Global business environment
Discuss about the International Business for Potential Future Challenges of Qantas Airline.
Qantas airline is one of the largest and oldest airline in the world that operates in Australia and New Zealand. It is arguably the flag carrier of the Australian airline and according to the fleet size it is the largest airline of Australia. As per the data, Qantas is the third oldest carrier of the world introduced back in 1920. Since then with the effective strategies and large amount of inflow of Foreign Direct Investment it has enhanced its operation to become where it is now. It is almost 83 years Qantas has started providing international flight service (Arjomandi & Seufert, 2014). As per the data of 2014, Qantas possess 65% of market share in the domestic region, whereas considering the outward passengers from Australia it owns a market share of 14.9% that makes the largest firm in the domestic market (Fu et al., 2015). However during the recent years, rise in the small airline service providers who operate in trunk road with specific focus on the domestic passengers who wants to travel with a lower time is giving tough competition to the Qantas. This report is aimed to discuss the various economic factors of the Qantas and check the operational factors of the firm in order to understand the potential future challenges of the firm. For this purpose it will focus on the global business environment of the firm and then check the factors of international trade that has influenced the same by a large extent. Moreover, it will check the impact of the firm on the regional economic integration while manipulating the competitive advantages.
In order to trace the future challenges of Qantas it is essential to judge the global business environment of the firm. It will provide details regarding the operational market of the market and determine the magnitude of threats for the brand.
Cultural acceptance of a business is one of the essential factors that provide a firm ability to face good amount of future growth and on the other hand if the brand fails to mesh with the local culture, then it will fail to face success. For instance, large brands like Qantas always try to maintain social acceptability that has enabled it to win trust of most of passengers who travel by planes. In order to do the same, the brand provides respect to the local believe and culture so as to make bonding between the airline and the potential customers (Taneja, 2016). When it comes Australia, then it can be seen that there is large amount of cultural debate between the aboriginals and the other Australian that has forced the brand to maintain different kind of service for different clients. Irrespective of the place, where the Qantas flights are, the brand always try to maintain a good relation with the consumers so as to keep them affectionate to the brand. In case if the firm fails to meet the cultural obligation of the operating region, then it will certainly lead the brand towards failure. Under the high profit scenario the brand may utilise monopoly pricing and this can hamper the cultural acceptance of the brand too.
Cultural challenges
Keeping eye on the political and legal factors of the operational zone is one of the essential factors for the success of any brand. Business like Qantas always try to keep close relation with the political leaders and maintain low profile in order to avoid any political clash. When it comes to the legal factors, then the firms always try to keep its operation aligned with the local laws. Airline being one of the highly technological and risky mode of transportation, government creates laws in order to keep the journey safe (Clark, 2017). Government introduce policies regarding the airline that aids the firm to remain safe and away from mishap and thus Qantas tries to abide by the laws. However, recent changes in the oil prices and the lower depreciation charges has reduced the political and legal bonding of the brand. Under reduced oil price the firm has forced to pass the benefit to the consumer through reducing the price of the tickets. However, in reality it has raised the base price and has caused loss in consumer surplus. This type of pricing strategy can proved to be future challenges.
As it has already been mentioned Qantas is one of the largest operational airline service provider it faces large scale of economic challenges due to the external as well as internal factors. One of the major factors that leads the firm to face economic challenges is due to the fluctuating oil price. During 2010 soaring oil prices caused the firm rise in its operational cost as the price of jet fuel per barrel has increased (Latrou & Oretti, 2016). During the same period it has been officially accepted by the firm that soring oil price one of the major challenge for the firm because it has been causing them additional 2 billion dollar operational cost (Taumoepeau et al., 2017). In recent days, though the price of the oil per barrel has fallen, yet the firm yet thriving hard to gain producers surplus due to the presence of the computers in the market. Nowadays in Australia it is easy to shift from on airline service provider to another due to the presence of brands like Virgin Blue. On the other hand loss in the trunk road is forcing the firm to face a loss in revenue during the recent years.
