Business Studies NotesQantas

Chapter 4: Marketing

The Marketing Plan

Role of Marketing: Achieve its business goals, especially profitability Identify and satisfy customer needs The marketing plan gives the business direction and helps manage a

changing environment Encourage newly developed products Create more distribution outlets Focus on market research

Situational Analysis – SWOT Analysis:Strengths General network/part of the Oneworld

alliance. 67% of domestic market share with

about 90% of the corporate market The launch of Jetstar was strong and

profits are rising. Recent lowering of costs and

efficiency gains. Recent purchases of new aircrafts,

lounge upgrades and expansion of routes.

Excellent airport locations and facilities

Largest Australian based airline loyalty programme

Ranked in the top 5 global airlines in 2007 Skytrax awards

Weaknesses High risk nature of airlines Relatively complex team of aircraft Higher labour and other operating

costs than some competitors Ongoing disputes between Qantas

management and rebellious unions. ACCC denial of approval for Qantas

and Air New Zealand alliance. Airbus postponing delivery of A380’s to

August 2008. Failure of Australian Airlines and the

failure to date of Jetstar Asia

Opportunities Expanding Jetstar to the international

network. Developing further E-commerce

operations. Pursuing growth opportunities in

travel, catering and shipment areas of the business.

Continually evolving aircraft technology

Taking advantage of aviation growth in the Asian Pacific region.

Evaluating other joint venture opportunities in Asia

Merging with other international airlines

Threats Competitive challenges mainly from

the domestic Virgin Blue and Tiger airways.

Further increases in fuel costs Threat of further competition in the

domestic and international market. Increases in government regulation to

protect smaller rivals. Falls in the Australian dollar. Weakening in the domestic and

international market/economy Threat of further competition

Competitor Analysis:Virgin Blue:

Was launched in 2000 and currently claims 33% of the domestic aviation market.

They recently launched and joint venture flyer scheme with Emirates to make inroads into the business segment and has ordered regional jets to compete with Qantas’s dominated thinner routes.

They are very competitive with Qantas in regards to the budget travel niche which they assisted in establishing.

They recently launched a joint frequent flyer scheme with Emirates (a Middle Eastern carrier) to make inroads into the business segment and they have ordered regional jets to compete with Qantas’ dominant thinner routes.

Tiger Airways: Since December 2007, they are the third domestic airline for Australia. They currently fly out of Melbourne to 9 destinations and have offered initial

flights as low as $10. They have extremely low prices (some even as low as $10) which is

highly competitive for Qantas. Although Qantas have retaliated towards this by undercutting their fares.

Product Life Cycle (PLC):Stage in PLC

Airline Characteristic Marketing Strategies Employed

Introduction

Jetstar international (2006)

New product. Very small operating profit in first year

Promote heavily. Qantas has launched this airline with a $20million advertising blitz. Penetration pricing strategy.

Growth Jetstar (domestic)

Increased sales, profit grew by 34% last financial year

Encouraging brand loyalty through a linked FFS, expansion of routes, purchasing of more aircrafts.

Maturity Qantas Sales levelling off Redesigning packaging, such as online check-in, upgrading lounges and in-flight entertainment systems.

Decline Jetstar Asia Falling sales, increased losses, flights cancelled

Scale back team, seeking new finance

Marketing ObjectivesAs Qantas is a public company and is listed on the ASX the main objective is to provide a profit for growth and acquisition of new aircrafts. Although the overall goal is to provide a satisfactory return to the shareholders, so they can generate enough profit.Other minor objectives include:

Increased sales of passenger tickets Maintenance of Qanta’s/Jetstar’s combined domestic share at 67% Continue to grow its routes, especially in Asia Aggressive growth of Jetstar to take on new aircrafts Increases internet sales Increased customer service/service standards Improve efficiency

Market Segmentation and Selection of the Target MarketMarket segmentation is the process of dividing up the total range of potential or current customers into smaller discrete groups to facilitate analysis and planning. This enables Qantas to:

Better meet customer needs To compete for more efficiency To attain financial goals more efficiently Better tune of the marketing mix for particular groups

Market segmentation is complex because each segment has distinctive and different needs and expectations. Qantas mainly uses the behavioural segmentation (separating in relation to where they are going) to select its target markets. Buyers are distinguished according to their trip purpose.There are many different customer requirements and as they are changing Qantas has established new airlines to suit them, such as; Jetstar Asia and Pacific Airways target the growing intra Asia target market.

