Qantas Report free essay sample

TABLE OF CONTENTS Contents EXECUTIVE SUMMARY2 COMPANY BACKGROUND3 EXTERNAL ANALYSIS4 REMOTE ENVIRONMENT ANALYSIS5 INDUSTRY ANALYSIS7 COMPETITIVE ANALYSIS12 INTERNAL ANALYSIS13 STRATEGIC GAPS15 STRATEGIC OPTIONS AVAILABLE17 RECOMMENDED STRATEGY21 IMPLEMENTATION PLAN22 CONCLUSION23 REFERENCES24 APPENDIX 1 – Income Statement25 APPENDIX 2 – Balance Sheet26 EXECUTIVE SUMMARY The passenger airline industry is very mature and competition has forced many airline companies to reduce prices in order to utilise capacity. A remote analysis and industry analysis was carried out showing that the industry’s growth and profitability will be low. Qantas will have to make use of its strategic capabilities and compete in the market. Its vision is to be the leader in providing premium and low cost service through its Qantas and Jetstar brand respectively. However, competition from Virgin Blue, Singapore Airlines, Tiger Airways and Etihad Airways has limited the growth in Qantas’ market share in both the domestic and international markets. A number of strategic options have been suggested such as being exclusively a low cost carrier, merge with a competitor or join more alliances. However these options are either internally inconsistent or externally inconsistent. Two other options which are both internally and externally consistent are to build on customer loyalty programs to increase revenues through partners and shift focus towards freighting services rather than passenger services. These options are not mutually exclusive and can thus be provided together simultaneously. Implementation of these two options will be difficult however it will be successful if it is carried out with proper planning. Issues of structure, systems, skills shared values and communication of strategy should be addressed. Once implemented properly Qantas will be able to grow and become more profitable in the long run. COMPANY BACKGROUND Qantas was founded in the Queensland outback in 1920. It was registered as Queensland and Northern Territory Aerial Services Limited (QANTAS). The company was listed on the Australian Stock Exchange in 1995. Qantas’ main business is the transportation of passengers. In addition to its Qantas and Jetstar brand flying operations, the Qantas Group operates a diverse portfolio of airline-related businesses. These include Qantas Engineering, Airports, Catering, Qantas Freight, Flight Operations, Flight Planning and Control and Associated Businesses. From the birth of air travel in Australia 88 years ago, to the introduction of the worlds largest passenger aircraft the Qantas A380 in 2008, Qantas has experienced continual growth and expansion. Today, Qantas is not only Australia’s iconic airline, but also a recognized global aviation leader in safety, premium long haul travel, customer service and innovation. In 2009, Qantas was voted the sixth best airline in the world by research consultancy firm Skytrax, despite of a slight drop from 2008 (third), 2007 (fifth), 2006 (second), and 2005 (second). In 2008, a new management team was established with the appointment of Allen Joyce as the Chief Executive Officer and Managing Director. The new management team has staked out clearly defined vision for the Qantas Group as to operate both the world’s best premium airline and the world’s best low fares carrier. It aims to achieve this vision through the following strategic goals: †¢ Safety as the first priority: commit unwaveringly to the world’s best safety practices and reporting. †¢ Right aircraft and right routes: undergo fleet renewal, delivering one of the world’s most effective fleets flying on an optimal route network. Customer service excellence: consistent customer service excellence as the cornerstone of its business. †¢ Operational efficiency: undertake major projects both internally and with suppliers to achieve simplicity and further productivity across the business. †¢ Two strong complementary brands: Qantas and Jetstar ar e the best premium and low fares brands respectively. Owing to the global financial crisis and the prolonged economic slowdown, Qantas’s 2009 annual report shows a subdued financial performance – revenue of $14. 6 billion, 6. 9% drop from 2008; profit before tax of $181 million, a sharp decline of 87. %; earnings per share of 5. 6 cents as opposed to 49 cents in 2008; operating cash flow of $1. 1 billion, 46. 9% fell down from 2008 Despite this extremely challenging operating environment, the Qantas Group maintained its operational excellence by its broad scale, deep experience and exceptional human resource. In 2009, Qantas had achieved 334,000 flights over 530 million kilometres. It carried 38 million passengers and prepared 36 million meals. Frequent flyer points of 18% more were redeemed; 575,000 tonnes of freight were handled and 490,000 engineering tasks were undertaken. EXTERNAL ANALYSIS A remote environment analysis and Industry environment analysis has been carried out for Qantas. As 80% of the total group’s revenue is â€Å"Passenger Revenue† and it operates in both Australia and overseas, the industry has been defined as domestic and international passenger airline industry. REMOTE ENVIRONMENT ANALYSIS ECONOMIC Many industries