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1.0 Introduction

The case study B, Qantas Airlines, Dr. Quamrul Alam  of  Monash University has attempted to provide a descriptive account of the on crucial key organizational changes and development of strategies that the Qantas Airline pursued to stay competitive amidst prevailing turbulence in the Australian airline industry. Quamrul positively identifies the major changes in the Australian Airline industries as the collapse of the Ansett group, absorption of Impulse Airline into Qatans, the demise of Australian Airlines, Freedom Air and Jetconnect, and emergence of a stronger rival airline Virgin Blue, and the deregulation policy of the Australian air service that resulted into the establishment of the “Open Skies” agreement between Australia and New Zealand.

2.0 Industry Background

“ Qantas Airline was founded on 16 November 1920 as the Queensland and Northern Territorial Aerial Services Limited that specialized in the airmail services” (Goh, 2004). It enjoyed a lot of subsidy from the Australian government. According to Charles Laudon (2006), in his book “Management Information Systems”, the Qantas Limited then entered into a partnership with the British Imperial Airways Limited to form Qantas Empire Airways Limited which was the only Australian international carrier plying the Brisbane -Singapore route.

Laudon (2006) goes on to add that Qantas reached peak in 1960 when it could spread it operations across the world. Its newly acquired wide-bodied aircrafts operated from Australia to London through Asia, Middle East, and South America via Mexico and United States of America by the close of 1970. In the event of expanding its international market networks, the Airline stopped plying most of the routes following the airline slump. However, Qantas later integrated its domestic operations into the company upon its historic purchase of the Australian Airlines in 1992. “Qantas dominated the Australian airline industry up to the time of its privatization in 1995” (Findlay et al. 2007). Currently, the privatized Qantas Group has about 38,000 employees in its expansive network of 142 destinations.

3.0 Current Position in the Industry

The Qantas Airways Group as it stands today has an outstanding commercial and ownership links with various regional carriers (Findlay et al. 2007). The company runs series of code-sharing and alliance agreements with international carriers and is the second largest alliance in the global airline industry. It is most important to note that the Qantas Group has relied on these alliances and partnerships to proclaim its largest share of the international airline market.  Besides transporting passengers, the Qantas has also diversified to other business portfolios such as catering, engineering, freight, and travel wholesaler subsidiaries.” Qantas Airways holds a larger proportions of share in Orange Star (owns and operates intra-Asian airlines Jetstar Asia and Valuair) and Air Pacific (the international airline of Fiji)” (Collin, 1996).

As entrenched in their 2004 Strategic plans, the Qantas Groups branded their flying businesses under the big two Qantas and Jetstar which jointly operate well over 500 and 700 domestic and international flights on a weekly basis in nearly forty countries. In spite of the recent turmoil in the aviation industry, Qantas Group continues to profitable against expectations of many. Hitherto the company has maintained its reputation, excellence and outstanding performance in the provision of premium aviation service. The Air Transport World Magazine recognized Qantas as the leading Airline of the Year 2004.

After the liquidation of the Ansett, Qantas grew it market share in the Australian domestic airline industry from 55% to 70% (Quamrul, 2007). Nevertheless, the forceful entry of the newly established Virgin Blue into the Australian domestic market posed a high level competition to the Qantas. In bid to counteract the impacts of the Virgin Blue’s low air fare competition in the turbulent airline industry, the Qantas introduced a low cost operating model it inherited from the incorporated impulse Airlines. The retention of Impulse Airline made it possible to derive cost savings from utilizing Impulse’s low operating cost, all economy class and streamlined labor practices.

4.0 Challenges of Qantas in the Australian Airline Industry

Despite Qantas’ dominion of the Australian and regional airline market shares and diversification of the business portfolio, there were a lot of challenges that faced the giant airline company. Surprisingly enough, most of these challenges were never anticipated by the top management because their preventive measures were never included in the Qantas 2004 Strategic plan. Secondly, change in the government policies also contributed to the turbulent airline business environment. Quamrul (2003) observes that many problems that the Qantas Airline faced were largely driven by external factors such terrorism, war in Iraq, and SARS outbreak. This section attempts to discuss the challenges that Qantas Airline face in the Australian airline industry.  

The increased turbulence of the Australian airline industry was largely propelled by the government deregulation policy of the airline industry. Since the Australian government deregulated domestic airline industry in 1990, the two initial two-airline agreement was terminated. “The newly implemented “Open Skies” policy allowed additional airline companies to the Australian airline market” (Ades & Graham, 2003). Air New Zealand and other small carrier companies gained easy entry into the Australian airline industry therefore increasing the level of competition between the airline service providers. Indeed the presence of smaller airline carriers into the passenger transport business dramatically reduced the air fare by larger percentages due to the prevailing pricing flexibility. In most cases, the competitors offered very lower prices far below the limits which the Qantas would afford. This increased the severity of the competition among the Australian airlines as they struggled to lure the available passengers into their services.