Marketing StrategiesPositioning:This is the image that Qantas projects in relation to its competitors. Qantas positions in relation to its competition/target market.

Product:- Scheduling Features:The route frequency, time of departure, number of stops or direct flights has increased. Qanta’s city flyer express service ensures that there is a plane leaving every half an hour in peak periods between Sydney, Melb, Bris, Adelaide, Canberra and Perth. They also have flights leaving from both Sydney and Melbourne every 15 minutes, due to increased passenger demands. - Comfort Based Features: Qantas has hired Neil Perry to extend their on-flight menu Qantas has reviled their new ‘first suite’ and new premium economy suite for the new A380. This includes extra width, more leg room and an in-arm digital widescreen TV as well as laptop connection. Flight Update enables customers to use their phone messengers to receive departure times. Jetstar also offers SMS ticket booking. The new economy seats offer extra width, more leg room and in-arm digital widescreen TV as well as laptop connection A $300million Total Entertainment in-flight system has been upgraded and installed to international flights They have spent millions upgrading its domestic and international lounges Recently installed self service kiosks called Quick Check at Sydney, Melbourne, Brisbane and Canberra airports, where customers can check-in and choose a seat in a minute. Qantas Club business customers can enjoy private rooms, workstations, photocopying and local faxing systems, postal services, personal message service, specially trained flight attendants, new food and wine, premium quality noise cancellation headsets and a self serve bar for drinks and snacks. - The Qantas Frequent Flyer Scheme (FFS):2.6million members and 198 programme partners, Qantas use this system to retain and guarantee customers, increase market share and fill otherwise

empty seats. The FFS also provide a large data base which includes hotels and car rental companies assisting in the scheme.- Intangible Benefits:Qanta’s history and safety record as well as the benefit and experience of flying.- Brand Name:Qantas is Australia’s leading brand name and has a very powerful marketing tool. They have the brand name, kangaroo symbol and logo, ‘Spirit of Australia’. The new design is more contemporary and comes with a new Qantas typeface with thinner, steep-grey letters.

Price:- Pricing Methods include:

Cost plus margin: Qantas determines the cost of production and then adds a margin for profit

Market: most fares at Qantas are determined by the market, where demand is matched with supply

Competition based: watching what other airlines such as Virgin Blue are doing with their prices.

- Pricing Strategies include: Price Penetration: Qantas uses this strategy (lowest possible price) for

Jetstar Full Fares: for those wanting flexibility as full fare can be refunded and

changed.In 2003 Qantas introduced a new domestic fare structure. This new ticketing structure is simpler and increases flexibility by collapsing 11 fares to 5 (repayments).

Promotion:Qantas supports and sponsors environmental causes such as Clean up Australia and so on…- Advertising:Qantas use advertising agencies to create media (blanket) advertisements on TV, radio, magazines, newspapers, brochures, postures in travel agencies and billboards. In 2004 they re-shot their most famous ‘I Still Call Australia Home’ which costed them $10million. Jetstar use Magda Szubanski to attract customers on the TV. Qantas is trying to use fewer blanket advertising and more direct marketing, which is cheaper and more efficient. The disadvantage of blanket advertisement is that many people receive the message to who are not being targeted, although it is good to be recognized by the general public.- Publicity:To enhance the image of Qantas, they include news releases, feature articles, press conferences and interviews. In 2002 John Travolta was hired as a brand ambassador (opinion leader). Qantas also sponsors and supports environmental causes and charities to show they have sympathy.

Place:- Direct:- Direct sales via its own retail outlets which means they have more control.- Telephone call centres- Airport ticket sales- The internet online booking system is growing, which saves Qantas $30 each seat.

