Qantas Airline is a ninety-two-year-old Australian aviation carrier. The company is one of the oldest airlines in the world, and one of the few that have survived the occasional global economic crisis. Qantas Airlines began as a small domestic airline within Australia but continued to expand into the international market. Today, the airline accounts for two-thirds of domestic air travel and almost one-fifth of international air travel. The airline headquarters is located in Sidney although it occasionally moves within the city (Gurney 2011, p.3). Qantas Airline had a dismal performance in recent fiscal years as it was unable to control its expenditure to keep the profit margin high. Due to the rising cost of operation, the airline has been earning a continuously decreasing profit for several years.
Current Situation and Strategy
In the twenty-eleven fiscal year, the airline barely made enough money to post any profit. However, the year twenty-twelve was the turning point for the airline as it made a gross loss. Since the company has publicly owned shares its value tremendously decreased. A loss of almost a half-billion dollars was reported as the airline’s international operations suffered a setback in the European market (Gurney 2011, p.5). The main reason for Qantas Airline’s decreasing profit margin and the eventual loss-making operations in the last fiscal year is the unfavorable economic climate in Europe. The European economy has been deteriorating in the last few years, with the Italian crisis almost crippling the country. On the other hand, domestic operations have been controllable for the airline. A domestic airline that is a subsidiary of Qantas Airline has been responsive to the strategies implemented by the current management. For international flights, Qantas Airline operates high-end first-class flights and business class flights more than the regular flights. This means that the company has the most coveted market share among international airlines. For this reason, the company has always found it difficult to terminate its international business operations.
Quantas Airline identified the problem as the poor management of its fleet. Maintenance costs of its aircrafts peaked in 2011 and almost reached two and half a billion dollars. In response to this finding, the company aimed at reducing cost of operations by almost half a billion dollars to ensure that it maintained overheads below gross gain. There were plans by the company to buy new Airbus A380 aircrafts to supplement the existing fleet. In addition, the company planned to restructure flight plans for Boeing 747 aircraft in order to control maintenance costs. Since the Airbus A380 aircraft is a relatively new model, it is easier to maintain and it has high productivity due to advanced technology and its capacity to carry more passengers than any other aircraft (Gurney 2011, p.10).
Another important strategy for the airline as outlined in its report was the expansion of its subsidiary, Jetstar, which was making better progress than Quantas itself in both international and domestic market. This subsidiary was intended to be a full airline operating within Asia by the year 2015 (Morton 2012, p.42). Separation of the subsidiary airline’s operations was necessary for the management to establish specialised operations.
Since Quantas Airlines had the premium customers in the international market, it decided to maintain its operations for the sake of its reputation. The airline was valued by travellers due to its reputation of offering high quality services. Such publicity is good, and can keep the airline’s international business operations and even domestic business making steady profits.
The management attributed the loss made in the year 2012 to the cost of implementation of the five-year plan through which the airline hopes to establish profit-making operations particularly in Asia. Expansion of airline operations was the first priority for the Quantas Airline. Although the airline announced reduction of operating costs as one aspect of its strategies, it maintained that safety and quality of services were of supreme importance in its operations.
The company started implementation of its strategies with introduction of new Airbus A380 aircraft. This was aimed at maintaining a high capacity fleet operating on international routes. More Boeing 737 aircraft were put into operation on a route from China to Los Angeles (Morton 2012, p.39).
The quality of services to customers has also been improved with an increased variety of options in order to keep the business growing. One of the strategies introduced by the airline was the commencement of flight plans that enabled travellers to fly to Asia and back in a single day. This strategy targeted the business class customers who were keen to observe their schedule. Moreover, the airline increased the level adherence to schedules ensuring that every part of flight plans occurred on time. Punctuality is a key strategy for any airline (Mintzberg 1994, p.91).
Another step towards implementation of the plan to improve services was the new relationships that were established with corporate customers. The airline was keen on ensuring that customers who needed scheduled arrangements over a long period were given first priority. This was an effort by the airline to identify with high quality and premium services.
In order to maintain flight operations between Australia and Europe, the airline rerouted its flights to Europe to pass through Singapore. This was a measure to evade competition presented by other airlines, particularly those owned by the Chinese government. These airlines had introduced cheap flights on routes that Quantas Airline previously dominated. Since Quantas Airline depended on the volume of passengers to make profit, competition from the new airlines had to be evaded for a reasonable profit to be made. Moreover, this helped to reduce pressure from competitors (Morton 2012, p.41).
