Professional Documents
Culture Documents
Role of Operations
Cost leadership
Qantas main costs are staff (26%), aircraft operating e.g. maintenance
(20%), fuel (25%), depreciation (9%), marketing (4%), IT (3%) and other
(11%).
To gain cost leadership, Qantas must find ways to minimise costs, and
targets cost reductions of $1.5 billion over the next 3 years. Therefore
Qantas aims to use the least amount of inputs to deliver one output. This
can be achieved through:
o Economies of scale. Qantas has tried achieving this by being in the
Oneworld Alliance, and by being a part of the alliance they have
expanded route networks and streamlined processes, therefore
improving customer service, increasing passenger volumes and
reducing costs through economies of scale. Qantas can also
negotiate lower fuel costs due to needing much greater quantities
of fuel than its competitors.
o Standardising its services to destinations.
o Adoption of advancements in technology to reduce labour costs.
o Making waste reductions. In 2011 Qantas achieved reductions in its
electricity, water and waste due to recycling, energy efficient
lighting, water saving devices, and energy efficient material.
Differentiation of product/service
This approach does not mean competing on cost but by adding features to
differentiate its product/service from its competitors.
Qantas is the largest Australian airline offering comprehensive domestic
and international coverage
Jetstar is for price conscious customers while Qantas is a full service
airline.
Offers business and economy on domestic flights and First, business,
premium economy and economy on international flights.
Has comfort based features such as the Skybed, lounges, online check in
and self-service kiosks this differentiates the product.
Interdependence with other key functions
Because of its central role, operations at Qantas must be performed in
coordination with other business activities. Human resources, finance and
marketing exist because of and to support the operations function.
However, operations cannot succeed without their contribution to and
direct participation in the transformation of inputs into the final outputs.
Operations uses employees as a major input for their processes, and
human resource managers provide the following services to them:
o Recruitment of staff Pilots to baggage handlers and cleaners, a
hierarchical recruitment, encapsulating the many roles that infuse
to operate the business
o Training and development. When Qantas receives new planes, such
as the Boeing 787, there will be a need to train pilots, maintenance
crew and cabin staff to effectively integrate the new craft, allowing
Influence of Operations
Globalisation
Globalisation has increasingly outsources some of its functions such as
maintenance and IT to lower its operational costs.
Additionally, globalisation has enabled Qantas to access new markets
overseas, with more than 70% of its assets geared to the global market. To
maximise their growth potential, continuing to give returns to customers,
provide its services to customers and to spread the brand, expansion into
overseas markets are essential. This can be seen through their intention to
set up a new premium airline in Japan and another low cost airline in Asia
to take advantage of growth in that region.
Although globalisation has raised some benefits for Qantas, it has also
introduced overseas companies which compete for cost leadership and
increase competition, with 70% of the 40 airlines which fly to and from
Australia receiving financial assistance from their governments, distorting
the market and making it hard for Qantas to stay competitive.
Technology
Qantas has decided to use the new A380s which have greater capacity
and are more fuel efficient. Additionally, the A380s provide comfort based
features such as flight entertainment systems as well as upgrades to
business class in terms of allowing them to use laptops and send emails
and texts during flights.
Qantas spends about $300 million a year on training and any significant
technological changes require staff to be retrained, therefore increasing
the cost of this. An example is when the airlines reservation was shifted
onto Amadeus and therefore 10000 staff needed to be retrained.
Quality Expectations
Constant pressure is placed on Qantas to ensure customer expectations
are fully met, and if possible, exceeded. This has been achieved through
maintaining its high level of service and upgrading their comfort based
Cost-based Competition
Qantas has attempted to minimise their costs through introducing new
technology, seeking alliances, outsourcing, reforming human resource
practices and restructuring. These changes have affected the current
stakeholders as seen by their aim to outsource maintenance jobs resulting
in industrial action.