- Indirect:Qantas has a strong relationship with a number of retail agencies. Qantas is selective about who resells the product and looks for intermediaries that have a good reputation, financial strength and expertise.

Implementing, Monitoring and Controlling the Marketing Plan1. Developing a financial forecast of revenue using statistical models, past

sales data, executive judgement and surveys of consumer buying intentions.

2. Comparing actual and planned results using a number of performance criteria: - Sales Analysis: breaking down different products, segments and territories.- Market Share Analysis: comparing business sales with the performance of its competitors.

3. Revising marketing strategies and taking corrective action where appropriate.- Introducing its own budget domestic carrier Jetstar May 2004 to counter Virgin Blue’s increasing share of the aviation market. - introducing new domestic fare structure which was simpler and more flexible

Implementing, maintaining and controlling the marketing plan.

Market Research - Identifying Customer NeedsQantas gathers and analyses information to help them make appropriate marketing decisions. Marketing strategies work best when they are based on accurate, up to date information which is detailed and relevant. Step 1: is identifying information needs, e.g. customer needs, attitudes, brand preferences, buying intentions and characteristics. Step 2: is to identify and select the data source. Qantas uses both primary and secondary sources of data collection.

Primary: ongoing surveys of passengers in flight, mail based surveys, complain monitoring and discussion with customer contact staff

Secondary: government statistics, airline magazines and reported interviews with competitors’ executives.

Step 3: is to analyse and interpret the data.

Implementing Marketing Plan

Establish Control System

Evaluate Marketing Performance

Continue implementing plan

Is there deviation from plan? NO and evaluating performance

YES

Ethical and Legal AspectsQantas has an ethical responsibility to its customers and an even broader responsibility to society as a whole in the marketing of its products. All material is reviewed by the Qantas Legal Department before publication to help ensure compliance. Qantas has been threatened in many different ways, here are some examples:

Qantas now publishes the true costs of fares including previously hidden extra charges and levies following a warning from the ACCC

Qantas boosted the number of frequent flyer seats and was forced to improve its website to satisfy the ACC that its customers were adequately informed about restrictions on award redemptions

Qantas’ logo for its new Australian Airlines has been labelled a ‘flying rip off’ for its resemblance of Aboriginal Art.

The ACCC accused Qantas as having anti-competitive behaviour under the Trade Practices Act by increasing the total number of seats well beyond passenger demand.

Qantas was accused of ‘Ambush Marketing’ during the Sydney 2000 Olympics when it linked itself to the Olympics in advertising campaigns.

Chapter 5: Employment Relations

Employment Relations at QantasQantas employs around 37000 people. The employment relations function is to manage effectively the relationship between employers and to achieve its goals, minimise costs, improve quality in working life and ensure legal compliance. Qantas has sought to reform its employment relations practices and industrial conflict between employer and employee has been a feature.

Effective Employment Relations Strategies Employed by Qantas

Community Systems:Qantas is seeking to improve its communication systems to make them more flexible and adaptable to change by:

Reorganising its organisational structure Encouraging more workers to participate, by involving employees in more

management processes. Including the grievance procedures which will provide a formal process in

resolving industrial conflicts.

Rewards:Qantas uses its rewards management scheme to attract, retain and motivate its employees. The reward system seeks to be equitable, clearly communicated, defensible, consistent, relevant, cost effective, and integrated with Qantas’ corporate strategy. - Financial Rewards: Competitive wages and salaries, they also use performance based pay for some employees; this means that direct salary is tied to the individual, team and company performance. Qantas also includes

- Non-Financial Rewards: These include challenging and interesting work, job recognition, job feedback, promotion, and independence in the job, good relationships with co-workers and a safe and healthy environment.

Training and Development:Qantas has invested more than $300 million in training and development over the past 5 years. Qantas’ training programme is planned and is integral to its business strategy and to maintaining or developing a sustainable competitive advantage. Ongoing training is critical due to the airlines industry’s rapid technological change and global competition. Qantas has implemented training programs in new security procedures, international business class, engineering and maintenance and informational technology procedures; these benefits include:

Enhanced organisational productivity Improved quality of outputs Enhances ability to cope with change A more committed workforce.