On the issue of expenditure, Quantas Airline decided to implement the plans for fleet replacement gradually. Instead of purchasing its Airbus A380 fleet in one year, it decided to spread the expenditure over five years to avoid registering a loss in any of the financial years. Furthermore, the airline decided to use bigger aeroplanes for its flights to reduce the number of aircraft operating at any one time. In turn, the cost of aircraft maintenance and fuel reduced to favour the survival of the airline in the currents fuel crises.
Quantas Airline has been the biggest airline operating in Australia since its establishment in 1920. It has grown into a large company with two subsidiaries. Jetstar and Frequent Flyer are the company’s subsidiaries which operate as independent airlines owned by Quantas Airline (Morton 2012, p.40). The advantage of owning two other airlines is that the company can decide to specialise each of the airlines and limit them within specific geographical regions to enhance financial security. With this strategy, the chances of the company making gross loss or even become insolvent are small since the subsidiaries are operating in different business environments. This is an advantage most airlines that are competitors of Quantas Airlines do not have.
The company’s size is also a competitive advantage. The scale of its resources gives the company bargaining power such that it is able to make changes within the company at any time without much strain (Porter 2000, p.89). Changes such as the decision to overhaul the airline’s fleet are a feat only possible for companies with significantly strong financial background. Economies of this scale enable the company to make expensive purchases with little impact on the financial position of the company (Porter 2000, p.106).
Quantas Airline owns several terminals in its flight routes. In addition, the company has several lounges in its flight routes. This enables it to plan flights with efficiency and punctuality. The flight terminals are used to ensure that flights are not delayed and flight crews adhere to schedules. On the other hand, customers are given a special treatment by the airline in the lounges (Morton 2012, p.37). Such advantages are especially useful for the business class flights that require quality and punctuality.
The large fleet of high capacity aircrafts is also a competitive advantage for the airline (Porter 2000, p.101). In order for a company to economise on fuel, it needs to ensure that its aircrafts carry many passengers in one flight. This reduces the number of aircrafts used for ferrying a certain number of passengers.
Quantas Airline has one of the best ticket purchasing systems in the world. Moreover, the procedure used for checking in at the terminals owned by the airline is one of the most convenient among the arrangements offered by international airlines (Morton 2012, p.45). This is an important quality for an airline intending to offer premium services to its customer (Hitt, Ireland & Hoskisson 2011, p.56). In addition to the quality services, Quantas Airline is one of the most popular among the world’s airlines. This reputation is due to the quality of services that the airline offers. If Quantas Airline maintains this reputation, it will be possible for it to remain as one of the leading aviation companies in the world, a reputation that it has already built (Morton 2012, p.35).
Conclusion and Recommendations
Although Quantas Airline has been facing major difficulties, it is still possible to restructure the company’s operations and policies to realise the restoration of a good performance. The airline has already formulated plans that will put it on a recovery path. Formation of alliances, overhaul of fleets, and improvement of customer services are some of the changes that are underway. Expansion of subsidiaries such as Jetstar to operate in Asia is also a major step towards improving the airline’s performance and cutting costs (Morton 2012, p.33).
Although Quantas Airline is on the course of recovery, there are measures that the company should take in order to make a full recovery and feature among the most profitable airlines. One notable trend is that the company tends to localise its operation in Asia and Australia. This limiting trend should be avoided. For a company of its size it is important to spread to other parts of the world on a major scale (Hitt et al. 2011, p.41). This strategy has benefited other leading airlines such as the Emirates Airline. The current strategies, combined with geographical expansion of the market will result to a significantly improved performance and profitability.
Gurney, R 2011, “Building Stronger Quantas”, Quantas Airways, vol. 5, no. 3, pp. 7-12.
Hitt, M, Ireland, R, & Hoskisson, R 2011, Strategic management: competitiveness and globalization : concepts and cases, Thomson South-Western, Mason, Ohio.
Mintzberg, H 1994, The rise and fall of strategic planning: reconceiving roles for planning, plans, planners, Free Press, New York.
Morton, T 2012, “Broadening the horizons”, Quantas Group, vol. 4, no. 6, pp. 33-45.
Porter, M. E 2000, Competitive advantage: creating and sustaining superior performance, Free Press, New York.