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Qantas • Qantas is the 11th largest airline in the world. • Qantas is the world’s 2nd oldest airline, & the oldest airline in the English speaking world. Business management and change Over the next 3 years Qantas has big plans to grow and to keep the airline successful, the key features include: • Investing heavily in new technology to improve its efficiency. Qantas aims to use a 10 year plan and spend $13 billion on new aircrafts to modernise its fleet. • Expand its travel, catering and fright divisions to protect it from the peaks of its core airline business • Seek mutual beneficial partnerships with other quality airlines • Segment its flying business to align costs and revenue in particular markets. • An expansion of many of its terminals. Already Qantas has announced a $100 million expansion of its domestic terminal in Sydney. • Raising of equity find to help fund it’s spending. Although Qantas’s business plan faces several threats: • Enterprise bargaining agreements with more that 80% of its workforce • A court case instigated by the Australian Competition and Consumer Commission (ACCC) over alleged predatory pricing. • The possibility of a third domestic airline. Qantas had a classical scientific management structure with cultural characteristics as Hierarchical management structure which was Multi-layered, A long chain of command, specialisation and departmentalisation, autocratic management style and a lack of financial accountability The domestic airline industry was deregulated in 1991, with the removal of regulations over price controls and entry into the industry. In 1995 Qantas was privatised. These changes had impacts on the management of Qantas: • Qantas had to become more competitive efficient and profitable • Qantas had to now pay taxes and levies paid by other business in Australia • Qantas had to make profit and pay dividends to shareholders As a result they had to change there management practices and currently exhibits elements of modern management theories such as behavioural, political, contingency and systems, with a greater emphasis on human recourses. Some of the changes included: • A flatter management structure • Increased flexibility and communication with management • Introduction of professional management standards • Restructuring of job classifications and salaries • An emphasis on multi skilling • Increased levels of training for staff • Putting middle managers & executives on performance based employment contracts • Introduction of an employee share program • Introduction of new technology • Reduction of operational costs through greater business efficiency • The development and implementation of new products The outcome of these changes was a more productive and efficient management structure, which enabled the management team at Qantas to deal with changes both internal and external more effectively. External influence • Economic The last three tears have been unkind to the global aviation industry, the terrorist attacks on new York in 2001, the outbreak of the SARS virus in Asia an 2003 and week global economic conditions has lead to a sharp decrease is demand for air travel – although despite these enormous challenges, Qantas overcame them and is still maintaining its dominance over the Domestic airline market. Qantas received a record net profile of $648.4 million in 03-04, up a staggering 88 percent on 02-03’s net profit of 333.7 million. Although the company’s revenue fell slightly from 11.37 to 11.35 billion, mainly due to the increase in the Australian dollar which reduced Qantas income from overseas ticket sales. Rising oil prices has imposed new costs has imposed more costs on Australian business, while the rising Australian dollar has seen exports become less competitive in foreign markets. Economic influences that also affect Qantas would be: - Changes in foreign exchange rates. Qantas receives almost half its revenue in foreign currencies. Qantas’s contracts to purchase its new fleet, lease payments, fuel purchases have to be paid in $US dollars. - Purchases and sales of property, plant and equipment denominated in a foreign currency such as the purchase of new aircraft are hedged using a combination of forward cover and options. - Qantas minimises the impact of fuel price rises on its bottom line through a fuel hedging systems using options and swaps. - Qantas minimises its credit risk (default risk) by restricting its dealings to parties that have acceptable credit ratings and undertaking transactions with a large number of customers in various countries (risk spreading). - Changes in interest rates. About 70-80% of Qantas’ debt finance is borrowed offshore. - Qantas takes out insurance to protect itself against various risks in operating a global airline. • Legal and politic influences - Any changes to labour laws in Australia could increase operating costs as a result of higher wages. Disagreements may lead to strike action causing disruption to Qantas services. - Qantas is subject to the regulatory control of the Civil Aviation Safety Authority (an Australian statutory body) and is required to hold air operating