Two aspects of External and Internal Environment for Qantas
According to Qantas investor day (2015) airlines group is made up of Qantas, Jestar and the Qantas loyalty program. Their group strategy is to deliver sustainable returns to shareholders with safety always being their first priority. The airline has had many adapt to changes in the external environment due to the global financial crisis (GFC) in 2008. These changes have had a very drastic impact on the company’s internal environment as will be explained. The airline was in merger talks with British Airways during the same year to benefit from the economies of scale by buying more aircraft together and merging IT and frequent flier programs. According to Hanson (2010) new CE, 28 November 2008, Alan Joyce stopped the merger talks and focused the airline on core business competences to help them get through the GFC.
According to Hanson (2010) Qantas decided to order 115 new aircraft in 2005 and the CEO, Geoff Dixon announced they would also be outsourcing 7000 jobs overseas in an effort to reduce costs. The mainetence work, which is one of Qantas’ core competenece, would be given to Luftansa which also has an excellent safety record. Alan Joyce change to focus Qantas on its core competence and according to (Creedy, 2014) Qantas brought the maintainance work back to Brisbane for the majority of their fleet but they plan on offshoring the maintainance to Singapore, Germany, Hong Kong, the US and Britain. These decisions are to reduce costs and to therefore be competitive in a very competitive industry but you they have much bigger competitors like Emirates that they can’t compete with in terms of scale so Qantas needs to look at the external environment and focus on core competences is can beat it’s by adding more value that customer are willing to pay and a differentiation that cannot be easily copied.
External Environment- Geography
External environmental factors like geographic location have a large impact on future revenue. According to Hanson (2010) Asia and Africa has the largest projected growth by 2050 and “… it isn’t unusual for students to travel to five or more countries on holiday before they obtain well paid work” (Hanson, 2010). Qantas can market its superior maintenance record if it can establish a base close to growth. Hitt, et al. (2015) explains how Qantas had started off with routes to and from Australia and it is the incumbent in the local Australian market. As long as the Australian population chooses Qantas then it should stay in business because of its location and importance to the local market. Qantas is 55% Australian owned, 25% owned by British Airways. Ansett has gone out of business in and Virgin Blue entered the local market as a well branded low cost competitor. Qantas in response launched a low cost airline called Jetstar utilizing its low cost value chain and internet bookings with lower payed pilots and cabin staff.
External market trends show growth in Asia and Africa and Qantas needs to be closer to those markets to offer new customers its safety record core competence. Qantas although needs to develop core competence in integrating horizontal acquisitions and building a business outside of Australia.
“Air New Zealand and Qantas, have several times claimed that Emirates is, through these tail-end charlies, dumping capacity in the trans-Tasman market, seeking only to cover its marginal costs and in the process driving down fares to levels unprofitable for competitors. Another problem in aeronautical relations with Australia centres over the imbalance in benefits from the air service agreement, with the benefits so heavily slanted in favour of Emirates. Qantas has complained that the operations of sixth freedom carriers – SIAas well as Emirates – have been responsible for a sharp fall in its market share of international traffic to / from Australia. And in the future, with Emirates seeking to double flights into Australia, Qantas is going to feel its geographical disadvantage even more… The UAE maintains an open skies policy and so it could offer Qantas the opportunity to set up a hub in Dubai. But this might well be something of an empty gesture (as it was regarding Singapore) given that Qantas would still need fifth freedom rights to operate beyond Dubai. As a third / fourth freedom carrier Qantas also complains that Emirates simply diverts traffic, but more than 80 per cent of the passengers Emirates currently carries in and out of Australia are flying to / from cities not served by Qantas, for example Paris, Zurich, and Vienna ( Airline Business , 2006). But because a third / fourth freedom carrier cannot match the sixth freedom carrier’s economies of route traffic density, it is bound to be at a competitive disadvantage, due to the geographical accident of its home country’s location.” (Mullins, 2014)
The argument of location and Emirates dumping capacity is a serious concern especially, even with the hub location and the brand image of Qantas safety record it. The recommendation is to perform a study on the feasibility of setting up a hub of operations in Dubai taking advantage of the access to new customers and marketing the core competence of perfect safety record that cannot be easily copied.