Flexible Work ConditionsQantas has recently implemented a number of flexible working initiatives to assist staff to balance their work and family life. These include:

Chapter 3: Financial Management

Competitive Ratio AnalysisComparative ratios can be used to compare financial performance against previous years or against other businesses in the same industry.

Profitability Ratios:Profitability in the airline industry is relatively poor on average. Qantas operates on very low margins, in an industry which is highly capital (profit) intensive and highly competitive. While Qantas performed better than most in relation to the 9/11 attacks and the SARS epidemic, the profitability of Qantas decreased in 2002 and 2003. Qantas marked improvement in 2004 and 2005 which was due to gradual recovery of the international aviation and cost savings. Qantas’ profitability ratios mainly fell in 2006 due to the cost of fuel.

Qantas’ Net Profit ratio increased from 3.5% in 2005 to 4.7% in 2007. Qantas’ Rate of Return on Owners’ Equity increased from 7.9% in

2006 to 11.6% in 2007.

Current profitability management strategies employed by Qantas include:

More flexible working hours Increased paid maternity leave from 6 to 10 weeks Up to 10 days carer’s leave per annum A ‘keep in touch’ programme for staff on maternity leave Building a new child care facilities in Sydney, Melbourne and

Cost Centres: Qantas achieves its 3 year cost reduction target of $1.5billion in June 2006 and is on track to achieve an additional 2 year target of $1.5billion by June 2008.

Revenue Costs: total revenue increases by 11% in 2006/07

Liquidity Ratio:On the surface Qantas’ low rate indicates an inability to meet its short term debts. However like most other airlines, it operates on a negative working capital position. Qantas holds very little cash and uses cash received to pay for long term debt, which reduces interest. Qantas has facilities in place to draw cash out to pay creditor, and dividends to shareholders.

Their liquidity ratio fell slightly from 0.87:1 in 2007 to 0.91:1 in 2006.Current liquidity strategies employed by Qantas include:

Controlling current assets Controlling current liabilities Leasing more aircraft, buildings, plants and equipment

Gearing Ratio:The gearing ratio measures Qantas’ ability to continue its operations in the long term and is a measure of its financial stability. Rather than using the traditional debt to equity ratio, airlines use a more complex ratio to show a clearer position of gearing. Qantas are typically highly geared. Qantas’ relatively high gearing ratio is principally a result of team expansion, deposits for future aircraft deliveries, upgraded lounges, international sleeper beds and the updated in-flight entertainment system. Qantas’ sources of funds include a mixture of cash, equity, debt and lease finance. Much of Qantas’ debt is sourced from overseas.

If the takeover of Qantas by Macquarie Bank’s Airline Partners grouping had been successful Qantas’ gearing would have been increased dramatically as two thirds would be from equity.

Efficiency Ratio:Efficiency ratios measure the ability to manage assets in order to generate profits at minimum cost to the business.

Efficiency decreases from 95% in 2006 to 93% in 2007.Efficiency strategies used by Qantas include:

Introduction of new and more efficient aircrafts New crews and new training bases Investment in new IT systems A lower cost of sales Restructuring of catering and engineering

Chapter 2: Business Management and Change

Management Theories

Classical Scientific (1947-1995): Hierarchical, with various levels of power and authority within organisation Full of rules, regulations and is highly centred over decision making Multi-layered with numerous levels of management A long chain of command n regards to authority

Division of tasks through specialisation and departmentalisation Little contact between workers and top management because of

autocratic management The domestic airline industry was deregulated in 1991 with the removal of regulations over entry and price controls in the airline industry. In 1995 Qantas was privatised. These events changed Qantas as:

They became more competitive, effective and profitable They had to pay all taxes and levies paid by other businesses in

Australia They had to make a profit and pay a dividend to its shareholders

Behavioural (1995-present): Greater emphasis on human resource – what the customer wants and

what the employees want More effective channels of communication More flexible working initiatives to assist staff to balance their home and

work life Flatter organisational structure reducing the levels of management,

this gives more responsibility to the employees Introduction of practices to motivate employees A more democratic style of management where employees have more

input in decision making Development of work teams and an emphasis on multi-skilled workers

Political: Focus on management using power to achieve goals Recognising the importance of management to have the skill of

negotiation and bargaining skills Balancing the interest of competing shareholder groups

Systems:Qantas recognises the importance of each and every part of the business as if there are changes in one part of the business the whole business is influenced by these changes.