licences. Any decision by the authority to not certify aircrafts or operators or to revoke Qantas’s licence or group any of ots planes could have a devastation effect on the company’s operations. - Qantas is affected by local laws and regulations such as contracts, dispute resolution and intellectual property in the 33 different countries in which it operates. There are also different local laws controlling airports and airspace e.g. bans on smoking, customs, security and airport noise regulations. - Qantas has been served with a number of writs alleging passengers suffered Deep Vein Thrombosis (DVT) on Qantas international flights. - Qantas has to compete against international airlines which receive bureaucratic and financial assistance from their governments. In the Asia Pacific region 65% of the Association of Asia Pacific Airlines retain some level of government ownership. This distorts the market and makes it harder for Qantas to compete. - In most countries government permission is required to serve individual routes. Protection affects Qantas as governments protect the route rights of domestic airlines. E.g. Qantas can fly passenger from Sydney to Tokyo and from Sydney to Osaka, but it cannot board passengers in Tokyo and fly them to Osaka. - Australia has recently opened up its domestic markets to foreign owned airlines. On September 16, 2002 the Federal Government announced that Indonesian Airlines would be allowed to fly into international regional airports such as Cairns, under new air service arrangements. Few other nations are allowing this type of access to foreign airlines. - The political situation and environment in countries where Qantas operates can have a significant impact. September 11, 2001 terrorist attacks in the US reduced demand for Qantas’s international flights significantly. Qantas initially reduced its international flying capacity by 1%. After the Bali bombing in October 2002 Qantas redirected capacity from some of its Indonesian services because many customers who had booked holidays to Bali were now changing to destinations such as Fiji and Queensland. - On August 13, 2002 the Howard government refused to lift Qantas’s foreign ownership restrictions of 49% limiting Qantas’s access to capital. - The ACCC, a government body, regulates Qantas’s market power in Australia and has denied its approval for Qantas’s acquisition of 22.5% of Air New Zealand. • Technological influence - Newer planes are more efficient - In-Flight entertainment systems and seating make the flights more comfortable and therefore more enjoyable for the customer. • Social influences Qantas operates in 33 different countries. To overcome differences in culture and language Qantas: - Employs host country nationals as one of its HR management policies - Qantas employs flight attendants who can speak Asian languages and they undergo training to learn about other cultures. - Entertainment and announcements on flights are also there to accommodate the different languages of customers. - Differences in tastes and preferences are overcome by offering passengers choices between Western style meals, Japanese, Chinese meals complimented with Australian wines and spirits. Internal influences • Effects of accelerating technology Qantas uses technology to gain a competitive advantage. Technology such as: - The launch of the new SMS service Qantas uses to notify its customers of flight changes and helps business travellers manage there time efficiently when travelling. - A $300 million Total entertainment in-flight system is being installed progressively on Qantas’s international fleet, it incudes personal telephones, video games and 16 audio channels. - $10 million being spent on new ‘state of the art’ passenger screening equipment, including e-ray machines, walk through metal detectors and explosive detection equipment, designed to reduce potential risk of terrorist attacks and hijackings. • E-Commerce and new systems and procedures - More that 20% of Qantas’s booking are made on the internet - Thy are constantly updating there web site and have set up a new foreign language web site. Structural responses to change • Outsourcing Qantas has recently looked to outsourcing to become more cost effective and simplify the business. Some outsourcing Qantas has done or intents to do includes: - Spending 14 million sending seven of its Boeing 767 fleet to Singapore for maintenance. - Qantas also plans to outsource some of its high technology functions, such a desktop programs to Telstra in a $150 million deal and the company-wide information system to be outsourced to IBM under a $200 million 10 year deal. Reasons for resistance to change • Financial costs Financial costs Qantas would anticipate in a change to the business would include: purchasing new equipment, possible redundancy payments, re-training staff and re-organising the plant layout. - A change in external forces such as the terrorist attacks on New York, led to the need for outsourcing where 220 managers where retrenched. Far less than what would have been, if Ansett had not collapsed. - A significant change in Qantas would mean the need to re-train staff new skills, especially