Qantas faces significant competitor growth in all markets which impacts
on their market share and profitability
This means an ongoing focus on cost minimisation
Many of Qantas competitors have significant cost and structural
advantages such as lower labour rates, lower rates of taxation, cheaper
financing, lower airport charges due to the global market that each
organisation is competing within
Qantas has been under some criticism as of late with the quality of its
services with increased safety incidents and the shutdown of its services
in the battle with the unions in 2011
Government Policies
The domestic airline industry has been deregulated for some time,
however recently, the Federal Government has been increasing access to
Qantas protected international routes for airlines like Delta, Virgin,
Emirates, Etihad, Qatar etc
In 2008, Australia and the US signed an Open Skies Agreement which
removed restrictions on Australia and US services between the two
countries
The Federal governments new policy the Fair Work Act has increased
Qantas operating costs, due to supporting workers.
The government basically screwed Qantas over by letting its competitors
to access Qantas protected international routes, therefore making these
routes less profitable.
Due to the implementation of the carbon tax, Qantas is likely to receive
hundreds of millions of dollars in expenses - $23 per tonne of carbon
dioxide produced effecting full domestic airlines
The carbon price does not apply to international flights. Flights to and from
Europe will be affected by the European Union's Emissions Trading
Scheme.
Legal Regulations
Qantas is subject to regulatory control of the Civil Aviation Authority and is
required to hold operating licenses
The regulations all three levels of government implement affect Qantas by
increasing their costs and trying to increase conditions of employees.
Examples include:
o Restricting foreign investment to 49% under the Qantas Sales Act
1992.
o
o
Environmental Sustainability
Due to growing public concern and awareness there has been pressure put
on Qantas to maximise its use of renewable resources as well as recycling
non-renewable resources to promote conservation environmental
impacts become more transparent, and is therefore central in Qantas
concern to remain environmentally stable
For Qantas, the Boeing 787 and Airbus A380 on order are significantly
more fuel efficient than the ones replaced responding to environmental
concerns and presenting a positive brand image
Ethical and Social Responsibility
Due to increasing social expectations in terms of businesses acting
morally, there is pressure on Qantas to take into account the
consequences of their actions on stakeholders and ensuring those
decisions are socially and morally responsible. Examples include:
o Having a health surveillance program to constantly monitor
workplace conditions.
o Donating $2 million to charitable causes in 2011.
o Implementing a Reconciliation Action Plan, a program which focuses
on employing Indigenous Australians.
Operational Processes
Inputs
Transformed resources are the items which are changed by the operations
process, and in terms of Qantas, include:
o Materials - Includes raw materials used such as fossil fuels and
intermediate goods such as the food ingredients for their catering
services.
o Information Qantas uses information when the data they gather is
analysed and used directly in the process of the business, such as
the bookings made by customers are used to determine which
aircraft to use and which services to offer.
o Customers Qantas transforms their customers from changing their
location point from where they start and their new destination.
Transforming resources are resources which perform the changes in the
operations process, and consist of:
o Human Resources, used by Qantas to operate and maintain
machinery and equipment used for processes, as well as to manage
certain business department. For Qantas to be successful, they
need to ensure that HR employs and retains high quality staff by
providing good wages, working conditions, benefits and motivation.
o Facilities Facilities such as aircrafts, maintenance bases, and spare
parts holdings. To be competitive, Qantas has to ensure that its
facilities are located, designed and fitted out in optimum
circumstances.
Transformation Processes
Logistics For Qantas this is the task of having all physical inputs in
the quantities needed in the right place at the right time for the
operations process to take place undisrupted.
Outsourcing
Outsourcing is the use of external providers to perform a part of Qantas
operations process. There are various advantages and disadvantages that
outsourcing brings to Qantas.
Advantages of Outsourcing for Qantas:
o Saving in the cost of labour due to not having to hire the people for
that function.
o Saving in the costs of factory space and machinery.
o The other business being able to achieve better economies of scale
than Qantas.
o Access to higher levels of skill which Qantas currently does not have
access to.
Disadvantages of Outsourcing for Qantas:
o There is a dependency on the other party for supplying the inputs,
with failure to do this causing major internal disruption and
expense. This can be seen through the shutdown of their check in
system in November 2011, controlled by a business they outsourced
to.
o Qantas has less ability to control the Quality of the inputs.
o Damage to public image as a result of publicity about jobs going
offshore, as seen recently.
o The costs of the expense of redundancies and setting up the
outsourced function may be higher than the savings they will make.