in the world were affected by the global financial crisis in 2008. Consumer spending decreased because of the financial downturn. The impact of the financial crisis on the airline industry is high and negative. Passengers either reduced their frequency of travelling in both domestic and overseas flights, or they did not travel by air at all. The increase of fuel price is another negative factor. In order to offset the higher fuel prices, the airline industry tried raising the fuel levies on the air tickets. Qantas along with other airlines such as Japan Airlines and All Nippon Airways announced this change (OSULLIVAN 2009, p. 1). In order to grow the industry is also looking to explore for new customers such as in the Asia-Pacific region, especially China and India. The new market and new customers have positive influence. Qantas and other airlines have also started new routes to Asian countries (Rochfort 2005, para1-2). Overall the economic factor can be assessed as negative and high. SOCIAL / CULTURAL There is an increasing trend of services to leisure destinations for people, especially youngsters, to fulfil their needs of fun and consuming lifestyle. Furthermore, globalization has increased the need for people to travel for business purpose. Overall the social/cultural factors can be assessed as positive and low POLITICAL / LEGAL There are many political factors affecting the airline industry. Some are barriers to certain companies while they create a strategic advantage for other companies. The open skies agreement is one of them. According to the Bureau of Economic, Energy, and Business Affairs of United States (2009, para. 2), open skies agreements was launched by U. S. to promote increased trade and travel. It affords maximum operational flexibility for airline alliances by offering partners unlimited market access to each others’ markets. For the route between the U. S. and Australia, only Qantas and Virgin Blue are permitted to fly from Australia to the U. S. hrough the trans-pacific route. However the Australian government may give permission to Singapore Airlines and/or Emirates to operate in this route. Overall the political/legal factors can be assessed as positive and low. DEMOGRAPHIC The overall total population of Australia increases by one person every minute and 12 seconds according to the data from Australian Bureau of Statistics. Moreover, major cit ies of Australia are located on the seacoast. Thus there will be a need to travel to such cities by air. Overall the demographic factor can be assessed as positive and low. TECHNOLOGICAL Technological improvements have brought numerous changes to the airline industry. The most obvious one is the Internet. The accelerated information resources transfer resulting from the global use of the Internet assists the expansion of airline industry and the increase of the industry profitability. The domestic booking over the Internet has increased fivefold for Qantas over 2004-2007 periods. Many new technological tools come along with the development of the Internet. B-pay is one of them. People use B-pay for cash payment through the Internet when they do not have a credit card. Meanwhile, Qantas has enhanced its on-the-ground services by launching Online Check-in (OLCI) for its Australian flights and allowing customers to select their seats and print boarding passes online. The qantas. com also allows travellers to book complex multiple-sector journeys. Moreover, IBM and Qantas sign innovative project services contract to assist airline’s efficiencies. IBM will bring project management delivery expertise, deep industry knowledge and proven process capabilities to ensure timely and cost-effective delivery of business and IT change programs for Qantas (PR Newswire 2009, para. ). IBM will also helping Qantas improve the speed and quality of its business decisions. The outstanding technology will bring about increased profitability and a stable business environment, which is why Qantas improves its technical support services all the time to maintain the reputation of safety and reliability. Overall the technological factor can be assessed as positive and medium. INDUSTRY ANALYSIS Porter’s five forces model was used to analyse the industry. The findings are as follows: THREAT OF NEW ENTRANTS The threat of new entrants is assessed as low. The degree of threat for Qantas in the future is determined by the existing barriers to entry. Today, the airline industry is so mature that there is hardly space for a newcomer to enter the market. The biggest for this is the high financial requirements and high costs associated with establishing and operating the aircraft. Secondly, the high safety and increasing security requirements are also barriers for potential new comers. Although the airline industry in Australia is highly regulated, the â€Å"open skies† policy has increased the competition in domestic market and will attract more new competitors to enter the market in the future. POWER OF SUPPLIERS The power of suppliers is assessed as high. The main suppliers for Qantas are plane manufacturers, airports, fuel suppliers, food suppliers, pilots, supplier of IT systems, and supplier of entertaining services on plane. Among all the