share benefits
to the airlines.
Continue company social responsibility' and Saving Environments' projects to maintain
good company image.

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http://www.slideshare.net/lovebaby193/competitve-analysispresentation
Macro environment

IntroductionQantas is recognized as the world's leading long distance airways, established in

Queensland in 1920, being the second oldest airlines of the world. Today, the airways provide
flight services across a network of 182 destinations in 44 countries covering all over the world
with approximately 35,700 employees with 93 per cent of them based within Australia. The
Qantas group also offers subsidiary businesses such as budget airlines, Jetstar, and other
businesses in specialist services: Qantas Catering and Qantas Holidays (Qantas, 2010). Our
vision is to be one of Australias great businesses and among the worlds great airline groups
says Qantas Chief Executive Officer Alan JoyceQantas principles are safety as our first
priority, comply with laws and regulations, treat people with respect, act with honesty and
integrity, upholding ethical standards, environmental sustainability and the Group Behaviors are
underpinned by business unit level values which reflect the unique culture and brands of Qantas
and Jetstar are Safety, Service, Innovation, Collaboration, Integrity. Moreover, Qantas supports
better connections with its customers and people thru the sharing the values: * Cares; * Is
forward thinking; * Has wisdom of experience; and * Represents the best of contemporary
Australia.

The airline industry is a rapidly growing and competitive industry that has become saturated with
many firms competing for a market share. Qantas is the leading airline in Australia that has both
a successful domestic and international component. While Qantas has remained competitive up
until now, it is unknown if they will be able to compete with a rapidly growing industry and a
global economy still feeling the effects of the Global financial crisis (GFC). Through the analysis
of the five forces of competition model along with SWOT analysis this report will analyze both
the external environment of the airline industry and the internal environment of Qantas in order
to conclude if they are able to maintain their full service model amongst the competitive market.

The general environment is composed of external environmental factors that indirectly affect all
industries and its firms; the degree of severity differs amongst industries. These environmental
factors are grouped into six broad segments; demographic, economic, political and legal, sociocultural, technological and global (Hanson et al. 2011). Firms are not able to directly control
these factors and it is necessary for companies to understand each factor and its implications
on the industry. The main environmental factor that has been experienced over the last few
years has been a...

The Australian flag carrier undergoes a metamorphosis as it attains 90 years of operations

Now led by the man who established Jetstar, Alan Joyce, Qantas looks to contain stiff
domestic competition and to Asia for its international future. In 2020, Qantas will be 100
years old. On 16-Nov-2010 it celebrated a mere 90 years of operation. Rare among
prominent flag carriers in not bearing its home nation's name, the roots of the airline's
being are buried deep in outback Australia, in what was originally a private company,
Qantas and Northern Territory Aerial Services. This later changed to Qantas Empire
Airways as international services began in 1934 and this became its sphere of activity
when the airline was nationalised in 1947 and all of its domestic routes passed to a new
entity, Trans-Australia Airlines (TAA). Renamed Qantas Airways Ltd in 1967, the
international airline bought the domestic successor of TAA for AUD400 million in 1992
and began a process of privatisation.
It was at this time that Qantas' first big decision about its future became necessary. The
first step towards an IPO, in Mar-1993, was to acquire a cornerstone investor for 25% of
the new company. The two main bidders were Singapore Airlines and British Airways. It
is a matter for speculation how the nature of Australia's flag carrier - and indeed its
national airline system - would have evolved, had SIA won that first important contest. In
fact it came very close, but some last-minute fast footwork by the British carrier
captured the prize. The subsequent public offering was completed two years later. BA
maintained its holding until 2004, when it sold its then-diluted 18.5% share.
In Qantas' chronology of its first 90 years, one short sentence notes "Qantas launches
new domestic low-cost carrier, Jetstar". That brief mention belies the importance to the
Qantas Group of what is one of the more successful airline models in the world.
Qantas' development of its "two-brand strategy" was undoubtedly its most
remarkable and successful strategy - and arguably its commercial salvation - over
the past decade. Its origins can be traced back to the collapse in 2001 of its main