Technology
There are decisions that Qantas needs to make in terms of technology due
to airline technology being complex and continually being advanced and
updated. There are two main categories, and the business needs to find a
balancing point between the two:
o Leading edge This technology is the most innovative or advanced
during the time, and successfully integrating it into the market can
have very significant effects in competitive advantage and being
able to charge premium prices. There are also high risks to
implementing leading edge technology, including the lack
competency of technical support for it during that time, as well as
the decision to adopt the technology may be before it has fully been
developed and adapted for the purpose intended.
o Established technology Technology that has already been
developed and widely used, examples including CAD, CAM and
electronic funds transfer. Due to these items being tested over time
it attracts no risk, though will not improve competitive advantage.
Inventory Management
Inventory refers to all the inputs, unfinished goods and outputs held by the
business at a point of time, and the extent to which a business holds them
is an important operational decision, due to the significant costs which are
associated with them.
Qantas needs to ensure that they do not hold excess quantities of stock to
not impose additional costs on production, though enough to not disrupt
customer demand resulting is loss of sales.
Quality Management
To maintain its quality, Qantas needs to ensure that it manages its
functionality, appearance, and reliability to ensure they satisfy customer
expectations, if not exceed them.
For many years Qantas has marketed its Qantas brand as a premium, full
service airline with a perfect safety record, as well as Jetstar being a no
frills low cost airlines. During 2011 Qantas marketing plan received a
battering due to mechanical breakdowns and the sudden shutdown of all
services with consequent serious loss of customer satisfaction.
There are three aspects to quality management at Qantas, including:
o Quality control Qantas carries out programmed inspections at the
key stages of Qantas services, to ensure the process is meeting
specified standards. If it does not, corrective action is taken to bring
it back to standard, trying to solve the root cause of quality
problems at Qantas.
o Quality assurance Qantas has implemented a minimal level of
satisfactory quality at all stages of production, continually
monitoring actual results in comparison to pre-determined
standards. It attempts to broaden the organisational responsibility
for quality at Qantas.
o Quality improvement Qantas aims to improve their quality over
time, and this is achieved through reducing errors, finding better
ways to perform tasks or trying to provide higher quality services at
the same cost.
Overcoming Resistance to Change
There are a range of factors which encourage or even force Qantas to
make necessary changes in a business operation. By responding to
change, the business must review the current business model and find
greater efficiencies. The business has to be dynamic, to synchronise with
the dynamic business world. Change is necessary for business survival,
though implementing change may be difficult because of financial and
human restrictions.
Financial resistance to change occurs in Qantas due to the immediate
costs of changes, and this consists of:
o The cost of new equipment, accumulating to multiple billion dollars
on expenses, including new and more efficient aircraft, which have
projected costs of $22 billion US between 2011 and 2018, and new
passenger and surveillance screenings resulting in over $1 billion
since 2001.
o Redundancy costs to reduce staff can accumulate significant costs
for Qantas.
o There are significant costs that incur due to retraining. By adopting
a new reservation system, introducing a new business class, and
annual security training and engineering and maintenance for new
aircrafts, Qantas needs to spend $300 million on training alone.
o Due to the acquiring of new aircrafts Qantas needs to reorganise its
maintenance operations to seek increased capacity and efficiency.
Human Resistance to change can affect Qantas due to the impact these
changes have on stakeholders:
o Inertia An unenthusiastic response of some managers, staff and
owners can be associated to change due to fearing what will
happen.
o Psychological distress may be caused due to a change in skillset,
thinking that their current skills may no longer be required, meaning
they will need to learn new skills. This give rises to feelings of
personal insecurity and inadequacy.
Global Factors
Global sourcing is the sourcing of any task or component in the Operations
process from a location that incurs cost advantages, such as China, or to
access new technology that is currently not accessible in the home
country. Qantas employs New Zealand pilots and cabin staff in other
countries to receive a cost advantage, as well as intending to set up a new
low cost carrier based in Asia to reduce production costs and compete with
other Asian carriers.