suppliers, plane manufacturers and fuel suppliers are the most influential. We will focus on these two. Plane manufacturers Factors that need to take into account are as following: †¢ Number and concentration of plane manufacturers: Qantas purchases airplanes from three suppliers Boeing, Airbus and DeHavilland. In other words, the supply of airplane is dominated by these three companies. Therefore, there is a high concentration of plane suppliers. †¢ Importance of the supplier’s input: It is manifested that airplane plays the pivotal role in the aviation companies’ operation, without which all the air companies will not exist. Therefore, plane manufacturers are extremely important to the survival of Qantas. †¢ Threat of forward integration by plane manufacturers: Real life experience tells us that it is unlikely that those plane manufacturers will provide air travel services directly to customers. The threat of forward integration is low. †¢ Ability to switch uppliers: Since each plane manufacturer’s product is unique, the switching cost is very high. †¢ Importance of Qantas’ purchasing volume to plane manufacturers: Qantas is just out of a number of aviation companies in the world. Qantas’ purchase of airplanes represent a small percentage of Boeing’s, Airbus’ and DeHavilland’s sale and is t herefore relatively not very important to these three suppliers; †¢ Cost of the airplane relatively to the total cost of the airline industry: Generally speaking, the purchase of airplane accounts for the largest proportion of each airline company’s capital expenditure. This is also the case for Qantas. Overall, plane manufacturers play an influential role in Qantas’ business operation and therefore are powerful. Fuel suppliers Analysis of the fuel suppliers’ power is based the same parameters as they are in analysing the plane manufacturers’ power. †¢ Number and concentration of fuel suppliers: There is a limited number of aviation fuel suppliers in the world. Hence, the fuel suppliers are highly concentrated. †¢ Importance of the supplier’s input: as we all know, fuel is a crucial factor for the survival of airline companies. It has a profound impact on the financial performance of Qantas. Specifically, it determines its profitability and sustainability. In Qantas’ 2008 Annual Report, to invest in the world’s most fuel efficient aircraft has been included as one of Qantas’ series of far-reaching decisions (Qantas 2008 Annual Report, pp. 1). †¢ Threat of forward integration by fuel suppliers: it is unlikely that fuel suppliers will provide the air travelling services directly to customers. Therefore, the threat of forward integration is low. †¢ Ability to switch suppliers: Qantas has the ability to change fuel suppliers. However fuel prices are very volatile and there are high jet fuel refining margins in the current business environment. †¢ Importance of Qantas’ purchasing volume to fuel suppliers: Suppliers provide fuel to a number of companies. Even though fuel expenses are significant for Qantas, it is only a small proportion of the total volume of fuel supply to the world. †¢ Cost of fuel purchase relative to the total cost of the airline industry: Fuel accounts for a great proportion of the annual expenditures in most aviation companies. According to Qantas’ 2008 Annual Report (pp. 7), fuel now comprises approximately 35 per cent of its total costs Overall, the fuel suppliers have a strong power and can exert significant influence on Qantas’ operation and performance. POWER OF BUYERS Based on the purpose of air travelling, Qantas’ customers can be divided into two groups-business travellers and tourists. From a geographic perspective, Qantas’ customers can be classified into domestic passengers and international passengers. To better understand the buyers’ power, the following factors should be considered. †¢ Buyer concentration: Basically, anyone who wants to travel or needs to travel to or from Australia or within Australia can be the customer of Qantas. Therefore, the buyers’ concentration is relatively low. †¢ Cost of the air tickets relative to total traveller’s purchases: For business travellers, air tickets constitute an intermediate or high percentage of their cost, whereas it comprises a high percentage of the tourists’ cost of travelling. Overall, buyers have an incentive to â€Å"shop around†; †¢ Threat of backward integration: it is unlikely that buyers, namely the individual passengers or the travel agencies can provide air travelling services themselves. Therefore, the threat of backward integration is lower. Switching cost of buyer: Generally speaking, passengers can choose any aviation companies they like as long as their designated flight is available. In other words, there are few costs of changing suppliers. †¢ Importance of industry volumes to buyers: Since there are a number of airline companies in the aviation industry both domestically and internationally, the industry v olume is relatively high. †¢ Availability of information for buyers about booking the air tickets: There are a number of options to book air tickets, including on-line booking, telephone booking, booking through travel agencies and booking personally. Particularly, the proliferation of internet