when new technology is introduced - As Qantas acquires new air craft it has to constantly re-organise the layout of its maintenance operations in order to keep them efficient/ • Inertia of Managers and Owners - An unenthusiastic response from managers and owners/shareholders • Cultural incompatibility in mergers - 1n 1997 Qantas sold a 19.9% share in Air New Zealand out of frustration. Due to its inability to gain benefits due to culture clashes & the hostility of board members. • Staffing - Staff considerations are another reason for resistance to change. Satff are fearfull of change as they think it might affect there job out security. - Some staff have found there skill is no longer required due to changes in work methods. - Qantas has specialised training to reduce staff resistance Qantas has successfully managed change through a combination of factors: • The pressure to change • Having a clear vision and communicating this through op managers • Available resources to implement change • Employees give the opportunity to implement change immediately • Senior managers set the standard EG – Dixon forfeited a $500 000, personal bonus on 02 in sympathy with the workers he asked the accept an 18 moth wage freeze • Change has been re-enforced • Change has constantly been evaluated and improved Employment relations Employment relations involve industrial relations, which are basic issues between employees and managers, such as wage levels and working conditions. Industrial conflict has been a part of Qantas’s employment relation. One such example was the on going dispute between Qantas and its maintenance workers. The cause if the dispute was the proposed wage freeze by Qantas, in return for a sliding scale profit share scheme, where the more the company make the more the employee receives in a lump some at the end of the year. 10 out of 12 unions agreed. Although two unions did not agree as they wanted an upfront payment. Over 600 employees took action to demonstrate there anger. Action included - Stop work meetings – where employees stoped work to discuss future action - Strikes – where employees of Qantas withdrew there labour - Work banns – where employees refused to work over time - Picket lines – which were held at Melbourne airport and disrupted passenger movent. Overt and action was used by Qantas when it stood down 400 employees for failing to work overtime and covert action was also used when Qantas excluded unions from decision making. Eventually after going to the AIRC, the dipute was resolved – 10 moths later. The two unions agreed to an across the board pay rise of 6% and an initial lunp sum payment of 1.5% Financial management Financial management refers to managing financial resources of a business effectively and efficiently. Liquidity is the capacity of a firm to meet its short term obligations. Liquidity ratio is: Current Ratio = Current assets = 2.768 = 2.768:1 Current liabilities Solvency is the ability of a business to pay its short and long term liabilities. Solvency ratios are: Debt to Equity Ratio = Total Liabilities (debt) = 2.2 = 2.2:1 Owners Equity (Equity) Debt to Assets Ratio = Total Liabilities (debt) = 2.2 = 2.2:1 Total Assets Profitability is maximising the greatest positive difference between total revenues and total expenditures. Profitability ratios are: Net profit Ratio = Net profit X 100= = 60% Sales 1 Gross profit Ratio = Gross profit X 100= = 60% Sales 1 Return on owner’s equity is about business maximising its returns to the owners or shareholders of a business. The return on owner’s equity ratio is: Return on owners equity ratio = Net profit . X 100= = 26% Owners Equity 1 Efficiency Ratio’s are: Expense ratio: = Expenses X 100= = 60% Sales 1 Accounts Receivable Turnover Ratio: = Credit sales . X 100= = 60% Average Accounts 1 Receivable Marketing Marketing refers to the planning and modification of different product areas within a business (price, place, promotion and product), with the aim of maximising the business success. • Market Research - The process of gathering and analysing information which helps an organization to make business decisions and develop a business plan. - Market Research is conducted using primary and secondary data. For Qantas primary data includes surveys of passengers in flight, mail based surveys, complaint monitoring and discussions with customer contact staff and cabin crew. Secondary data incudes government statistics, airline magazines etc • Situational Analysis/SWOT Strengths - Extensive network/part One World alliance - 80% domestic market share - New technology improving efficiency - Globally recognised name and logo - Excellent safety record - One of few profitable airlines in the world - Operational excellence: won the Cumberbatch trophy for excellence twice – no other airline has done this. Weaknesses - Speculation that British Airways will quit its 1.3 billion stake in Qantas - Higher labour & other operating costs than some competitors - Government refusal to lift foreign ownership restrictions has reduced access to funds to finance fleet expansion. Opportunities - for its new ‘No frills’ airline ‘Jetstar’ - Taking advantage of the Ansett