Globalisation gives the opportunity for lower production costs due to larger
production in another country. In terms of economies of scale Qantas has
decided to have maintenance of the new A380s carried out in Asia, due to
Asian labour rates being lower, though due to these decisions trade unions
attracted publicity which resulted in 2011 due to jobs being exported.
Due to increased competition and new technology Qantas must be
continually informed of global developments and continually test for their
application to current operations. By using this data and information it
allows management to be more informed for potential input or changes in
the operations process.
Due to being a service based business few tasks which could be termed
R&D are actually carried out, since most of the research and development
is done by Boeing and Airbus.
Marketing
Role of Marketing
Interdependence with other Key Business Functions
Finance depends on marketing to generate funds for developments of
marketing strategies. Marketing strategies are judged through the use of
financial criteria such as sales, market share and profitability analyses,
and then can take appropriate action.
It is the role of human resources to employ staff to uphold the service for
the business that will satisfy customers. As staff greatly affects the
effectiveness of Qantas marketing strategies, the marketing department
is aligned with HR in developing job descriptions and designing training
programs because its a serviced based business staff are directly
involved the execution of the product
Through the use of sales promotions, the marketing department can help
Qantas boost sales in non-peak times therefore helping smooth
operations at Qantas in times of fluctuations in demand.
Influences of Marketing
Strengths
65% domestic market share.
Globally recognised brand name
and logo.
Recent lowering of costs and
efficiency gains.
Opportunities
Developing further E-commerce
operations.
Continually evolving aircraft
technology.
Creating a new premium airline
based in Asia.
Weaknesses
High risk nature of airlines.
Higher labour and other
operating costs than other
competitors
Recent safety incidents
tarnishing the Qantas image.
Threats
Further weakening in the
international economy.
Further increases in fuel costs.
Competitive challenges, both
domestically and internationally.
Market Research
Qantas uses market research to gather and analyse information to allow
them to make appropriate marketing decisions.
First Qantas identifies information needs, through gathering information on
customer needs, attitudes, and brand preferences.
Qantas uses both primary and secondary sources of data collection.
Primary data is collected through ongoing surveys of passengers in flight,
complaint monitoring and mail based surveys. Secondary data Qantas
uses includes government statistics, airline magazines and reported
interviews with competitor executives.
Qantas then analyses and interprets the data, and one example of this is
replacing cold food boxes with hot breakfasts and dinners in response to
the surveys.
Market Objectives
Qantas main marketing objective is to build 2 leading complementary
brands, Qantas the premium airline and Jetstar the low fares airline. Its
other objectives include:
o Maintain domestic market share of 65%
o Match capacity with demand by sustaining loads around 80%.
o Increase internet sales
o Increase customer service standards.
Identifying target markets
Market segmentation allows Qantas to better meet the needs of all its
customers, compete more effectively, and to better tune its marketing mix
to particular groups in the market so that it is optimised.
Marketing Strategies
Positioning is the image that Qantas projects in relation to its competitors.
Qantas brings attention to its service through using positioning strategies
such as:
o Positioning in relation to its competitors Launching no-frills carrier,
Jetstar, to arrest erosion of market share to Virgin Blue.
o Positioning in relation to a target market Qantas has concentrated
on securing the lucrative corporate/business market through its
lounge upgrades and Frequent Flyer Scheme.
Qantas uses multiple pricing methods including cost plus margin, market
and competition based.
Qantas also uses a variety of pricing strategies for different branches of
the Qantas group, such as penetration pricing for Jetstar, full fares for
those who want flexibility, promotional fares which are offered in the
economy cabin to sustain loads around 80%.
Qantas has used loss leading through Jetstar when it first launched in May
2004 to gain initial market share, as well as using it again on their SydneyMelbourne route for as low as $19 to coincide with Tiger Airways entry.
Qantas spends more than $300 million a year on training staff to ensure
they have a very positive interaction with customers. Also, Qantas
provides a uniform for all staff to improve their professional appearance.