has made the information of air travelling much easier to access, which means that it is much easier to compare the price, the quality of services and the availability of other services among different airline companies. It can be concluded that the power of buyers is high. POWER OF SUBSTITUTES The power of substitutes is assessed as medium. Travelling by train, bus or car to the desired destination are the main substitutes for airline industry. There are a lot of factors which could influence the choices of traveling tools made by customers such as money, convenience, time and personal preference of travelers. For the buyers, the easier they can change from airlines to the other alternative transportation, the more likely they would actually do it. Therefore, the buyers switching costs should be considered seriously. However, as Jetstar, Virgin Blue and Tiger airways all have low fare non-stop flights, they can attract both price sensitive and convenience oriented travelers away from these substitutes. Moreover, Qantas has actually joined forces with its substitutes, such as car rentals and hotel and tour packages as they believe that these complement the Airline Industry by helping its growth and popularity. No other travel industry has such incentives and these really help the airline industry to a large extent. INDUSTRY RIVALRY Industry rivalry is assessed as high. The airline industry is usually characterized by the cut-throat competition that exists among the rival airlines. Since it is easy for buyers to switch between the airlines, the competitors are fighting constantly to take away the market share from each other. Moreover, the high fixed cost is easy to trigger pricing wars between the airlines when the airline companies have excess capacity. The airlines are continually competing against each other in terms of prices, technology, in-flight entertainment, customer services and many more areas. The net result of this competition between companies is an overall slow market growth rate. The industry is already at a mature stage and based on the five forces model, it can be concluded that the industry’s growth and profitability are low. COMPETITIVE ANALYSIS By having both its mainline Qantas and low-cost Jetstar brands in its portfolio, Qantas has retained approximately 65% market share of domestic market. Although this dual-brand strategy has brought a huge bonus for the group, the competition faced by Qantas is still heavy. Being a main subsidiary of Virgin Blue Holdings, Virgin Blue Airlines, has become #2 behind Qantas for low- fare travel in the country. It serves more than 20 cities in Australia by owning approximately 75 Boeing 737s and Embraer E-Jets, and also sells tour packages and offers cargo services. The company carriers Pacific Blue and Polynesian Blue serve New Zealand and several Pacific islands respectively. In February 2009 Virgin Blue launched V Australia, an airline flying between Australia and the US West Coast. Tiger Airways a subsidiary of Singapore Airlines also started competing with Qantas in the domestic market in late 2007 and ran over all of Qantas’ 12 routes. Both Virgin Blue and Tiger Airways compete with Qantas’ Jetstar brand directly in terms of low cost provider. Tiger Airways was aggressive in terms of growth in the domestic market and has established itself as the price leader. In the international market, Virgin’s V Australia has been targeting Qantas’ key transpacific routes between Australia and the US and is also planning to launch rival flights to South Africa, while Emirates and Etihad Airways have diluted Qantas’ European market Virgin Blue has announced its desire to expand into overseas operations probably by a linkage with Virgin Atlantic flights from Europe to Hong Kong or the expansion into trans-Tasman markets. The development of international routes would enhance Virgin Blues competitive appeal. However, without participating in an international airline alliance and being excluded from the higher-yield business travel market due to its market positioning, Virgin Blue may face some trouble in its financial viability. V Australia is waiting for approval for a joint venture agreement with Delta Airlines to provide services at the transpacific route which may be a big threat to Qantas. The growth of strategic alliances between airline companies have somewhat reduced competition within the industry for the international market. These alliances form a group of airlines that share their clients and allow clients to transfer their frequent flyer miles between airline companies in the same alliance. There are three main alliances, such as Star Alliance, Oneworld and Sky Team. As Qantas belongs to Oneworld alliance, the major competitors would be the airline companies in Star alliance and Sky Team. INTERNAL ANALYSIS Qantas has a number of key strengths but in order to compete successfully in the industry it needs to have strategic capabilities. The following are key strengths of Qantas, some of which can be categorized as strategic capabilities. FULLY INTEGRATED BUSINESS MODEL (DUAL BRAND STRATEGY) With the entry of the low cost domestic airlines Virgin Blue in 2000, Qantas decided to enter this market by introducing its own low