collapse by expanding into new routs, hiring new staff and purchasing and leasing new air crafts - Developing gurthur E-commerce Operations - Expanding its travel, cvatering and freight devision. - - Threats - Competition from other airlines: Air new Zealand (international) and Virgin Blue(domestic) - Threat of further competition in the domestic market - Increased domestic government regulations - War in Iraq witch could see oil prices rise and international travel fall. - Falls in the Australian dollar- • Marketing objectives - Main objective is to make profit, currently and in the long run - The provide a satisfactory return to shareholders - Increasing marketing share in the airline industry - Increase customer service - Growth of the company, gaining new routes - Decrease operational costs especially labour costs • Market strategies Market segmentation and selection of a target market - Market segmentation allows Qantas to better meet the needs of its customers - Better tune the marketing mix to individually segmented groups Positioning Positioning is the image Qantas projects in relation to its competitors: positioning strategies uses u Qantas are: - Positioning in relation to competition EG – matching prices - By positioning in relation to target market EG – Qantas concentrated on capturing the lucrative corporate market through its City Flyer express service, lounge upgrades, frequent flyer service etc - By Re-positioning i.e. Jetstar the new ‘No-Frills’ airline Formulating the marketing mix - Product: as the airline industry becomes more and more competitive, airlines like Qantas focus on a product plan. - A product plan is when Qantas designs a product to appeal to a particular customer from a particular market segment. - Price: Price is the critical element of a marketing plan. It is the variable that can be changed as quickly and as often as required. - Price methods used by Qantas include: Cost plus margin: determining a cost of a product and adding a margin, Market: most fairs at Qantas are determined by the market were demand is matched with supply , Competition based prices: watching what other airlines are doing Since the collapse of Ansett, Qantas’s domestic flights have been influenced by a lack of competition; they are not forced down by competition as they were in 2001 when there was an ansett and impulse airline. Although now they face further pressure from Virgin blue. - Promotion: Promotion is the means at which a organization communicates its product and its image to the consumer - Qantas uses advertising on television, radio, magazines, newspapers, brochures, posters in travel agents and billboards (a permanent one above Qantas Drive) - Qantas also relies on word- of-mouth - Publicity is another important factor: this is to enhance the image of Qantas. Publicity includes press conferences and interviews, feature articles, and news releases. Sponsoring is also good advertising. Qantas sponsored a number of key events such as NRL, the grand Prix for motor bikes and most recent the 2004 Athens Olympics. - - Place: the product must be easy to interface and access, otherwise no mater how good the product or how cheap its price , selling will always be constrained. Distribution is achieved both directly an indirectly. Direct distribution is via its own retail outlets ‘Qantas holidays – the largest travel wholesaler in Australia’ - Also Telephone sales centres - Airport ticket sales - The internet (20% of domestic flights are sold on line) – saving Qantas as much as $30 a seat from call centres and travel agent fees Indirectly: through trave agents who are responsible for almost 80% of Qantas’s ticket sales. Qantas has a number of a agreements with major travel agents, including Harvey world travel , jet set and flight centre. Implementing, monitoring and controlling the marketing plan. Implementation is the process of turning the plan into action. Unforseen events may occur along the way, although is constant monitoring and controlling of the marketing plan to ensure this does not occur. To adjust the marketing activities the marketing department of Qantas uses the following tools - Developing a financial forecast of revenue using statistical models, past data, executive judgment and consumer buying intentions. Then the costs of market research, promotion, production development costs and distributions costs are all estimated. - Comparing actual and planed results. Although because of Qantas recent success – increased market share from 54 to 84 % : flying capacity of 95% : and increased profitability. Qantas is unlikely to change its strategies until the market slows down. • Ethical and legal aspects - Qantas is aimed at producing environmentally responsible products. - They introduced boxed meals onto domestic flights, boxes substantially reduce waste by about 250 tonnes every month because they can be recycled, garbage that would have otherwise gone into landfills. - Lighting and air con improvements have been made also, with the use of solar energy reducing green house gasses by almost 10,000 tonnes a year. Global business Qantas is the 11th largest airline in the world, the network has expanded to 