Qantas Airline: Analysis Using Porter’s Five Forces Framework

Introduction to Qantas

Queensland and Northern Aerial Territory Services Limited simply abbreviated as Qantas was established in 1920. Its main focus at that period was the provision of joy-riding and demonstration flights services which later included services like airmailing in the surrounding towns like Charleville. With the introduction of airline services, Qantas was expand its services to include the passenger airline services. Apart from participating in the domestic airline services and trade, the business grew further and started contributing in international trade as well (Palepu et al, 2015). This led to increased government involvement especially when it came to determination of airline rights, fares and international standards that should govern the service provision and airline companies. The government later decided to join most of the airline services in the country to form one organization which would make it easier for them to manage and control. There was improved technological development, increased airline trade, improvement in the airline transport sector, better policies and laws to govern the airline services especially domestically and improved relationships between the airline travel agencies domestically as well as internationally. Despite the fact that Qantas was officially being owned by the government, it was able to grow and develop its operations with time.

This analysis will be done using Porter’s five forces framework. They include the following:

In every market, there is always a threat of new businesses entering the market. This poses as a threat to the already existing businesses because this will mean more competition (Dobbs, 2012). Therefore, for the case of Qantas, the airline business has proved to be very profitable and growing at a fast rate. Therefore, it becomes easy for businesses to enter the market which is a threat to Qantas business operations.

Every product or service in a market always has a substitute beside it in the same market. As for Qantas services, the substitutes may be the private airline services, the other modes of transportation like on road or water. This is especially in relation to the international trading and travelling services that Qantas offers. Therefore, the possibility of these other modes of trade being better in terms of quality or costs is a threat to Qantas.

This relates to the number of businesses that are already in the market. Therefore, if the number is large the competition is likely to be stiff than if the number is low (Dobbs, 2014). Therefore, Qantas may be threatened by the fact that its fellow competitors are offering better services. Therefore, if the competitors’ services are of better quality or lower costs, this lowers the power of Qantas in the market.

Overview of Porter’s Five Forces framework

This relates to the input or raw material suppliers of a business and how they can affect the price of a product or service. Therefore, the number of suppliers and the input characteristics can determine the power of a business in the market. As for Qantas, the suppliers may refer to fueling stations, aircraft repair stations among other. The fewer the suppliers the less power a business has in the market because of the high dependence; vice versa is also true.

This refers to the customers or consumers of a product. Therefore, the larger the number of consumers the more the dependence and the less power a business will hold in the market. For the case of Qantas, if the number of travelers become high, they will highly dominate the power to determine travelling prices which will lower the power of Qantas in the market and the vice versa.

This is a tool used to evaluate both the external and internal environment of a business (Coman et al, 2009). Basically, it is an abbreviation of the following factors:

Strengths

This are the positive attitudes or aspects of a business that help it develop and grow in its operations. Some of the strengths that Qantas has include: the increased improvement in technology advancement, offering quality services, offering different services e.g. airline mailing and passenger travelling, a large number of aircrafts with modernized features to name just but a few.

Weaknesses

These refer to the negative attitudes and aspects of a business that stops a business from being successful or performing to its optimum capability. Therefore, as for Qantas, some of the weaknesses include: regular financial crisis, increased governmental support and dependence, large amounts of expenses among others.

Opportunities

These are basically the external environmental aspects that a business can use to obtain its competitive advantage in the market against its competitors. Some of the opportunities for Qantas include: the availability of markets when the some of its competitors failed or left the industry, development and creation of new markets especially internationally, increased level of demand especially during school holidays or other holidays, receiving governmental subsidies and government support among others.

Threats

They refers to the external aspect of the external environment that are capable of harming or challenging the business operations. As for Qantas, the following are some of its threats: increasing market competition, new business entrances, growth and development of service substitutes, high costs of the inputs e.g. when purchasing aircrafts to name a few.

Application of Porter’s Five Forces to Qantas

The business has been using different strategies since 1992 to be able to maintain its competitive advantage and create even more of it. Therefore, Qantas decided to agree to the option of being privatized by the government apart from being completely owned by it. This was a strategy to increase its financial status, subsidies provision and tariff evasion because of the government support. Also, the company has been investing on technological advancement which includes upgrading of its aircraft fleet by introducing the Boeing 787 aircraft for service provision. Also Qantas decide to reduce the staff costs by conducting redundancies, constraining remunerations and improving the working environmental conditions. In addition to that, the company has managed to increase its marketing and sales of the service by increasing efficiency and effectiveness of the services. This has contributed immensely in increasing its competitive advantage both in the international and domestic markets. This has helped it stay and maintain its position in the market. After the market changes; i.e. both the domestic and international markets, Qantas has been working towards strategy change. The desire to increase its competitive advantage through services differentiation, quality service offering and effective and efficiency in it service product are the main strategies that are being used by the company.

