Qantas Airways: A Strategic Analysis Of Business Activities

Threat of New Entrants

Qantas Airways was founded in the year 1920 in Queensland and has grown to be Australia’s major domestic and the international airlines. The airlines was ranked at 6th spot among the World’s Best Business Class Airlines 2018 (Skytrax World Airline Awards, 2018). The report is the strategic analysis of business activities of the Qantas Airways on lines of various forces in the airline industry in Australia, policy developments and the financial performance. The report begins with the Porter’s five-force analysis, which is followed by the evaluation of the corporate strategy. The report further examines the financial performance of the Qantas by comparing the financials of the company at the end of the year 2013 and at the end of the year 2017. The report ends with the conclusion in the form of the analysis of the differences and the similarities between the financials of the years 2013 and 2017, and the recommendations to the potential and the existing investors.

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Threat of New Entrants:  Airline Industry has always faced the threat of the new entrants because of development of the new routes and thus the resulting developments of the markets across the various regions (Jameson & Gebicki, 2018). The entry of the new players is not difficult in the airline industry. It would not be wrong to say that the airline industry faces a lot of congestion and competition including that of new entrants.

Threat of the Substitutes: The importance of the airlines is nearly impossible to substitute. The reason being, the most route served by the airline industry are that which the railways or the waterways cannot serve. Although the cost of travel by air is high as compared to road, but the time factor in travelling is always a point of concern. Hence, with the strong fleet of the airbuses of the Qantas, and the economies earned over the years, it is difficult for the development of the substitutes. 

Buyer Power: The buyers hold a great power in the airline industry. This is visible from the fact that airway companies are in run for the competition for low cost airlines and providing the airline experience to the average and the middle class people in the society.

Supplier Power:  The suppliers also hold significant power in the airline industry because of the less number of competitors among the airbus manufacturers. The low switching cost adds on to the supplier power.

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Threat of the Substitutes

Competitor Rivalry: There is an intense competition in the market of the airline industry for Qantas, both in the domestic and the international market. The current ranking of Qantas among the world best airlines best depicts this. Qantas fell short of the top 10 airlines in July 2018 (The Sydney Morning Herald, 2018).

The Government of Australia had sold off the Australian Airlines and its subsidiaries to the Qantas Airways in the year 1992 for A$ 400 million. This was followed up by the announcement with respect to the corporate strategy to fully privatise the enlarged Qantas group (Qantas, 2018). This led to the benefits of the economies of scale along with the more efficient use of aircrafts for Qantas and the better management of passenger capacity.

In the year 1998, the company was the confounder to the One World Alliance along with the core members like American Airlines, British Airways, Japan Airlines, Malaysian Airlines and more (Kelly, 2018). The alliance was formed to facilitate flying across the 1000 destinations around the world within the the 150 countries. This was done with the aim of growth and expansion, which led to the collapsing of the domestic competitor Ansett Australia.

In the month of October 2002, the Qantas launched Australian Airlines as the new low cost international carrier. The launching of the Jetstar as the new low cost domestic airline, a year later, by Qantas followed this up. The aim behind the said introductions was to fight back the low cost carriers in the home market (Baeza, et al, 2017).

In order to counter the effects of the ceasing of the operations of the Australian Airlines in the year 2006, the company introduced A380 to the list of its fleet.

The next corporate strategy of Qantas is on lines of the innovation and technology. The entity introduced the next generation check in and the next generation flying projects in the year 2010 and 2012 respectively, in order to fasten the check in and the other procedural formalities (Frawley, 2018).

In response to the continuous domestic and international competition in the recent years, the company has recently shrank its workforce by 15 percent in order to reduce the costs and increase the revenues (Baeza, et al, 2017).

Thus, it is visible that Qantas has been consistently following the corporate strategy on the lines of the growth and evaluation.

The financial performance of the Qantas group as at the end of the year 2013 as been described as follows in accordance with the Annual Report for the year.