Qantas being the largest operational airline service provider in Australia possess largest fleet of airlines as well. However, it has been observed that the fleet of the firm are aging and lacks in the case of the technological superiority over the other firms. When it is compared to the peers like Virgin Blue, then most of the customers argued that Qantas fails to provide quality service in terms of technological advantage over its rivals that has caused them to lose some amount of customers (Moulds & Lohmann, 2016).
Political and legal challenges
Australian airline market is a duopoly market if international service providers are considered. If the domestic market is considered, then it is oligopoly in nature. As it can be seen, there are only two firms, Qantas itself and another one is Virgin Blue that provide international services. However, in case of the domestic service provider, there are small airlines that captures a moderate amount of market share. Qantas with almost 69% of the market share possess good amount of market control, however, it fails to influence the price effectively due to the high market competition in domestic region (Duval, 2016). Reluctant nature of the airline service providers in US allows Qantas to operate freely in that region too.
Natural disasters often influence the airline services and the situation is same in the case of Qantas as well. Since 2010, natural disasters has caused the firm a loss of 206 million dollar that showcase the amount of challenge Qantas face due to the natural disasters. Massive volcanos, earthquake has caused the firm a loss of physical properties around the world causing the firm to face loss in overall financial performance (Andersen & Zaelke, 2017).
As it can be seen from the Australian market of airline service provider, it is controlled by the government and new laws along with amendment of the older ones come into existence often. Being an international service provider, it faces various demographic problems which cause the firm loss of profit and revenue as well (Zhang et al., 2018).
Conclusion:
From the above discussion it can be seen that the Qantas is one of the largest and oldest operational airline carrier that operates in Australia and New Zealand primarily. Above explanation showcase that the firm operates under a competitive business environment where limited number of firms operate under a collusive pricing strategy. Though the Qantas is the largest operational airline service provider in Australia, yet it faces tough competition from its rivals due to the minute uniqueness and the brand preference of the customers. Moreover, it has also been noticed that the Qantas is lagging behind in case of the trunk road service and the same market is mostly enjoyed by the small airline service providers due to their efficiency. Though the firm has international presence, yet it fails to gain economies of scale completely due to the frequent disputes within the organisation. On the other hand effective strategies of the firm along with the large amount of FDI has aided the firm to showcase its presence in the world market as well, however, it is falling during the recent years. Qantas Future Planet program is another beneficial program inaugurated by the Qantas in order to maintain its CSR making the firm one of the sustainable brand in the world. Thus, to conclude, it can be said that the firm has potential risk from the small entrants of the market who can eventually capture the market share of the market.
Economic challenges
Due to the international operations, Qantas has eventually become one of the largest operational firm both in the Australian economy as well as in the international markets too. Over the time since the firm has started to provide international airline service it is facing large scope of growth under the suitable operational environment in different regions (Francis, 2017). Impact of the international operation on the Qantas can be explained with the comparative advantage and absolute advantage theories.
Developed by the Adam Smith, absolute advantage theory depicts that international trade between the nations takes place in case one nation has absolute advantage in production of one good or service in which the other nations fails to excel (De wit, 2014). In case one country has absolute has production in one product and the other nation possess efficiency in production of another good or service, then the trading will take place. One nation will export that good or service in which it has absolute advantage in production and import in which it fails to excel. On the other hand, other nation will import that good where it fails to excel and export the same in which it possess efficiency in production. Considering the case of the Qantas, it can be seen that it faces absolute advantage in case of the airline services in the domestic market with its large scale of operation that provides them ability to keep the cost of operation lower and charge at a competitive price (Patrick, 2015). However, considering the case of the trunk roads in the Australian economy, it can be seen that, small airline service providers faces absolute advantage due to the customer preference on their service. On the other hand, market share of 69% of Qantas in the domestic market provides it ability to face absolute advantage (francis, 2017). Considering the international market, it can be seen that the firm has absolute advantage in case of the domestic fliers going to the foreign nations due to the presence of large amount of customer preference.
