Marketing Management

SBS MBA

 

Introduction

Qantas is the world's second oldest airline, having been founded in the Australian outback in 1920. It is Australia's largest domestic and international airline. The name comes from the initial letters of the words in the original registered title—Queensland and Northern Territory Aerial Services Limited. The Qantas Group employs approximately 32,500 people and operates a fleet of over 250 aircraft,

comprising Boeing, Airbus and Bombardier aircraft from full-size long-haul aircraft to smaller short haul aircraft. The Group offers services across a network spanning 182 destinations in 44 countries (including those covered by code share partners). International Air Transport Association (IATA) data for 2009 shows Qantas was the world's 11th largest airline in terms of Revenue Passenger Kilometers (RPKs).

 

    Its brands include Qantas, Jet star and Qantas Link (as well as several Jet star brands in East Asia). Qantas is the Group's standard fares airline, based in Sydney, while Jet star is the Group's budget fares airline that also manages the  Jet star Asia operations, based in Singapore. Both offer Australian domestic and international services, and are intended as complementary, rather than competitor, brands to each other.

 

 In recent years the Qantas Group has been one of the few airline groups in the world still making a profit. Many airlines have been making substantial losses, and there have been some mergers (such as KLM–Air France), takeovers and bankruptcies (such as Northwest and American Airlines).

Despite the apparent rosy initial impression, the actual profitability picture across the Group is mixed, with Jet star's domestic and international operations generally doing well, while the Qantas division of the business has been doing less well. Qantas's international market share has fallen sharply in the past decade. While the airline was in a dominant market position in 2000–2001 with 34.4 per cent of the traffic to and from Australia, by 2010–2011 its market share had dropped to 18.7 per cent. Part of the response to this was the launch of Jet star, which has absorbed 8 per cent of international traffic into and out of Australia leaving the overall Qantas Group with a 26.5 per cent market share by late 2011.

 

The economic viability of the Qantas international operations is, however, central to the Qantas Group business mission and objectives. Reflecting this, the need to cut costs is a central tenant of the Group's strategy for Qantas. According to the airline, the cost base is around 20 per cent higher than key competitors. It simply does not have the low cost structure of many of the competitors, especially

the Asian competitors. Neither does Qantas have the well positioned hubs of the competitor Asian and Middle Eastern carriers. Accordingly Qantas is having to undertake its marketing in an environment where competitors, such as Emirates, Etihad, and Singapore Airlines (with great hubs) are tackling them head-on. Given the above, a large number of Qantas routes, primarily to Asia and Europe, are loss-making.

 

In contrast, a central tenant of the Jet Star strategy is to grow the brand in Asian markets through stand alone operations, joint ventures and strategic alliances, as much as possible and as rapidly as possible. Jet star is one of the world's fastest growing and most profitable low-fares airlines, set for significant future growth.

 

Management perceives that part of the solution for the Qantas division of the international business is offshore maintenance of aircraft, employment of overseas flight crew, and pilots on much lower salaries. All of this is part of the perceived need to pair down costs, just as the Group was able to when it established Jet Star as the low cost brand in the Qantas Group.

 

This case is focused on the international side of the Qantas Group business, specifically the Qantas and Jet star international passenger operations. Their domestic Australian operations are not the principal focus of this case. Commentary on them should either be very limited, or excluded.

 

 

 

 

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