142 destinations in 32 countries in Asia and the Pacific, the Americas, the UK, Europe and Southern Africa. More than 75% of Qantas’ assets are geared to the international market. Method of International Expansion - FDI Qantas’ method of international expansion is foreign direct investment. Qantas in the past has used an acquisition strategy of airlines already operating in the foreign country. E.g. Qantas has bought stakes in Malayan Airways, Fiji’s Air Pacific, Australia – Asia Airlines and Air New Zealand (later resold). Qantas is currently trying to buy 2.5% of Air New Zealand. - Recently, Qantas has expanded through forging international alliances. Qantas entered into a comprehensive global alliance with partner British Airways in 1993. In 1999, it joined the most global of the world’s leading airlines. Qantas gains marketing benefits such as, linking of frequent flyer programs, smoother transfers and access to lounges. Qantas also obtains benefits on the cost side. Operational and cost efficiently gains are achieved through economies of scale from terminal utilisation to aircraft purchases and saving achieved through joint purchasing of fuel, catering, ground handling and engineering. - Qantas has also commenced code sharing arrangements with other airlines. Code sharing refers to the situation where an airline offers seats on a particular route without necessarily operating on it. This is usually done by purchasing a block of seats from another airline. - Qantas has a new low frills airline Australian Airlines which started in October 2002. The network includes seven Asian ports – Qantas achieves cost savings through internet ticketing, maintenance saving because only one type of airplane is used, more flexible labour conditions and outsourcing other functions. Qantas launched its New Zealand subsidiary Jet Connect in September 2003 replacing some existing Qantas services. Marketing Qantas standardises most elements of the marketing mix such as product design, brand name, packaging, distribution and product positioning. Most of these marketing strategies are alliance based. Qantas uses the same brand and logo globally, believing it gives instant recognition and reduces its packaging, design and advertising production costs. Qantas uses a differentiated approach with its new airline Australian Airlines – adopt a more sensitive cultural approach, low cost airline, internet bookings only etc. Employment Relations Given the importance of Qantas’s reputation, employment relations are critical. Because most customers have direct contact with numerous Qantas employees especially on the ground (ticketing, check-in, baggage handling), appropriate management of employment relations is important for ensuring that a skilled and motivated workforce is attracted and retained. Qantas adopts a polycentric approach to staffing. They generally hire host-country nationals (HCN’s) instead of transferring their domestic staff to work in management positions in their foreign operations. Decision making is still relatively centralised in Australia. Employing a global workforce is challenging because of differences in culture, levels of economic development and legal systems. Operations Qantas uses backward vertical integration, setting up its own subsidiaries to source inputs such as catering. Qantas uses forward vertical integration setting up its own subsidiaries to distribute its outputs through Qantas Holidays and the Qantas’s internet site. Qantas makes the bulk of its service into and out of Australia; however, it also “buy” seats from other airlines to sell to Qantas customers called code sharing. The extension of this “buy” strategy is the setting up of a global web of suppliers. Qantas does this through its membership of the One World Alliance. Qantas also buys other materials through outsourcing some of its maintenance and information technology functions. Jet star Domestically, Qantas has been the clear winner from the collapse of Ansett in 2001. Qantas managed to expand its market share from 56% to 80% of the market share – growing 7 years over night. In June 04 Qantas launched its new low-cost subsidiary, Jetstar, to compete with virgin blue in the discount section of the Australian airline market. Jetstar is a ‘No-Frills’ airline that offers customers low fares, yet no creature comforts. Passengers receive no food, little leg room and seats are not allocated. The entry of jet star in to the Australian domestic market indicates the willingness of the Qantas management team to adapt to changing business conditions, although there are some concerns. Few large airlines have launched a subsidiary and succeeded, with British airways – one of Qantas’s strategic partners – attaining an expensive failure in the market in the 90’s. Anther concern is that it is still unclear whether the opening of jet start will increase Qantas’s market share, or merely take away already existing Qantas customers. The opening up of Jetstar also shows that the Qantas management team is concerned about Virgin blue’s rising market share. In 2003 Qantas’s market share dropped from 69.4% to 66.2% and evidence suggest there has been a further drop in 2004.