cost airline Jetstar in 2004. The dual brand strategy has enabled Qantas to achieve cost and low fares leadership. Jetstar benefits from Qantas’ reputation for quality and safety, as well as corporate support in areas of fuel and currency hedging and aircraft acquisitions. Jetstar has a lower cost structure thus enabling it to sustain competition with Virgin Blue in low yielding leisure routes and to provide profitable growth for the Qantas Group in those markets. It has achieved efficiencies by simplifying its product and overheads, using direct distribution channels and establishing workplace structures to suit its style of operation. Jetstar has managed to successfully replace Qantas on some international routes and serve new markets such as Japan, Thailand and Indonesia. However Singapore Airlines successfully provides premium services and through its subsidiary, Tiger Airways, low cost services too. As the dual brand strategy can be replicated, it cannot be regarded as a strategic capability. TIGHT COST MANAGEMENT Despite the Asian Financial Crisis, the terrorist attacks on the World Trade Center towers and the outbreak of the SARS pandemic in Asia, Qantas’ profits continued to grow. This was possible by the tight cost management systems Qantas had. Furthermore to address cost pressures such as higher fuel prices Qantas undertook the Sustainable Future Program through which it achieved a cumulative cost savings of $3 billion over a five year period (2003 – 2008) with savings of $747 million during the year 2008. The tight cost management system Qantas has cannot be easily replicated which classifies it as a strategic capability. CUSTOMER LOYALTY PROGRAM (QANTAS FREQUENT FLYER) The Qantas Frequent Flyer was founded in 1987 and has 6. 2 million members and more than 400 partners. Members can earn points in a number of ways and redeem their points for Classic Awards including flights with Qantas, Jetstar, oneworld partners and other bilateral airline partners. The Frequent Flyer Segment delivered a 20. 8 per cent improvement in revenue on the prior half year result. The relaunch of the Qantas Frequent Flyer program in July 2008, including new Any Seat Awards and a significantly enhanced Frequent Flyer Store, proved successful in increasing revenue and member appeal. However it cannot be regarded as a strategic capability as other airlines have similar customer loyalty programs. Velocity Rewards, the customer loyalty program of Virgin Blue, was voted â€Å"Best Reward Redemption† (Asia Pacific Region) by the Australian Federation of Travel Agents in 2006 and 2007. STRONG MARKET SHARE The Qantas group has over 30% of the world airline market as well as over 65% of the domestic market share. Qantas also has access to a huge customer base as they have operations in over 38 countries and plan to grow further in Asia. As they are the industry leader in Australia and it is difficult to replicate by competitors, their market share is a strategic capability. MULTIFACETED BUSINESS Although flying people is a priority, Qantas is also engaged in distinctive non-flying activities such as foodservice, travel retail, freight, airport and aircraft engineering. All of them represent substantial growth opportunities to its current business. However other airlines have similar businesses which is why this strength it cannot be regarded as a strategic capability. The following table distinguishes the strengths from strategic capabilities for Qantas |Key Success factors |Valued by the customer? |Better than the |Not easily replicated? | | | |competition? | |Fully integrated business model |( |( |( | |Tight cost management |( |( |( | |Customer Loyalty Program |( |( |( | |Strong Market share |( |( |( | |Multifaceted business |( |( |( | STRATEGIC GAPS BEST PREMIUM AND BEST LOW FARE AIRLINES The two brands of Qantas have different goals. The company wants Qantas to be the best premium airline in the world and Jetstar to be the best low fares airline in both domestic and international market. The Qantas’s reputation of reliability and safety was damaged by in flight incidents last year. Now Qantas wants to build a reputation for excellence i n safety, operational reliability, engineering and maintenance, and customer service to be the best premium. Qantas engages a large number of projects to reach its strategic goal. For instance, Qantas has a Code share relationship with 22 airlines in the world to develop faster and wider business. In addition, Qantas was the founding member of Oneworld alliance with other airlines creating a strategic alliance with other airlines companies. Oneworld currently offers customers a combined route network of more than 600 destinations in more than 130 countries through American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, LAN, Qantas JAL, Royal Jordanian and Hungarys Malev. And strategic alliances with other companies from diversity industries, such as Woolworths, could bring about numerous advantages including cost and efficiency benefits, an expanded route network, more frequent flights and Frequent Flyer opportunities. Meanwhile, the customer satisfaction achieved its highest level since six years ago in June 2009 (Qantas 2009, p. 5). The target of two