Contingency:Management practices at Qantas are more flexible and adapted to suit changing circumstances. Such as; the war on terrorism or the price of fuel.

Sources of Change

External influences:Economic Influence: Qantas has benefited recently from the strong Australian economy combined with the growth in real average incomes and appreciation of the Australian dollar and also the increasing demand for travel services. However, recent low levels of economic growth experienced by American and Japanese (two of Qantas’ biggest markets) economies have significantly reduced levels of business and tourist travel. The rapid growth in fuel prices from 2004 has a big impact on Qantas’ profitability.The Changing Nature of Markets:

The largest affect on the market was the 9/11 attacks and the SARS epidemic in 2003. These changes, many traditional airlines have found it necessary to review their business models, find greater efficiencies and look at opportunities for consolidation. As the trend for governments to liberalise the skies (deregulation) continues, Qantas will face more competition on its international routes.

Singapore Airlines and Emirates are constantly fighting the Australian government to gain access to Qantas’ protected Trans Pacific routes.

Since the fall of Ansett in 2001 domestic competition between Qantas/Jetstar and Virgin Blue is more restrained because Qantas is the only provider of nationwide scheduled services.

Furthermore, a number of factors now favour the entry of new domestic competitors like Tiger Airways.Legal and Political Influences:Changes in legislation have major impact on the conduct of Qantas. In seeking to achieve its goals, the Australian government has a major impact on Qantas through the laws it passes and enforced. For example:

The Federal Government (Feds) imposes taxes on air fares Each country Qantas operates in has different laws which will affect

its contracts, dispute resolution procedures and protection of its intellectual property

The Feds is introducing random alcohol and drug testing for all safety sensitive roles in the aviation industry

The Feds have recently implemented new security measures such as the closure of access gates and security

Technological Influences: There have been newer planes that have greater capacity and are more

efficient. Developments in the in-flight entertainment system and seating

arrangements make the flight more comfortable Personal Computer power outlets allow lap tops to be operated during

flightsGeographical Influences:The climate and natural heritage areas of Australia attract customers from overseas as it is one of the most attractive tourist destinations in the world. The number of international tourist visiting Australia has jumped 4% in 2007. Qantas is heavily tied to the Asian Pacific region. This region now accounts for 20% of the world tourism.Social Influences:Qantas operates in 37 different countries and provides services that come into direct contact with people from a multitude of different backgrounds. Qantas employs host country national and flight attendants who speak other languages to accommodate for other countries.

Internal Influences:E-Commerce, New Systems and Procedures:Qantas has continued to develop its web site to ensure faster booking, customer access to alternate fares and so on. Qantas plans to increasingly apply e-commerce to its internal corporate programmes. Qantas has also upgraded their security systems and introduced a new rule of which no liquids or gels can be taken to the US and all passenger footwear has to be screened.

Structural Responses to Change

Outsourcing:Qantas established an outsourcing system to become more cost effective and to simplify the business.

Qantas has outsourced many of its IT operations.- The entire technology and telecommunications infrastructure.- Its main frame and mid-range computing operations such as; Telstra operates the telephones

Qantas’ low cost carrier Jetstar has outsourced its entire call centre operations to Melbourne operator Sales Force

Qantas have contracted some maintenance jobs overseas in Singapore and New Zealand

Qantas has established a base in London for 400 of its international flight attendants in June 2005.