External Environment- Technology
Drucker (2006) explains that marketing and innovation are the only departments that make money for a company. Technology in the current external environment with regards to airlines is an area that Qantas can innovate and market. A simple step to improve the customer experience is to improve the customers access to the internet in Qantas lounges. Including charging ports for everyone and having extremely fast free internet for only Qantas customers while waiting and if possible while on the aircraft will differentiate Qantas from the current competition. Qantas could also use their current website and include live video feeds off many great places for all the locations they fly. Qantas would likely need to outsource the setup of these technology and user experience innovations and therefore it would not likely impact the internal environment. This would however add to the Qantas brand of innovative great user experiences and the airline should continue to focus on developing it’s competence in user experience research. A budget and even a merger with streaming providers or telephone network opeators Qantas customers can benefit from new technology like streaming via 5G network expected in 2020. This will make it possible for customers to have an augmented or virtual reality live video stream of location around the world. Essentially traveling anywhere around the world without moving out of their homes. This is a possible disruptive technology innovation Qantas can position its brand globally before competition. People will always need to travel physically but setting up the infrastructure and brand to for people to all meet through Qantas virtual network will allow everyone with an internet connection to travel every day anywhere in the world for very low costs to consumers, maybe subsidized by advertising.
Qantas has a tangible assets like the aircraft and staff but it has one intangible asset that cannot be copied, its long history in combination with a perfect safety record. The airline operates in a very competitive external environment and beat its competition it needs a product of moving customers through the air with superior attributes for which the customer is willing to pay. Value chain activities can be outsourced to reduce costs and by increasing the airlines size it can achieve economies of scale to compete. Qantas need to identify its sustainable advantages that are valuable and costly to imitate or cannot be substituted. Airlines can be located anywhere with the right political and legal support it means airlines can copy successful business models. According to Qantas Investor Day (2015) low cost airfares using Jetstar is one of the Qantas groups’ long term objectives and this is a common model around the world. Maintenance with high competence and standards set by Qantas and Australia can also be outsourced to reduce cost but it is a risk to the airlines only competitive advantage and having that competence in another country is an unknown variable and a threat to its competitive advantage and reason to charge a premium. All remaining value chain activities like IT, follow up services and supply chain management can be outsourced to reduce cost. Marketing and sales value chain should also be kept as a core competence as part of understanding and innovating with regards to the customer experience and technology external environment. All support functions like finance, human resources and management information systems can be outsourced because they do not add value to the customer experience. Marking and innovation also grows the airlines brand and intangible value.
In conclusion I agree with the current CEO Alan Joyce’s strategy to focus Qantas on its core competence. The environment is very competitive but Qantas has some unique differentiating attribute over all its competition, which is its safety record. Keeping maintenance in Australia where the variables are known is critical to the airlines future safety record success. Qantas should therefore focus on its core competence of maintenance. Qantas needs to develop better merger and acquisition core competence to take advantage of economies of scale and expanding its operations to Dubai. There are also opportunities to improve the customer experience through the use of technology innovations and that should be performed but the in house marketing team core competence. All other activities should be assessed for outsourcing if long term sustainable benefits can be found for customers or shareholders. All actions should take into account long term impact on the company’s triple bottom line and choose actions that benefit its economics, environment and people.
Creedy, S., 2014. The Australian. [Online]
Available at: http://www.theaustralian.com.au/business/aviation/qantas-to-send-its-avalon-heavymaintenance-work-overseas/story-e6frg95x-1226806956005
[Accessed 8th October 2015].
Drucker, P., 2006. Peter Drucker On Marketing. [Online]
Available at: http://www.forbes.com/2006/06/30/jack-trout-on-marketing-cx_jt_0703drucker.html
[Accessed 01 January 2015].
Hanson, D., 2010. [Online]
Available at: http://content.talisaspire.com/latrobe/bundles/54ea87066c7ab3174b000010
[Accessed 1st October 2015].
Hitt, M. A., Ireland, R. D. & Hoskisson, R. E., 2015. Strategic Management Competivitiness & Globalization. 11e ed. Stamford: Cengage Learning.
Mullins, M., 2014. Eureka Street. [Online]
Available at: http://search.informit.com.au/documentSummary;dn=221742174578445;res=IELLCC
[Accessed 27 September 27].
Qantas, 2015. Qantas Investor Day Presentation. [Online]
Available at: https://www.qantas.com.au/infodetail/about/investors/investor-day-presentation-2015.pdf
[Accessed 5th October 2015].
Statistics, A. B. o., 2013. Australian Bureau of Statistics. [Online]
Available at: http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/3222.0Main%20Features52012%20(base)%20to%202101?opendocument&tabname=Summary&prodno=3222.0&issue=2012%20(base)%20to%202101&num=&view
[Accessed 27 September 2015].