The prevailing terrorist attacks on the inset of the 21st Century posed yet another detrimental challenge to the Australian Airline Qantas (Ades & Graham, 2003). After the terrorist attacked United States of America in September 2001, the Americans and other foreigners were deeply engulfed in great fear therefore they could not freely move to other countries. Similarly, eruption of the dreaded deadly SARS outbreak in 2003 also bore a negative impact on the airline industry. As the government tightened security in the domestic and international sectors to prevent possible terrorist attacks, the volume of passenger drastically dropped across its entire network of airline operations.

The third challenge that beleaguered the Qantas Airline besides competition was a surge on the fuel prices. In bid to counteract the aftermath of high operational costs, the Qantas Airline was under an obligation to raise its fuel surcharge on both domestic and international flights. Definitely, the airline was uncertain of the impacts of their surcharges increment on the volume of passengers. As explained by the author, the extraordinary rise in the fuel prices vehemently destabilized the Qantas Airline in its incessant attempts to recover from the ongoing stiff competition caused the Australian deregulation policy that introduced many smaller airline carriers into the passenger business.

The author attributes the global fuel shortage and its inflated prices to the then ongoing war in Iraq. Suffice it to say, the long term and short term aftermath of the United States led Iraqi war crippled Qantas Airlines to a greater extent (Quamrul, 2003). During the entire period of the war, the Qantas had to cancel most of its flights going across the Gulf region and the adjacent destinations. In this manner, the passenger volumes were drastically dropped thus very few airline carriers remained in business. The disrupted fuel supply and the exorbitant pricings of the few dealers could not allow the Qantas Airline to hedge fuel prices then. As a result the Qantas Airline had to rely on the unscrupulous dealer for its supplies.  In separate count, the author hypothesizes that the disbandment of the Price Surveillance Authority (PSA) could have drastically accelerated the crisis of the fuel overpricing in the Australian Airline Industry.

5.0 How the Qantas Prepared Itself for the Challenges

There were a number of strategies developed by the Qantas Group to counteract the undesirable aftermath of the challenges posed to its operations in the Australian Airline industry. Brett Godfrey, an executive of Virgin Express, proposed the idea of establishing a Virgin-branded, low cost, low-fare carrier operating in the Australian domestic market. The proposal was formulated as a policy to compete favorably with the main rival and competitor Virgin Blue. In this approach, the Qantas employed the market segmentation strategy whereby the company adopted two brands to target different markets. The Qantas’ Jetstar model remains the most ideal low-cost carrier in the world tailored to meet the growing demands of the Australian oligopoly market.

The Qantas Airline also makes good use of competent staff to provide quality services to its clients (Benette, 2009). According to the findings of the research survey, 42% of the airline customers are satisfied with the services offered by Qantas and the company enjoy an outstanding reputation for providing quality services to its clients. In order to realize this objective, the staffs are not only properly trained on how to meet high standards of customer expectation but they are also motivated to deliver quality services. The report reveals the Qantas pays its pilots 36% above what the competitors (Virgin Blue) offer. Considering that the airline company is under an obligation to scale down its operations, it downsizes its employee as a cost-reduction strategy.

Thirdly, the Qantas Airline has ventured into the fallow leisure markets. By expanding its travel agencies across the targeted market, the Airline is capable of marketing its inclusive packaging with airfares. This kind of specialization in the airline industry gave the company an added advantage over its competitors because none of them explore the field at the time. Unlike the other competitors, the Qantas diversified so much in its business portfolio. This is one sure way of reducing and preventing possible risks and uncertainties in the future. In the event that the airline industry suffers a loss, the Qantas can recover can recover the loss from other industries such as engineering, catering, freight, and travel wholesaler subsidiaries

6.0 Management of the Upcoming Issues

The Qantas Group is applauded in the manner in which it conducted restructuring in response to the ongoing changes in the Australian airline industry market. Driven by the fear to survive apparent competition in the passenger carrier business, the Qantas initiated a restructuring program in good time that articulately saw the establishment of businesses in three categories namely flying business, flying services, and associated business with the sole intentions of enhancing accountability, agility and collaborations (Bindloss, 2002). At the same time, the Australian airline maintained its core business of providing human resources, information technology and financial services. Throughout its business operations, the Airline Company perfectly managed its partnerships and alliances so as to increase its profitability.

7.0 Conclusion

Changes in the internal and external business environment are liable to occur from time to time. In the event of their occurrences, they affect the usual operations of any business unit. As evident in the case of Qantas in the Australian airline industry, the company is affected by changes in the business environment due to deregulation policy of the Australian government, emergence of terrorist attacks, Iraqi War and SARS outbreak. These factors directly reduced the passenger volumes, introduced acute competition among the airline carriers, and increased fuel prices. The Qantas survive these challenges and further ensure profitability for its product diversification, partnership and alliances, and restructuring programs.

Code: Sample20

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