Flat Business Structure:In 2003 Qantas restructured the company into eight separate business units to help meet its cost reduction target and respond to the unpredictable international airline market

Strategic Alliances and Networks:The benefits from these alliances include the expansion of route networks and streamline processes and this improves customer services, increases passenger volumes and reduces costs through economic scale. They have such alliances as:

The Oneworld alliance which features 10 of the world’s leading airlines Qantas established Jet Turbine services, a joint venture engine

maintenance with Patrick corporation in 2003 to improve maintenance and reduce costs

Qantas launched Jetstar Asia, in 2004, which bases its flights in Singapore in a joint venture with Singapore investors. In 2005 Jetstar Asia merged with a Singapore carrier Valuair. In 2007 Qantas acquired 30% of Pacific Airlines to further tap into Asia’s booming low cost aviation market

Reasons for Resistance to Change

Financial Costs:Purchasing New Equipment:In order to maintain its position as Australia’s leading domestic and international airline Qantas spends billions of dollars purchasing new equipment. Examples include:

New and more efficient aircrafts which cost - $2billion/year Security measures such as new passenger screening equipment and

surveillance equipment throughout baggage areas which cost - $1billion since 2001

In-flight entertainment systems Information technology and systems

Redundancy Payments:Qantas has downsized its staff because of compulsory redundancy payments. They would like to rely on natural retirement and the increasing

numbers of casual employees to ensure a minimal payment. They have been 1245 retrenchments in 2005/06 which cost them - $20million.In 2007 Qantas cut down management and administration down by 20% which resulted in another 1000 redundancies this cost them - $200million.Qantas has recently announced they will be making another 340 employees redundant which was because of the new IT opportunities.

Re-Training:More than $280million was spent on retraining staff in 2006/07. This is because with any significant change in Qantas the staff affected need to be retrained in order to work the equipment. For example:

10,000 staff were recently retrained as a result of shifting the airline’s reservation system to Amadeus

Qantas has just retrained its cabin crew in order to learn the new business class system

Qantas has recently developed and implemented additional security training for all flight and cabin crew

Re-Organising Plant Layout:As Qantas acquires new aircraft to have to continually reorganise the layout of its maintenance operations to try increase capacity and efficiency. Qantas has also reorganised the layout of its passenger handling facilities at many airports to increase services to passengers and to speed up their processing. Qantas has also recently leased six gates in the former Ansett terminals from the Sydney Airports Corporation, opened and refurbished new lounges and installed the self-serve Quick Check kiosk.

Cultural Incompatibility in Mergers and Takeovers:Mergers and takeovers may fail because the two businesses have very different cultures and cannot bind together. When British Airways bought 25% share in Qantas it brought with it a different business culture based on strict commercial criteria. This resulted in a culture clash which was a reason for some employees resisting change. In 1997 Qantas sold 19.9% stake in Air New Zealand out of frustration at its inability to gain operational benefits from the stake and over the hostile attitude of the ANZ board of directors.

StaffingThe proposed outsourcing of information technology and maintenance, the recent reduction in the size of permanent workforce and the hiring of more part time and casual staff to increase workforce flexibility has made employees fearful of change because they think it will threaten their job security. Employees have also resisted changing because:

Their skills are no longer required sure to changing work methods They have to learn new skills because of information technology There is a large disruption of work methods and patterns of

behaviour They are resentful over not being consulted about the proposed

changes

Managing Change Effectively at Qantas

Identifying the Need for Change:Geoff Dixon is a strong and determined leader who meets the challenges as they come. He has clearly identified the need for change at Qantas, highlighting the changing market circumstances, changing customer requirements, competition from low cost airlines, deregulation of international routes and Qantas’ higher cost base than its competitors.

Setting Achievable Goals:Qantas has clearly set out achievable goals and objectives, devised after consultation with staff and communicated clearly by management. These goals include:

Developing the right flying models to generate strong returns in order to grow in the future

Establishing competitive cost structures

Creating a Culture of Change:Qantas has created a supportive business culture to promote change and reduce the natural resistance to change. Geoff Dixon and other managers have adapted the role of change agents to help:

Energise the problem solving process (catalyst) Apply their ideas about what the business should change (solution givers) To show how the organisation can diagnose problems, set objectives and

create, adapt and evaluate solutions (process helpers) Bring people and other resources together to solve the problem (resource

thinkers)

