Qantas Case Study

Qantas Case Study

Question One: Outline the methods of expansion used by the company. Qantas which was founded in 1920 was first only a domestic airline. Eventually the company began travelling internationally and started expanding itself into the global market. Qantas today has become Australia’s national airline and one of the world’s leading long distance airlines. To become one of the worlds’s leading airlines; Qantas expanded into the global market in numerous ways. Qantas became involved in global alliances for example: one world alliance – which is a global airline service bringing together 11 of the world’s biggest airlines.

One world alliance helps to create loyal customers with frequent flyer points to help create airline recognition. One world alliance is a part of Qantas’s code sharing agreements. A code sharing agreement is a commercial agreement that grants passengers access to two different airlines through one ticket. Qantas has used code-share to access itself into a bigger market without the risk of much loss. Another example of the expanding methods used by Qantas was gaining possession of Australia’s first low frills airline Compass Airlines in 1997 after the company chairman was thrown into jail & also acquiring impulse airways in 2001.

The merging of these two companies became the basis of jetstar airways. Jetstar is one of the subsidiary companies created by Qantas apart from Qantaslink, Q catering & Qantas Freight etc which were all created as a response to competitor virgin blue airlines. One of the outcomes of the subsidiary companies was stated by Qantas chairman in an annual meeting stating “the subsidiary companies provided significantly improved returns… ” These significant returns have kept the company Australia’s leading airline. Question Two: Identify & justify at least two reasons why the company expanded into global markets.

Qantas’s expansion into the global market was initiated by many factors. Two of these factors were the limited domestic demand, and the need of cushioning the economic cycle through increasing economies of scale. There was Limited domestic demand and growth potential due to the small Australian population and market size. This limited Qantas to a certain amount of service revenue from potential customers, thus forcing them to look to global markets. Realistically speaking, airline travel industry is global in nature as the world is covered with transnational corporations.

The most profitable route is Sydney-Melbourne and other carriers re-competing on this and other trunk routes between state capitals. Qantas successfully gained a significant amount of market share for the domestic market after their main domestic competitor ‘Ansett Australia’ collapsed on 14 September 2001. However, in October 2001 Virgin blue announced a major expansion in the domestic market to challenge Qantas huge 90% market share. This was a result of the deregulation of the domestic markets. Virgin blue was successful in their expansion and pushed Qantas back to a 60% market share.

Virgin blue’s successful pushback has created a more constricted competition in an already limited domestic market. This forced Qantas to take two very important actions. Firstly, to minimize competitive risk they created a new subsidiary budget airline called Jetstar Airways in an attempt to still hold significant market share. Secondly, Virgin Blue’s expansion made Qantas to look out of Australia, and towards the international markets. Qantas was swift to look towards untouched Asian markets to cater for their international airline travel and hopefully gain higher profits.

Another factor that contributed in the global expansion of Qantas was for them to have a cushion in the economic cycle. This means if they wanted to have a backup if domestic sales go down, they would still have international sales to make up for the financial loss. An example in the case of Qantas is their constant struggle of market share between their domestic competitors, Virgin Blue. This also has an inverse relationship with the domestic market, where if there are sudden fluctuations in the international market, the domestic market may make up for the potential loss.

In order to gain this cushioning of the economic cycle, Qantas also had to effectively spread production costs and promote operation efficiency for their growing international corporation. Economies of scale are the reduction in costs of productions caused by increasing the scale of the production facility and spreading fixed costs over a larger output. This means that as Qantas expands to global markets, they can possibly gain more revenue through services and this would generate lower average costs and the potential for higher profits.