E-marketing
Qantas uses e-marketing through the use of emails to send out FFP
balance emails as well as special offers, and uses its websites to allow
customers to book flights, find about flight details and the latest product
innovations.
Qantas has recently ventured into Social Media as a form of marketing
through Twitter and Facebook, holding competitions and information their
customers about the latest innovations.
Global Marketing
Qantas uses the same brand and logo globally, and due to its strong global
brand it allows them to increase their international revenue and growth, as
well as protecting them from international competition.
Qantas standardises most elements of its marketing mix such as product
design and brand name, allowing them to achieve economies of scale. The
One World name and logo appears on all member planes and ticketing,
helping Qantas to improve its corporate image in new markets. Because of
this alliance Qantas can capture a greater market share and of the
premium customer segment.
Qantas plans to use a customised marketing approach with Jetstar Japan,
adjusting its marketing mix to suit this particular global target market.
From this, the airline is likely to adopt a more culturally sensitive style,
making menus focus on Asian dishes and flight attendants being fluent in
Japanese.
Due to many unforseen events occurring in the airline industry
environment, Qantas has implemented a systematic base for continual
monitoring, controlling and adjusting of its market activities through
developing financial forecasts such as past sales data and statistical
models as well as comparing actual and planned results through analyses.
After this, Qantas takes corrective action if appropriate. Examples of this
include revising their marketing strategies by lowering prices to stimulate
demand, reducing flight frequency, and cancelling and delaying orders for
planes when it forecasted a 6% growth in 2009 but experienced 1.9%.
In response to significant losses in 2011, Qantas undertook a
comprehensive audit of its international operations.
Finance
Role of Finance
Interdependence with other key business functions
Finance depends on marketing to generate funds, and finance is in charge
of allocating the business funds to marketing strategies such as Qantas
new lounges, check in facilities and new carriers flying into China.
Human resources require funds to remunerate staff as well as to fund
effective human resource strategies such as training and development,
spending over $300 million a year on staff training.
Operations also require funds such as to increase their budget on capital
expenditure from $2.5 billion in 2012 to $2.8 billion in 2013.
Influences of Finance
Global market influences
Prior to the GFC Qantas benefited from strong global economic growth that
increased demand for its services, resulting in a net profit of $970 million
in 2008. The 2009 GFC caused rapid revenue decline, leading to an 88%
fall in net profit. Qantas quickly responded by cutting flying capacity,
restructuring, and deferring and cancelling orders for new planes.
The current global uncertainty of the economy affects Qantas by:
o Lowering its equity valuation
o Increasing the costs of borrowing
o Lowering economic growth in most developed countries.
Revenue Controls
The total revenue of Qantas grew by 8% in 2011, and strategies have
been implemented to control revenue including:
o Reconfiguring planes with more economy class seats in response to
the current fall in demand for premium seats due to the GFC.
o Maintaining competitive pricing through discounting on airfares to
preserve loads of 80%.
o Targeting new markets through the expansion of Jetstar due to its
profit domestically to places such as Asia. Planned launching of
Jetstar Japan in 2012.
o Implementing fuel surcharges to recoup the large loss due to the
sharp increase in fuel prices.
Liquidity
Currently, the current ratio is at 0.9:1, a decrease from last years 0.93:1
Gearing
Due to the capital intensive nature of the industry Qantas is quite heavily
geared and from 2010 to 2011 Qantas gearing has increased from 104%
to 112%.
Due to decreasing interest rates and a favourable aviation operating
environment, Qantas launched an ambitious fleet renewal program
causing the gearing to increase from 2008, carrying more risk though
having more potential to make a higher amount of profit.
In recent years Qantas has shown its concern in its debt levels due to the
global economic recession due to having their credit rating reduced
meaning a decrease in their competitive advantage, and this was shown
from their response of a $500 million share issue in 2009 making their
source of funding less reliable on debt.
Therefore depending on the current situation Qantas is in they would
choose from a variety of sources of funds including cash, equity, debt and
lease finance.
Efficiency
Due to the airline industry being attributed to low profits and high costs
Qantas has a relatively high expense ratio.