Use of Change Models:Force Field Analysis:Driving Forces: Forces for Change

Restraining Forces:Forces against Change

- The growth of the profitable share of the market segment

- Start up costs in establishing Jetstar international

- It reduces the risk of other low frill airlines emerging

- There have not been many full service airline be able to manage a discount carrier without damaging its core operations

- The development of a low cost platform is used to negotiate agreements with unions

- ‘Cannibalisation’ of Qantas’ principal routes and this will decrease its profitability

- Success of Jetstar is stemming Virgin Blue’s market share

- Industrial conflict with unions

- There are fewer restrictions for Jetstar internationalUnfreeze/Change/Refreeze Model:

Stage 1: Unfreezing Stage 2: Change Stage 3: RefreezeDeveloping the awareness of the need for change:- The present organisational structure at Qantas was flexible in responding to change.- Qantas also needed to

Examining alternatives of new organisational structures

Reinforcing the new management structure:- Each unit at Qantas would have its own management, leadership, budgets and profit targets

reduce costsEstablish a good relationship with the stakeholders involves:- trade unions, employees and managers

Choosing the most appropriate organisational structure:- Qantas decided to restructure the company into eight separate units

Evaluating the change:- the new management structure had the desired effect, making management more adaptable to change and helping Qantas reduce costs by $500million in the last 3 years

Taking action in implementing the new structure

Change and Social Responsibility:Qantas management is expected to take into account the consequences of their decisions on stakeholders and to make decisions that are socially and ethically responsible for, these include:

Ecological Sustainability: Qantas tries to reduce its carbon emissions; they have launched a new scheme in 2007 that gives passengers the option of paying extra to offset the carbon dioxide emitted from their flight.

Quality of life: Qantas is more flexible in relation to their work practices, employees were rewarded with a cash and share bonus in 2007 of around $2000, and this was used as a positive reinforcement.

Chapter 6: Global Business

Qantas as a Global BusinessQantas offers more than 700 international services a week to 85 destinations in 37 different countries.

International services 31% of all flights departing from Australia/week Qantas’s assets 75% are geared to the international market

Reasons for International ExpansionDeregulation of the domestic aviation industry and the privatisation of Qantas also helped to trigger international expansion. Other reasons include:

Limited domestic demand and growth The domestic market is more competitive due to deregulation and the entry

of competitors Gaining economies of scale in operation and marketing through alliances

and code sharing with other airlines. Cushioning of economic cycles: allows Qantas to diversify its sources of

earnings and offset any downturn in revenue from domestic operations. E.g. the downturn in international travel September 11

Methods of International Expansion

1. Foreign Direct Investment:Acquisition: Qantas ha bought stakes in Malayan Airways, Fiji’s Air Pacific, Australia Asia Airlines and Air New Zealand. Qantas is a major stakeholder (45%) in Orangestar which owns and operates value based carriers Jetstar Asia and Valuair.Strategic Alliances: Qantas entered into a comprehensive global alliance with partner British Airways in 1993. In 1999 Oneworld 700 destinations and 150

countries. Qantas gains marketing benefits from frequent flyer programmes, smoother transfers and access to lounges. Qantas customer satisfaction may be significantly influenced by other airlines. Establishing New Airlines: Qantas launched its New Zealand subsidiary Jet Connect in September 2003 to replace some existing services. The lower labour costs in NZ and more flexible enterprise bargaining agreements are estimated to give Jet Connect cost advantage over the Qantas operation.

2. Franchising:Qantas is considering franchising its Jetstar brand to airlines throughout Asia.

Influences on Qantas in the Global Market

Financial Influences: Changes in foreign exchange rates fuel prices, operational expenditure

and capital expenditure. Interests rates overseas loan payments, interest increases Fuel prices in 2003 it cost $75000 to fill a B747-400, today it costs

$180000.

Social and Cultural Influences: Employing host country nationals (HNC) as part of its human resource

management (HRM) policies Employing flight attendants who can speak Asian languages and they

undergo training to learn about other cultures Entertainment and announcements on flights are also bilingual to

accommodate different languages of customers Differences in tastes and preferences are overcome by offering passengers

choices between Western style means, Japanese and Chinese meals complemented with Australian wines and spirits.