Particulars

For the year 2013

Amount (in $ million)

For the year 2017

Amount (in $ million)

Net Passenger Revenue

13,673

13,857

Net Flight Revenue

935

808

Other Income

1,294

1,392

Expenditure

15,698

14,687

Net Finance Costs

187

189

Statutory Profit/ Loss

6

853

Total Current Assets

5,245

3,119

Total Non- Current Assets

14,955

14,102

Total Assets

20,200

17,221

Total Current Liabilities

6,370

7,095

Total Non- Current Liabilities

7,876

6,586

Total Liabilities

14,246

13,681

Total Equity

5,954

3,540

Buyer Power

(Source: Qantas, 2013)         (Source: Qantas, 2017)

  • The total equity has decreased from $5,954 to $3,540 million from year 2013 to 2017, the chief reasons being the decrease in the issued share capital and the retained earnings of the company.
  • There is a major difference between the profits of the two years. The reason being the revenues to expenditure ratio between the two years. While the ratio of the total expenditures to the total revenues (excluding the net finance cost) for the year 2013 was 0.98 times; the ratio in the year 2017 was 0.91 times.
  • The total current assets have decreased over the years from the year 2013 and the 2017. The reduction is by the amount of $ 2126 million.
  • The overall equity of Qantas in the year 2013 was higher as compared to that in the year 2017, the main reason being the reduction in the current asset balance as explained above.
  • Rest of the financials are more or less similar.

As per the discussions made in the previous parts of the report, it is recommended to the investors to sell the shares of the company. The chief rationale behind the recommendation is that despite of being a consistent major player in the airline transportation industry of Australia; there has been no significant improvement in the revenues and the other financial indicators of the company.

Conclusion

Thus, from the discussions conducted it can be concluded that business analysis on the lines of the five-force analysis, evaluation of the financial performance and overview of the corporate strategies carried out by the entity over the years, helps the investor in gaining an insight about the viability of the investment in an entity. A Porter’s five-force analysis of the Qantas Company was carried out in the report, which revealed the vital information about its competitors, product substitution, potential new entrants along with the power of the buyers and the suppliers. The financial highlights revealed that there has been no major change in the operations of the Qantas, except the consistency of the profits despite the surging price and the competition. The report ends with the recommendation that the Qantas share have yielded full potential, as of now, and with no major corporate announcements coming up, it is better to sell the share for the existing investors. The potential investors may look for more buzzing stocks.

References

Baeza, R., F?ste, L., Lay, C.. Sepp?, T., Bartletta, S., Ganeriwalla, A., Moldenhauer, R. and Webb, D. (2017) Qantas: improving operations and investing in digital. [online] Available from: https://www.bcg.com/publications/2017/transformation-value-creation-strategy-qantas-improving-operations-investing-digital.aspx [Accessed on 27/08/18].

Frawley, J. (2018) Exercise areas, sleeping berths – Qantas considering “out there ideas” for project sunrise. [online] Available from: https://australianaviation.com.au/2018/03/exercise-areas-sleeping-berths-qantas-considering-out-there-ideas-for-project-sunrise/ [Accessed on 27/08/18].

Jameson, J. & Gebicki, M. (2018) Air travel trends in Australia: New planes, seats, routes, alliances and stopovers. [online] Available from: https://www.traveller.com.au/air-travel-the-emerging-trends-travellers-should-know-about-gsuz7z [Accessed on 27/08/18].

Kelly, D. (2018) A Guide to Oneworld Alliance Program Airline Members. [online] Available from: https://www.tripsavvy.com/airlings-in-oneworld-468133 [Accessed on 27/08/18].

Qantas. (2013) Annual Report. [online] Available from: https://www.qantas.com.au/infodetail/about/investors/2013AnnualReport.pdf [Accessed on 27/08/18].

Qantas. (2017) Annual Report. [online] Available from: https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2017AnnualReport.pdf [Accessed on 27/08/18].

Qantas. (2018) Expanding Overseas…and at Home. [online] Available from: https://www.qantas.com/travel/airlines/history-expanding/global/en [Accessed on 27/08/18].

Skytrax World Airline Awards. (2018) World’s Best Business Class Airlines 2018. [online] Available from: https://www.worldairlineawards.com/worlds-best-business-class-airlines-2018/ [Accessed on 27/08/18].

The Sydney Morning Herald. (2018) Singapore Airlines named world’s best, as Virgin drops nine spots. [online] Available from: https://www.smh.com.au/business/companies/singapore-airlines-named-world-s-best-as-virgin-drops-nine-spots-20180718-p4zs86.html [Accessed on 27/08/18].