distinguish brands is achievable. Qantas has not achieved that yet, but the efforts of Qantas will enable the business strategy come true. INCREASE PROFITABILITY AND SHAREHOLDERS’ WEALTH Every company wants to increase its profitability year by year, same as Qantas. However, Qantas did not have a good financial performance in in 2009. Sales and other income was $14,552 million in financial year 2009, which is lower than $15,627 million of last year. Profit before related income tax expense was only $181 million in 2009 a significant fall from $1,408 million in 2008. The cash flows from operating activities also reduced from $2,128 million in 2008 to $1,129 million in 2009 (Qantas 2009, p. 9). To pursue best premium strategy, Qantas increased the investment in employees’ training, engineering and customer service. The costs were rising while revenue did not. At the same time, the global economy severely hit in 2008 and people became more price-sensitive. For domestic travel people chose low-cost substitutions such as travelling by train or car and for long-distance travel, airlines with low fares were more attractive. Further, the price of fuel is still increasing, which makes the cost management increasingly critical. STRATEGIC OPTIONS AVAILABLE COMPLETELY CHANGE TO LOW COST CARRIER This option means that Qantas drop off its best premium brand – Qantas, switching its capacity completely to Jetstar. The Qantas Group already possesses the low fare brand – Jetstar and has grown strongly. Considering the current tough economic situation, to be fully committed to low cost operator is a possible option. This strategy will be consistent with its short-term goal of preserving revenue and reducing cost. However, this strategy is incompatible with its long-term vision. It will no longer be able to be the best premium service provider. Qantas will lose its strength in premium long haul travel and surrender its leading role in the global aviation. Its strategic goal of fleet renewal will also lose its root. Moreover, the Qantas brand provides a higher margin than the Jetstar brand making it more profitable. Once the Global Financial Crisis is over the world economy will recover and the demand for premium services may increase. This strategy is not advisable as it is internally and externally inconsistent. MERGE WITH A COMPETITOR Qantas has pursued merger links with British Airways and Singapore Airlines respectively, but none of them has achieved an official agreement. Airlines worldwide are all seeking to reduce costs as low-cost carriers take customers and fuel costs rise. Merger is a suitable choice as it would allow substantial cost savings. The combination of the aircraft would give both airlines scope to share planes. Moreover, both of the two companies could permeate to each other’s market easily. However, there are some issues should be considered carefully before merger, such as whether any dual-listed company conform to Australias ownership rules and bilateral flying rights and issues such as which entity would run the combined airlines should also be considered. Moreover the corporate structure that needs to be established will also need to be addressed along with personnel issues. Culture and management style in the two airlines may also be conflicting. Due to the internal and external inconsistencies, it may be difficult to go with this option. JOIN MORE ALLIANCES Qantas has already been a member of the Oneworld alliance which is a global airline alliance that brings together ten of the worlds biggest and best airlines, all committed to providing world-class service and value. By offering a range of air travel options (including a global route network covering more than 675 destinations in more than 130 countries), rewards and benefits beyond the reach of any individual airline, the alliance can bring the member airlines more frequent flights and frequent flyer opportunities. However being an existing member of an alliance, it may not be possible to be a member of another alliance. This is not externally consistent. BUILD ON CUSTOMER LOYALTY PROGRAM From the respective of Qantas, it will be more difficult for acquiring new customers than changing unprofitable existing customers to profitable customers. Therefore, development of systematic and attractive customer loyalty programs is vital for Qantas’ future. Qantas aims to create and improve customers’ loyalty in line with lasting leading position in Australian airline industry. Qantas has actually launched QFF to assist itself to achieve this goal. By the end of June of 2009, the number of members in this program reached 5. 8 million. The members can earn points into their Frequent Flyer account with over 400 program partners in Australia and worldwide, which includes car rental companies and supermarket, hotels, restaurants, even financial institutions. The Qantas’ most frequent and valuable customers have been enjoyed the reward and benefits from this unique program. This program is satisfied with all the Rumelt’s criteria, which include internally consistency, external consistency, feasibility and competitive advantage. For the internal consistency, Qantas seems the excellent customer service as the cornerstone of the business, and this program can improve the customers’ experience provided by Qantas. From the external consistency, the increasing number of the Qantas’ partners has proved that external environment is consistent. From the view of the feasibility, the revenue brought by this program in 2009 has increased by 33. 