Legal Influences: Changes in labour laws in Australia could increase operating costs as a

result of higher wages disagreements may lead to strike action causing disruption to services

Civil Aviation Safety Authority responsible for certification of aircraft, licensing of operators, conduct of safety surveillance and enforcement of safety standards and rules.

Local laws and regulations in other countries may change and differ

$

AppreciationAn increase in the AUD reduces the price of fuel, leave payments, loan repayments and capital expenditure.It means Australians are more likely to travel overseas but overseas tourists are not likely to travel to Australia.

$ Depreciation

A decrease in the AUD increases the price of fuel, leave payments, loan repayments and capital expenditure.It means Australians are less likely to travel overseas but overseas tourists are likely to travel to Australia.

Political Influences: Government permission is required to serve individual routes. After September 11 the US reduced flying capacity by 11% Government decisions can have a big impact on Qantas Restrict foreign ownership of Qantas to 49% limiting the airlines access to

capital

Global Business Management Strategies

Financial Management: Reduce profitability of financial distress Protect its capital base Minimise the cost of capital Provide a stable business and profit outlook Exploit its financial strengths

Hedging: in 2005 Qantas had the second best fuel hedging of any airline in the world. Foreward cover involves entering into a foreward foreign exchange contract to exchange one currency for another at a date in the future at a pre-determined exchange rate. An option contract gives the buyer the right but not obligation to buy or sell foreign currency at some pre-determined date in the future. - Qantas hedged 79% of its fuel needs in 2007/08Credits risk: associated with travel agencies, industry settlement organisations and credit provided to direct customers. Minimises this by restricting its dealing to parties who have acceptable credit ratings application and undertaking transactions with a large number of customers in various countries. Insurance: Qantas takes out insurance to protect itself against various risks in operating a global airline especially to cover liability to third parties for protecting damage or personal injury.

Marketing:Qantas’s marketing strategies are alliance based. Alliances create a larger range of global products for existing customer, reducing the change that they will need to fly off-line, while maintaining the perception that Qantas offers travellers a ‘seamless travel experience’. These alliances allow Qantas to capture a greater share of the market and of the premium customer segments in particular. It also gives instant recognition around the world representing safety, reliability, engineering excellence and customer service.

Employment Relations:Appropriate management of employment relations is important for ensuring that a skilled and motivated workforce is attracted and retained. Employing a global workforce is challenging because of differences in culture, levels of economic development and legal systems. Qantas uses polycentric and ethnocentric approach to staffing. It generally tries to hire host country nationals (HCN) instead f transferring staff from Australia. This approach gives two advantages:

1. HCNs already understand common laws, culture, the state of the economy and language

2. It also avoids expenses with expatriate managers. i.e. relocation costsThe main disadvantage of HCN is that they need to become familiar with the Qantas business culture and practices.

Operations:Global operations are the set of activities used by a global business to transform resources into finished goods and services.This includes:

Making decisions concerning sourcing (acquiring resources) and vertical integration (the extend to which a firm either provides its own resources or obtains theme externally)

Qantas uses backward integration setting up its own subsidiaries to outsource inputs.Qantas uses forward integration setting up its own subsidiaries to distribute its outputs through Qantas Holidays and the Qantas internet site.Qantas has an aggressive strategy to increase internet sales to bypass other travel agents. These ‘make’ strategies enable Qantas to gain greater control and help to lower costs.Qantas has code sharing agreements with airlines like Vietnam Airlines, Polynesian Airlines, South African Airways, because of insufficient traffic or restricted access. Qantas does this through Oneworld Alliance. These partners provide short components of longer international flights sold to Qantas customers.

Qantas also buys other materials through outsourcing some of its functions such as information technology, maintenance and call centre operations. By reducing levels of vertical integration Qantas can lower risk and gain greater flexibility.

Benefits from these alliances include:- expanded route networks- streamlined processes- improving customer service- increasing passenger volume- reducing costs through economies of