As mentioned by the David Ricardo, in case a country has advantage in production of all the goods and services generated, then international trade will not take as per the absolute advantage; rather, it will operate depending upon the comparative advantage which can be gained through the opportunity cost of producing one good and let the production of another good go away (Zamir et al., 2014). Production of one good or service in which country have higher opportunity cost, the economy will produce that good and go off the other one. Considering the case of the Qantas airline it can be seen that it enjoys absolute advantage in larger routes of airline service, however, it has lower opportunity cost in case of providing service in shorter route. Thus, it goes off the airline service in shorter route and focus on the larger routes as well as on the international flights (Tuan, 2015). When it comes to the international flights, then it provides service to the UK, US and other nations that allow them to enter the market with easy access under the Free Trade agreement between the nations. Additionally it has been observed that the reluctant nature of the foreign players regarding the presence of the Qantas provide them comparative advantage to grow its business (Dowling, 2016). Furthermore, value added service provided by the Qantas compared to the foreign nations provide them comparative advantage that will defines the international growth of business of Qantas.
Technological challenges
Qantas is largest operational airline service provider in Australia that possess large scale of flights and out of total outward passengers, almost 14% are served by the Qantas alone (Tsvetkova, 2017). The firm operates in Australia to new eland on daily basis and on the other hand it operates international flights to different parts of the world on weekly basis. As per the recent revenue statistics the firm has gained 2.8% increase in the profit, whereas Latin America has gained profit by 3.8% higher than the previous years (Cui et al., 2016). Asia pacific region provides the third largest chunk of profit to the firm, whereas, Africa is the highest earner region for the Qantas. These are not only the sales figures of the brand, rather the meaning of integration that the firm has been providing to the each operational region where the firm operates. As per the latest report from the brand, it has been argued that it supports the governmental policy of free trade that will allow it to overarching the objective of the achievement. In additional to this, the firm argues that more liberal as well as open economy will allow the firm to bring in regional economic integration (Bamber, 2018). Free Trade Agreement of Australia with different economies around the world. Though it is one of the best process to allow the comic integration on behalf of the firm, however, government need to keep close eye on the emergence of the non-tariff barriers around the different places of the world. A structured approach of the free trade is beneficial for the brand under the legitimate interest of efficient Australian government from the perspective of the airline service provider is potential to allow the firms like Qantas for higher amount of regional economic integration. In addition to this, Qantas airline group has recently joined hands with the China Eastern along with the American Airlines in order to benefit the tourism in different place of the world (Rainford, 2015). As per the speculations, by 2020 amount of tourism industry will double leading to rise in demand of the airline services (Mills, 2016). Utilising the same, brands like Qantas can gain more amount of profit as well as the firm will bring in international harmony and economic cooperation through operating in different regions. Trans-Tasman road is one of the recent example of the economic integration program from the Qantas and on the other hand it promotes competition as well as tourism around the different place of the world. Through brining in securities and considering the climate it can be seen that economic integration has been one of the main goals of the brands.
Competitive environment
Qantas being the largest operational airline service provider in Australia enjoys more than half of the market share and thus it has potential to influence the international financial market. With the market capitalisation value of 6.52 billion dollar, the firm is capital intensive in nature that force them to thrive for additional investment around the years. With the stocks in Australian stock exchange with the code ASX: QAN the firm sells share (Seufert et al., 2017). Now, it is clear that, being a large firm it has potential to influence the share market with the strategies to alter the share price. In case there is loss, then the price of the share will fall as the dividend which the shareholders were supposed to enjoy will loss and this will cause the firm to face additional loss because investment will go away. Thus the firm since 2014 has went into transformation program and presently it earns more than 1 billion dollars per year since 2016 (Lee et al., 2017). With the effective strategies the firm is potential enough to influence the financial market and one of the main driver of the same is the equities from the firm. In addition to this, the firm is active through the twitter thread that allows them to stop spreading any rumours regarding the loss o due to the hoax of market failure spread (Qin et al., 2017). Considering the money market of international environment, it can be seen that the firm can influence the liquidity of the market due to its large operation and through selling or purchasing equities in the open market. Higher sales of the equities will lead the liquidity of the economy to fall and the firm will loss its comparative advantage in providing reasonable service at low cost and on the other hand through selling of the equities qnatas can effectively influence the money market.
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Physical and Natural challenges
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