5 percent compared with last financial year. All the trends implied the frequent flyer program will accumulate Qantas to success. This program has become a competitive advantage for Qantas without a doubt. INCREASE FOCUS ON FREIGHT SERVICES RATHER THAN PASSENGER SERVICES Qantas has been carrying freight since the airline’s inaugural service in 1922, and uplifting international airmail since the airline’s first international flight between Darwin and Singapore in 1935. Today, Qantas Freight, the international air freight division of the Qantas Group, is an integral part of the company, generating revenue in excess of $800million per annum and employing more than 800 staff across the globe. In addition, Qantas Freight wet leases a fleet of Boeing 737 freighter aircraft to Australian air Express—a 50% joint venture with Australian Post. Lastly, dedicated freighter services offer wide-body cargo capacity to key ports in Asia, the Pacific and North America. This part mainly focuses on the strategy option of freighting, although Qantas Freight has been developed for a long time. However, throughout the global financial crisis in FY 2009, it stated that the net freight revenues have decreased nearly 20% in comparison to previous year. Therefore, it will evaluate whether or not the strategy option—freight adopted by Qantas Group is sustainable, suitable and accurate with Rumelt’s criteria. 1) Is the strategy internally consistent? The Qantas Group’s long term vision is to operate both the world’s best premium airline and the world’s best low fares carrier. The Group’s future will be determined by its capacity to reward shareholders who provide it with the capital to grow and invest. In other words, the objective of business strategy is to generate the sustainable returns to shareholders. According to this vision, Qantas Freight Enterprises (QFE) markets the freight capacity of all Qantas and Jetstar international aircraft as well as operating a fleet of three wet-leased B747-400 freighters and one wet-leased B767-200 freighter. Based on the data from FY2006 to FY2008, the tendency of net freight revenue kept increasing steadily from AUD$887. 8 million to AUD$947. 3 million. However, in FY 2009, the amount of net freight revenue has decreased sharply from AUD$947. million to AUD$764 million due to the Global Financial Crisis (GFC). Therefore it could conclude that the strategy is not consistent internally in the short term view. However, this part assumes that the strategy should be internally consistent from the long term view. 2) Is the strategy consistent with the external environment? Although the strategy might be internally consistent, the industry may be facing a huge structural change so that competing on the global financial crisis is required as service differentiation is rapidly reducing amongst competitors. On June 2009, Qantas Freight has commenced a direct weekly Boeing 747-400 freighter service between Australia, Vietnam, China and the United Stated. The new routeVietnam confirmed Qantas Freight’s commitment to seeking new opportunities to service the needs of its global customers against the background of a worldwide decline in demand. In addition, on 30 July 2009, Qantas Freight had launched service between China, Dallas and Sydney, Australia, adding cargo lift in a trans-Pacific market airlines have been targeting for capacity cuts for more than a year. The service would add a fourth U. S. city to its freighter network to satisfy the demand of customers between Texas and Australia. Therefore, it could be concluded that Qantas Freight is a suitable strategy which is consistent with the external environment. 3) Is the strategy feasible? Qantas Freight is the largest airfreight operator in Australia. Also, Qantas Freight is committed to providing its people with a safe, flexible and adaptable workplace that fosters continuous improvement and the development of management and leadership capabilities. Moreover, Qantas Freight own technical specialist and skilled employees . Finally, Qantas Freight is carried on all Qantas aircraft world wide . Using Qantas’ own global network and through its strategic alliance and interline agreements with other airlines, such as Australian air Express and Star Track Express, freight can be delivered to any airport in the world. Therefore, it could implement the strategy successfully. 