Competitive Strategy of Qantas Airline Company-Free-Samples

Question: Discuss about the Competitive Strategy of Qantas Airline Company. Answer: Introduction The Qantas Airline is an International company with a headquarter office in Australia. The company mission statement explains its purpose of becoming the best airline in the World. Qantas Airline was founded in Queensland in 1920 and since it has grown to be the largest Australian local and international airline. Qantas has established its image on key principles and values such as customer service, maintenance, engineering, operational reliability, and safety.(CAPA Centre for Aviation, 2015) These have been the major concepts behind the business operations and the success of Qantas. The major company business involves the transportation of both domestic and international customers using two complementary brands, which are Jetstar and Qantas. Besides, Qantas operates subsidiary businesses comprising of other airlines as well as in specialists markets such as catering. The company subsidiary business majorly involves Qantas, Flyer Frequent Flyer and Qantas Freight Enterprise. Qantas enjoy its wider market regionally, domestically and internationally than other airlines operating in the region(Qantas Group, 2016). The above summarization about the Qantas business operations and brands makes it clear that the company has had a lot of growing business opportunities through its competitive advantage. The company products and business strategies outperform other companies in the region. However, from the various case studies it has been evident that Qantas success has been faced by ups and downs. However, the company has been able to recover from the downturns through its competitive advantage. Therefore, it can be argued that it is the Qantas Airline competitive advantage that has kept its business. It is out of this observation whereby this report will use different evaluation techniques to undertake the Qantas Airline business valuation and analysis. Qantas Porters Five Forces According to the Michael Porter, the competitive advantage of the business can be analyzed based on the five forces(Dlken, 2013). Michael Porter identified these forces as the rivalry among the existing players, buyers bargaining powers, suppliers bargaining power, competitors threats and the availability of the substitutes. This report will apply these forces to analyze the competitive advantage attributable to the Qantas Airline Group. Rivalry among the Existing Players Businesses operate in a competitive environment(Oraman, 2011). Likewise, the Qantas Airline business environment is characterized by competition from other airlines in the region such as Tiger and Virgin Blue Airways. Internationally, the company is facing fierce competition from other international airlines such as British Airways(Whitley, 2017). The existing competition exhibited by the players in this industry has facilitated into slow market growth, diluted profits and the high cost of competition. However, bearing in mind that airline industry is a big one, there are opportunities of Qantas Airline to expand because the existing players in the industry can expand their business without interfering with the market share of the other. Bargaining Power of Buyers In the Qantas' industry the bargaining power of the buyer is very high. This is because Qantas is operating in a competitive industry where there is stiff competition. The competitors in this industry apply cost leadership strategy whereby they focus on charging customers the lowest cost as possible. This competition strategy increases the buyers bargaining power as they can choose which company to travel with either based on the quality or price. Therefore, customers can switch from the Qantas brand to the competitors products. This affects the company profit as well as reducing its market share. Bargaining Power of Suppliers Ideally, the main factors affecting suppliers bargaining power comprise of suppliers concentration, the threat of backward and forward integration, substitute suppliers and switching costs(Rahman, Azad, Mostari, 2015). Bearing in mind that airline industry calls for huge investment the suppliers in this industry are very few. For example, the major suppliers of the Qantas aircraft are Airbus and Boeing. Suppliers being few in the market prevents Qantas and other players in the industry from exercising their control over them. Therefore, the suppliers have the higher bargaining power that the Qantas Airline. According to Wheelen Hunger (2010) low supplier concentration has long-term negative effects on firms. This is because it reduces the firms value. Qantas is negatively suffering from the low supplier concentration consequences. Threat of the Substitutes From the case studies, it is evident that Qantas is faced with stiff competition exhibited by the other players in the industry. This means that there are other alternatives for traveling. Threat of the substitutes appears to be more intense in the domestic and the regional market than in the international market. This is because there are limited alternatives for international traveling. Domestically, the threat of substitutes is posed by other modes of transport such as road, rail, and sea. In the international arena, the substitute threat is posed by other international competitors such as British Airways. The lower performance product portrayed by other players in the industry makes it difficult for the customers to switch from Qantas service to other services offered by the competitors. Alternatively, other services providers in this industry offer low-quality products making it hard for the buyers to switch from the Qantas' products(Sumers, 2013). The adoption of the substantial product differentiation has worked best for the Qantas. The company has differentiated its products by designing different services from other players in the industry. According to Saleh Jaradat, Almomani, Bataineh (2013) when services or products are differentiated from the competitors it becomes difficult for the customers to find other close products that can satisfy their needs. Finally, there are a limited number of substitutes in the airline industry. The availability of few substitutes in this industry has had positive impacts for Qantas. Threat of New Entrants The success of any industry will attract more entrepreneurs who will want to take advantage of the existing opportunities. This is encouraged by the number of factors such as low investment cost, favorable government regulations and others(Porter, 2008). Currently, it is very difficult for the new competitors to enter the airline industry. This is attributable the high cost of investment that makes it difficult for the new investors to enter the industry(Sandilands, 2012). For example, high airline operational cost such as catering for the security and security measures and high costs of either buying or leasing an aircraft makes it expensive