Since 2009, Qantas has been steadily decreasing its expense ratio to 97%
at 2011, which reflects better than some airlines though not to others, an
example being Singapore Airlines that has 91%.
The airline industry also uses the Revenue Seat Factor Ratio as an
indicator of efficiency, measuring the percentage of total passenger
capacity utilised by passengers.
This ratio has been steadily residing from 81% in 2010 to 80% in 2011,
and compares favourably to competitors such as Singapore Airlines 79%
and Air New Zealands, 82%.
Qantas has tried to improve their efficiency by:
o Using more fuel efficient aircrafts such as the new Airbus planes,
reducing fuel expenses due to using 25% less fuel per passenger.
o Expanding the amount of internet bookings, resulting in a lower cost
of sales.
o Reducing overhead costs due to improved economies of scale.
Ethical issues related to financial reports
Financially Qantas safeguards its ethical and legal behaviour through:
Human Resources
Role of Human Resources
Interdependence with other key business functions
Finance helps human resources through remunerating staff as well as
funding their strategies such as training and development, as well as
affecting staff levels and the level of industrial disputes due to cost cutting
actions such as outsourcing and cutting flights.
The right staff must be employed and trained to create a service which
satisfies Qantas customers, therefore impacting on marketing positively.
Outsourcing
By using subcontractors, Qantas can create cost savings, access greater
expertise and improve its competitiveness. Qantas has already outsourced
these functions:
o Jetstar outsourced its entire call centre operations to Melbourne
Operator Sales Force.
o Outsourced its domestic voice, data and domestic services to
Telstra.
o Outsourced its data centres to IBM.
Qantas has also adopted the use of global subcontractors to access cost
savings, though this has had a negative effect due to industrial disputes.
Examples include:
o Outsourcing its maintenance jobs to Singapore and New Zealand.
o Outsourcing its IT applications support and maintenance to 2
companies in India.
o Outsourced its entire reservation to a Munich based company called
Amadeus.
Influences of Human Resources
Stakeholders
Qantas management Qantas has a higher cost base than its
competitors due to being locked in rigid union agreements and the
accelerated deterioration of the airline industry, they have recently
reformed its employment relations practice to cut costs and improve
labour flexibility. Some examples of actions they have performed include
restructuring its organisation, outsourcing more functions, relocating staff
overseas and hiring more casual staff. Through these actions Qantas has
taken a relatively confrontational stance with the unions.
Employees Qantas employs over 32,000 full time employers consisting
of pilots, other flight crew, and cabin crew and ground and admin staff.
They are currently concerned with job security, levels of pay and working
conditions, and have heavily supported union action. Employees have
been angry at Qantas reaction towards industrial relations and the length
of time it takes to end some disputes.
Unions Employees of Qantas are represented by 16 different unions
including the Australian Manufacturing Union, Australian Services union
and the Australian Workers Union. They play a role in controlling and
resolving industrial disputes and negotiating new enterprise bargaining
agreements, assisting employees. They are the key insinuator of industrial
campaigns against Qantas actions to reduce labour costs.
Employers Associations Qantas is a member of the Australian
International Airlines Operation Group and makes sure that both
domestically and internationally the concerns of Qantas are represented to
the government and to the community.
Government organisations Governments implement employment
relations legislation, important legislation governing Qantas such as the
Fair Work Act, Corporations law, WH&S Act and Workers Compensation.
More part-time and casual workers have been employed to reduce costs
and improve their international competitiveness, which has been a
contributor of the reduction of $4.4 billion worth of expenses in the last 8
years. This has allowed Qantas to be flexible in coping with peaks and
troughs in demand.
Qantas has now outsourced many functions such as IT, call-centre
operations and maintenance.
There has also been an increase in the participation of women, comprising
of 42% of Qantas total workforce with 29.9% of female employees
occupying senior roles. Qantas has responded by implemented further
family friendly practices such as building child care facilities and a keep in
touch program for staff on maternity leave. This has led to very high
retention rates of women returning from maternity leave of 97% and 100%
in 2010.
Due to population shifts Qantas has a more culturally diverse workforce.
Qantas management has tried created a workforce free from
discrimination and promote tolerance.