4) Does the strategy create or maintain a basis of competitive advantage? Throughout the series of business strategy against the Global Financial Crisis, Qantas Freight could still create new competitive advantage, for instance, the new route between Texas and Australia will offer customers a competitive advantage with the only direct operation. Moreover, for reducing the cost as possible as it can, this year, Qantas Freight began replacing aluminium cargo containers with a lightweight Twintex version, which will save more that 20,000 tonnes of CO2 emissions over seven years. In other words, this strategy could maintain the lower cost competitive advantage in the industry. Therefore, it also satisfies this criterion. RECOMMENDED STRATEGY Only two options are available as a recommended strategy based on Rumelt’s criteria. Qantas can build on its customer loyalty program and increase revenues or focus on Qantas Freight. Although customer loyalty program is not categorised as a strategic capability, Qantas has a growing number of members and a strong alliance with other airline companies. Qantas will be able to penetrate the market aggressively through its QFF program to boost sales and make use of its excess capacity. Rather than selling seats cheaply to make use of capacity, the company could earn revenue through its agreements with its partners. Effectively the company will be making revenue and filling up excess capacity. Qantas can also on increasing freight services as the options are not mutually exclusive. In the long run Qantas will not have too much dependence on the passenger airline industry as is already very mature with stiff competition. IMPLEMENTATION PLAN STRATEGY The first step of implementation is to communicate the strategy throughout the organization. Employees should be informed about the changes that will be made within the organization about the shift of focus from passenger services to freight services so that there is less resistance to change. Key stakeholders including shareholders should be informed about the new strategy and the reasons why it is being adopted. STRUCTURE The management team of Qantas will need to address the complexities that will arise from the shift of focus and define new process or ways of working. The marketing department will have increased activities in order to promote the QFF program and engage new partners under the program. The finance department will require funds to finance such activities. SKILLS Human resource skills should be developed to study the market and provide better ways of servicing passengers through the customer loyalty program. Furthermore employees may need to be moved from the passenger service division to the freight service division. Training of employees will be required. Qantas already has a $10 million state of the art training facility. SYSTEMS Proper systems should be in place in order to improve service. The QFF has over 6 million members. Data mining can be used to find out any trends to identify a special preference or need customers may have. Proper systems should also be in place for the tracking of different cargo as the volume in freight services will increase if the strategy is adopted. SHARED VALUES Since Qantas is expanding its business globally, the organization has employees from different nations, how to manage human resources effectively and efficiently becomes the determinant issue of the entity. Under cultural processes, employees can become more and more self-control and self-motivated without direct intervention. Through those indirect and internalized controls, employees become part of the culture. While undertaking the cultural processes, choosing the right person for the right position, integrating staffs and recognizing appropriate behaviors are the three key processes need to be emphasized. CONCLUSION As the passenger airline industry is very mature with competition becoming intense, Qantas will need to provide more service through its QFF program and shift its focus on freight services. This is internally and externally consistent and a proper implementation plan needs to be carried out in order to grow and remain profitable. REFERENCES Benns Matthew, Qantas accused of toxic gas leaks, ABC, viewed 3 November 2009, CPA Australia 2009, CPA 113 Business Strategy and Leadership, Deakin University, Melbourne. McCabe Richard M. 2009, Airline Industry Key Success Factors, Graziadio School of Business and Management, viewed 3 November 2009, O Sullivan M. 009, ‘Hint from Qantas fuel levies may rise’, The Age, 8 September, viewed 26 September 2009, Factiva database. PR Newswire 2009, ‘IBM and Qantas Sign Project Delivery Agreement; Innovative project services contract to assist airlines business efficiencies’, 9 September, viewed 12 October 2009, Factiva database. Qantas 2009, Annual Report 2009, viewed 29 October 2009, . Qantas 2009, Qantas Data Book, viewed 3 November 2009 http://www. qantas. com. au/ infodetail/about/investors/qantasDataBook20082009. pdf Qantas 2009, Qantas Fact File, viewed 3 November 2009 http://www. qantas. com. au/ infodetail/about/FactFiles. pdf Rochfort, S. 006, Legal barrier to Qantas strategy, viewed 3 November 2009, http:// www. smh. com. au/news/business/legal-barrier-to-qantas-strategy/2006/02/19 /1140283948661. html Rochfort, S. 2005, Qantas picks up new Asia routes, viewed 2 October 2009, . Thomas L. G. , 2009, Qantas Freight to Add Dallas Service viewed 27th October 2009, U. S. departments of State 2009, ‘Open skies agreements’, U. S. departments of State, viewed 23 October 2009, http://www. state. gov/e/eeb/tra/ata. Velocity Rewards Pty Ltd. History, viewed 3 November 2009, http://velocityrewards. com. au/content/AboutUs/index. htm APPENDIX 1 – Income Statement [pic] APPENDIX 2 â₠¬â€œ Balance Sheet [pic]