for the new investors who may want to enter the industry. Other factors hindering competitors to enter the airline industry include weak distribution network. According to Porter (2008) when the industry has weak distribution it means it expensive to distribute products, and therefore some products may never reach to the end customer. Additionally, Tehrani Rahmani (2014) adds that for the new entrants to enter the industry, a strong distribution network must exist. The geographical location of Qantas hinders the entry of the new competitors. This because Qantas Airline has already established itself in the continent of Australia. Finally, the high learning curve exiting the industry makes it expensive and time-consuming for the competitors to study before competing effectively. This prevents the Qantas industry from the threat of the new entrants. Qantas SWOT Analysis Strengths: Qantas Airline strength is linked to its strong brands that are globally recognized. Besides, the diversification of its services gives the company an opportunity to continue dominating large market share locally, regionally and in the international markets. Weaknesses: Qantas profitable operations rely heavily on the business and first class passengers. During global financial and economic crisis it becomes difficult for the company to earn revenue. This is because the demand for the business class services goes down. Opportunities: There are opportunities for the Qantas Airlines to grow its international market. The company can agree with more states in different continents to increases its international travels. Alternatively, Qantas can diversify its products to target and meet many needs customers as possible. Threats: Provided that business operates in a dynamic environment, Qantas Airline is likely to suffer from the global financial crisis. Besides, the company business operations can be affected by the threats posed by the international terrorists. Qantas Corporate Strategy across Domestic and International Divisions since 1992 Since 1992, Qantas corporate strategy has been providing passengers transportation under the Australian flagship airliner. Over the year, this strategy has not changed especially in the domestic division where the company has continued of offer transportation services to the Australians at low costs through Jetstar division. To meet the rising international travelers needs of having the low costs services, Qantas has extended its Jetstar business division. Other strategies that the company has changed to include the Frequent Flyer Loyalty program to attract more customers and adopting the low staff cost strategy. Three Accounting Policies that Auditors should watch for any Airline Industry Plant, Property and Equipment Valuation (PPE) Valuation The airline industry major assets are aircraft. These assets are prone to depreciation and impairment. Most of the times the industry overvalues the PPE to overestimate the financial position of the business. Therefore, it is important for the auditors to carefully scrutinize the depreciation and impairment methods used to ascertain whether they are in line with Financial Accounting Standards Board (FASB). Leasing Accounting Policy As noted in the earlier discussion in this paper, investing in the airline industry is very costly because it requires purchasing aircraft which are very expensive. Sometimes the companies in the airline industry may find it worth to lease an aircraft than purchasing it. However, this may be used an opportunity to swindle the stakeholders wealth. Therefore, it is important for the auditors to examine the current leasing policy to determine whether it properly carried out. Depreciation Policy In the first accounting policy this paper has found that major airline assets (PPE) are prone to the depreciation. Bearing in mind, there are several depreciation methods such as straight line and double depreciation methods not all of them are applicable in the airline industry. Therefore, the external auditors should investigate to establish whether the companies in the airline industry are applying the right depreciation methods. Qantas Financial Performance and Financial Position at the end of 2013 Financial Performance (Revenues and Expenses) In August 2013, Qantas realized a profit of $15.9 billion. This revenue generation was supported by the costs of 13.83 billion. Other costs and incomes reduced and increased income before net income respectively to $1 million. This was a significant improvement from the 2012 net loss of $245 million(Qantas Airways Ltd, 2017). This was the fastest growth in the company performance in the past eight years. The improvement in the financial performance was strengthened by the actions that were adopted by the company during the year including the prudent approach to capital expenditure and reducing debt(Qantas Group, 2013). Additionally, the growth in the financial performance was also attributable to the growth of domestic business operations. Financial Position (Assets, Liabilities and Owners Equity) At the end of 2013, the Qantas total assets amounted to $20, 032 million. The total assets growth was at -5.41 percent. On the other total liabilities were $14, 192 million and owners equity was $5, 840 total to $20, 032. This was a slight decline from its financial position in 2012 that was ranging at 21, 178(Qantas Airways Ltd., 2017). In 2013, the company liabilities superseded the owners equity. This means the company was relying more on debts and loans to finance its operations. Qantas Financial Performance and Financial Position in 2016 Financial Performance In 2016, Qantas Group realized a net income of $1.03 billion(Chung, 2016). This was a tremendous increase in the company financial performance over a decade. This revenue was matched with an expense of $15.71 billion. Financial Position In 2016, the Qantas Group total assets were $16, 705 million with a total growth of -4.71 percent, asset turnover 0.95 and return on average assets of 6.01 percent. This was notable growth on the company asset performance over the years. On the other side, the company liabilities amounted to $13, 445 million and owners equity totaled $3, 360(Qantas Airways Ltd., 2017). Similarities and Differences between 2013 and 2016 Financial Years Similarities In both years, the company has realized a revenue as well as improvement in the financial year compared to the respective years. Again, there has been financial performance improvement in both years. Differences In 2013 the revenue realized was much lower compared to the 2016 profits. Besides, the company liabilities have reduced from $14, 192 in 2013 to $13, 445 million in 2016. Additionally, performance in the company assets has continued to improve. Recommendation to the Potential Investor Based on the 2016 report, this report recommends that it is worth for the potential investor to purchase shares in the Qantas Group. 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