competitor, Ansett Airlines - which in turn was provoked by the arrival of Australia's first
genuine new low-cost airline, Virgin Blue. As Virgin Blue capitalised on Ansett's
departure, Qantas at first watched helplessly as the new entrant gobbled up market
share.
The full service airline had gorged on a history of regulation and weak competition
domestically and was now attempting to match blows with a carrier whose point-to-point
unit costs were at least 50% lower. Attempts to cut fat were initially met with resistance
from unions but the airline's culture and management was in any event not up to
adjusting to this new threat.
Against a background of failed attempts by US and European network airlines to
establish low-cost subsidiaries, Qantas' advisors recommended "segmenting" the
carrier's product between leisure and full service markets, using different seating on
various aircraft. This quickly confused and alienated premium passengers and, after
some rethinking, an independent subsidiary, Jetstar, was established in 2004.
The feared cannibalisation of the parent's product did not materialise. Six years on, this
airline - now the biggest low-cost airline in the region by revenue passenger kilometres represents Qantas' main hope for future growth. It is expanding domestically and
internationally, while Qantas contracts. Jetstar will also be the vehicle used to establish
in new markets as Asian aviation booms over the next decade, using the cross-border
joint-venture model, to complement its Singapore and Vietnam operations.
The premium brand is still valuable and is responsible in no small part for
capturing the sizeable corporate market share. But its profitability domestically on jet
routes is stalling in these price-conscious times, although the turboprop subsidiary,
Qantas Link, has a near-monopoly of regional markets. Qantas also complements
Jetstar operationally and codeshares with the low-cost subsidiary. Today however the
mainline carrier's greatest asset is its brand leverage in generating ever-increasing
profits in one of the most successful frequent flyer programmes in the world, where
membership stretches to one in every second Australian household.
The year 2007 saw the inglorious rejection of a proposed move to delist the group by
taking it private, a failure which, in retrospect, was fortuitous. Had the potential investors
at that time loaded the airline with debt, while simultaneously splitting it into its various
parts (FFP, aircraft ownership, Jetstar etc), there is a better than even chance that the
mainline carrier would have been bankrupted in 2009/10. The planned break-up, similar
to the model that saw Air Canada split out its valuable frequent flyer programme and
other activities, was to have uncovered the "true" value of the airline by exposing its
component parts. This continuing problem for the complex airline entity, of generating
equity valuations at least equal to the sum of its parts, let alone a premium, is a global
one.

Qantas' future as a full service airline must assuredly be to link with another airline.
Following its 1990s ownership history, it was with some irony that Qantas came very
close to buying British Airways in 2008, just before the global economy melted down.
Apart from that near-miss, Qantas has come close to, or been very interested in some
form of combination with each of Air New Zealand, Malaysia Airlines and Garuda
International. If Virgin Blue's codeshare arrangement with Etihad were to evolve into
something bigger, Qantas may even come to wish that partnership option had been
pursued a little more actively.
Qantas suffers the inevitable difficulties of all international airlines at the end of long
routes, with no opportunity for the transfer traffic that is the fuel of modern airline
strategy. The carrier's great strength however, has been its powerful position in the
domestic Australian market. With 65% of total capacity and nearly 90% of the corporate
business in a country that has, so far at least, felt little of the cold winds of economic
downturn, it appears well anchored. But domestic leisure yields continue to slide, as
both Tiger Airways and Virgin Blue compete in a relatively small market, each
threatening to add capacity against sluggish growth next year.
The dual positioning, as low fare and full service airline, along with an almost
recession proof FFP, offers sound risk management opportunities. But, aside from
the complex direct competitive issues it must deal with, Qantas and Jetstar have
suffered major setbacks in their long-term planning as a result of aircraft failures matters well outside their control.
These go much deeper than recent engine problems with the A380. The delays in
delivery of the super-jumbo were not initially particularly painful for Qantas, as they
would otherwise have arrived in the midst of the global financial crisis. And spare
capacity can temporarily be pulled in to cover much of the gap left by grounding six of
the larger aircraft. If that problem is resolved in weeks rather than months the situation
should be retrievable. But damage containment is not where management's chief
priorities would wish to be right now.
The continuing delays to the B787 are however providing a real drag on the potential of
long-haul Jetstar operations. In addition to the 50 firm orders, Qantas group originally
had more than 50 additional purchase orders but later cancelled 15 of them, along with
adjusting the mix of B787-8 and B787-9s. Using cost-effective A330s in their place as
an interim measure has been a consolation, but the core long-haul policy was woven
around the capabilities of the Dreamliner. Each delay is hurting. Meanwhile though, the
multi-layered profile of the Qantas group is so far fortunately showing much greater
resilience than the complex fibres that make up the next generation machines it plans to
fly.
http://www.airlineleader.com/airline-of-the-month/qantas