The purchase of Australian Airlines in September 1992 allowed Qantas to more efficiently use their aircraft and improve management of passenger capacity and transfers between domestic and international services. Through their increasing economies of sale, they were able to gain a cushion for the economic cycle. Question Three: Analyze the impact of the drivers of globalization & globalization trends on the company’s decision to expand into global markets (influences on the business)

There are many drivers of globalisation and globalisation trends which have impacted the expansion of Qantas into the global markets. They are the emerging trend of transnational corporations (TNCs), emerging trends of global consumers, the impact of technology, and the deregulation of financial markets. These drivers have impacted the decision of Qantas to expand globally. TNCs have had a significant impact on Qantas. TNCs such as Coca Cola and McDonalds are responsible of operating and moving goods and resources between different nations. This has impacted Qantas since TNCs equire business people to move around nations constantly, which has allowed Qantas to cater for these corporations through special services like business class. Increased tourism and global branding have also had a considerable impact on consumption, leading to more similar tastes and lifestyles in different countries – creating global consumers. This increased global culture has provided exposure about different cultures in different countries. Qantas is able to benefit from this through expanding globally as they have a significant market share in the asia pacific region, catering for the multicultural people.

Because of the similar tastes and lifestyles of people around the world, Qantas was able to easily adapt to other countries since Australians are widely multicultural and they have experience in dealing with such a diverse market. Another big driver is the impact of technology. As the living standards in many developing nations improve, opportunities also exist for global businesses to expand their markets. Improvements in transport e. g. containerisation have facilitated global trade growth. The pace of change in Qantas quickened in 1994.

The airline sharply increased capacity allocated to Australian domestic routes to meet market growth and win back market share. It introduced a new cabin design for the core fleet as part of a comprehensive product update that also featured more comfortable seats, new menus and uniforms and expanded airport lounges. This change allowed Qantas to gain more market share in the domestic market, which in turn allowed them to gain more profit. Information and communications technology (ICT) – including the Internet and cable television – has allowed global businesses to advertise their products around the world and reach a much larger audience.

This has allowed Qantas to be able to advertise their airline services globally, which has helped them reach out to potential customers in the global market. Governments have also played a significant role in impacting the company’s decision to expand into global markets. They promote globalisation through creating policies that aim to open up their economies to international influences. The Australian government has been active in regional negotiations such as Asia-Pacific Economic Cooperation to promote open trade and practical economic cooperation.

They also support integration of the world’s markets as a way of delivering future economic growth. The progressive deregulation of the financial markets has reduced the barriers to trade and invest in a global scale. Tariffs and taxes placed on imported goods have decreased drastically over a few decades. This has allowed Qantas to expand globally as the financial costs to invest outside of Australia are significantly lower than before. The deregulation of the market has also negatively affected Qantas, by introducing new competitors such as Virgin Blue.

However, this negative impact also has influenced Qantas to expand globally so to have a safety cushion from poor domestic revenue. The Australian Government has also assisted Qantas in expanding. In August 1992, The Australian government sold the domestic carrier Australian Airlines to Qantas, providing access to the national domestic market as well as potential global markets. The acquisition of Australia Airlines also allowed the introduction of the Boeing 737 and Airbus A300 to the Qantas fleet, providing more aircrafts for Qantas to use for expansion.

Question Four: Outline the strategies and procedures most likely used by the company to research markets, customers and their behavior. Large corporations defend their actual marketing plan and don’t publish it, in order to sustain competitive advantage. However, through Qantas different marketing schemes we can assume that there are several strategies and procedures Qantas most likely use to research markets, customers and their behavior One strategy they would likely use is formulating the marketing mix for different segments, also known as market segmentation.

Qantas has gathered information about the different country’s economic, political, social and cultural features. This allowed Qantas to have detailed understandings of the country’s needs and wants, and effectively meeting them. This is done through gathering secondary data from the country’s census, demographics, and other key information provided by the government. Factors such as demographic, socioeconomic groups are important, as well as the interests and tastes of that country. The process of segmentation includes targeting the correct markets, and positioning an appropriate marketing mix for that market.

This is done to identify potential customers, prioritize groups to address, understand their behaviors and how to respond effectively to meet these groups. Qantas uses market segmentation to better meet the needs of all its customers, to compete more effectively, and to attain financial goals more readily. Qantas launched a new low cost domestic airline called JetStar in May 2004 which will initially target travellers going to leisure routes around Australia. They successfully identified the need to create a subsidiary to challenge the emerging competitor Virgin Blue, and to sustain a large domestic market share.

JetStar was specially designed to become a budget airline, targeting the business, leisure and family domestic market. They have made it substantially cheaper than other domestic competitors, as well offer seasonal promos such as July Fares to attract customers. They also have made it very convenient for customers to book a flight online, along with booking a hotel or car, and insurance. This convenient service accompanied with cheap flights is a result of Jet Star’s effectiveness of catering for their target market. Another strategy they use is product differentiation.

The airline industry has increasingly been more competitive. All airline industry’s main purpose is to transport customers to their desired location. Price remains fairly similar between competitors since costs such as fuel and maintenance of aircraft are fairly expensive to maintain, so pricing for airline tickets remain fairly high. This means airlines focus on product and service differentiation such as multi-lingual flight attendants and cuisine to attract and hold customers. Qantas have focused on product planning to.

Qantas designs products to be attractive and hold customers from a particular market segment and to do so profitably. This means using its detailed understanding of the needs and requirements of its different market segments. Such understanding is acquired through market research. An example in Qantas is catering for their passengers, such as letting customers use scheduling basic features at their convenience, comfort based features such as adjustable cabin seats, as well as loyalty programs such as the Qantas Frequent Flyer Scheme.

These strategies are used to attract and hold customers to use their services, and thus earn profits. Question Five: Analyze the impact of two global influences on the marketing strategies used by the company. Part of the many influences that have impacted Qantas market strategies include financial sociocultural influences as they are very important in the marketing strategy. In terms of social influences; the factor is of great influence today as there are people speaking many different languages – not being able to understand foreign languages may result in the business failing to effectively connect to a country’s local market.

This is important in Qantas as they require being able to communicate in different languages to cater for their diverse market. Qantas uses multilingual flight attendants aboard their flight crew, as well as language selections in their entertainment board to tackle the language problem. This way, customers are able to understand and enjoy their flight without any cultural barrier. Different cultures carry different tastes – taste refers to the culture’s preferences in various things; food & music etc.

While businesses expand into global markets they are confronted with a wide variety of global tastes, these tastes affect the success of the business because of the businesses products demands. Global businesses need to be aware of how local tastes influence the demand for their products, adapting the products to suit local preferences. Effectively catering for these tastes allow businesses to establish a relationship between them and the customer, and make their plane trips feel more like home. Qantas changes its food as well as its entertainment selections for different flights to target these different cultural tastes.

For example, a trip to Shanghai from Sydney will most likely have the majority of customers being Chinese. Qantas will serve Chinese dishes with rice to cater for food preferences, and Chinese produced movies for entertainment preferences to meet their cultural tastes. The financial influence has also a significant impact on the marketing strategies of Qantas. In order to keep financial management to operate effectively, Qantas has to note the exchange rates of each country and the changes in these currencies.

This is because large proportions of Qantas revenue come in foreign dollars, and not Australian dollar. The exchange rate refers to each country’s currency value to each other, currency fluctuations are the depreciation and appreciation movement of a country’s currency rate. Qantas has to keep in mind these changing currencies, and effectively change their marketing strategy in order to maximise profits out of the current financial situations. Depreciation improves the international competitiveness of exporting businesses and does the opposite for importers.

Fluctuations in exchange rates will also influence the principal repayments that need to be made. If the Australian dollar depreciates, Australian business owing money overseas will need more Australian dollars to pay back its debt. Qantas needs to research interest rates from other countries, as well as the accompanied risks which it may bring in order to effectively manage their debt financing, meaning they should take advantage of other country’s low interest rates, and use that as a source of borrowing.

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