Every business needs to conduct an analysis and evaluation of its financial statement not only at the end of the business year but also in between the business year. This will help realize its financial status and whether the business is in line with its set objectives and goals. Therefore, for airline services, some that can be used to audit and analyze the financial statement are the Last in First out (LIFO) and First in First out (FIFO) policies. These policies will relate to the passengers’ that use the services as well as the employees of the company that offer the services (Eller et al, 2014). This policies are suitable for Qantas because it will be offering its services to the passengers according to the time of arrival. Therefore, for the LIFO policy, the passengers who arrives last will be considered to the one served being the first and for FIFO the passenger who arrives first will certainly be served being the first. Also, when it comes to offering the services by Qantas employees, for the case of LIFO, the employee who reports to the company being last will be considered to leave being the first and for the FIFO the one who reports being first will leave being the first. This can be a policy that helps the company increase its profits because it will be taking good care of its customers and the employees as well (Kendirli et al, 2016).

SWOT analysis of Qantas

Qantas revenue has been accumulating at a fluctuating rate from the year 2000 to 2013. However, it has also been increasing year after year. In year 2012 and 2013, the revenue seemed to remain steady but still higher than the revenue for the previous years which to be precise was $6 million after tax. Therefore, Qantas revenue for the end of year 2013 was high and steady (Palepu et al, 2015). This was basically caused by the fact the company had already grown and developed itself. The large market share and segment as well as increase in industry development and airline services demand has played a good role in increasing Qantas revenue.

However, its expenses have also been increasing with time. Currently, Qantas has been listed as one of the top most airline companies with high expense rates with $1.4billion total. This has been cause by the fact that the company had bought new aircrafts and decided to increase its technological advancement to be able to make its services effective and efficient. Additionally, the high costs incurred in staff maintenance also contributed to the high level of expenses.

Qantas assets, liabilities and owners’ equity also are rated high. For instance, the company has a large number of aircrafts and continuing to buy some more which increases the number of assets in its possession. As for the liabilities, some of its aircrafts are leased or rented aircrafts which contributes to about 3% of its expenses. As for the owner’s equity, the company has a lot of investment in its development even though it is owned by the government which was represented by $5.6million in total. The table below shows the financial status of the company.

From the table below, the company has been growing and developing itself in different fields which has resulted to effective an efficiency in service provision. In addition to that, the company has improved immensely in its financial performance which has resulted in financial sustainability and better financial management.

The revenue of the year 2016 is very high compared to the revenues that had been received in the previous years. This is actually as a result of the growth and development of the business operations which is represented by $1.53 billion.

As for the expenses, Qantas expenses are also increasing as the company grow and development but at a slower rate than the profits earning rate. This increase is caused by the desire of the company to maintain the status of its aircrafts, the fueling costs and the employee maintenance.

Qantas’ Strategies

Qantas assets increased to a higher level because of the newly acquired aircrafts valuing around US $3 billion and increased cash funding ranging around $3.9 billion. This is much higher than the previous year’s asset valuation by far which was $2.9 billion. Therefore, it concludes the fact that the company is increasing its assets valuation year after year which leads to growth.

The liability levels of Qantas has reduced even though it is still higher than that of the previous years. In general terms, when a business grows and develops its liability level are likely going to increase. Also, the owner’s equity rate is also high compared to one that was reported in the previous years. With the fact that profits are increasing and are currently high is one indication that the owner’s equity is high as well.

The company’s underlying profit increased from $192million to $1.53billion.

• Both reports represented an increase in the profits compared to the values of their previous years.

• Another similarity is that the operating cash flows for both years is increasing year after year. In 2013 it increased to $372million and in 2016 it became $2billion which gave it a chance to cater for the expenses and pay debts.

• The liquidity values are higher than those of the previous years where by in year 2013 it was $3.4billion and in 2016 it decreases to $3 billion.

• The EPS are high for both years which is based on the profits that the shareholders receive from their ownership.

•  The only difference that the reports have is related to the values, e.g. the EPS in 2013 was 0.2 cents while for 2016 was 49.4 cents.

I would recommend potential investors to consider investing in Qantas Company. This is simply because of the fact that the business is a very fast growing and developing business with time and has a potential chance of paying very high dividends. Also, the company is rates as one of the best airline trading businesses in Australia which gives it an opportunity to be popular and famous around the world.

References

Eller, R. D. A. G., & Moreira, M. (2014). The main cost-related factors in airlines management. Journal of Transport Literature, 8(1), 8-23.

Kendirli, S., & Kaya, A. (2016). The Evaluation of Working Capital in Airline Companies Which Proceed in Bist. Journal of Economic Development, Environment and People, 5(1), 39-51.

Palepu, K. G., P. M. Healy, V. Bernard, S. Wright, M. Bradbury, P. Lee., 2015; Business Analysis and Valuation Using Financial Statements: Text and Cases, 2nd ed .Asia Pacific Edition, Cengage Learning.

Dobbs, M. E. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Dobbs, M. E. (2012, January). Porter’s five forces in practice: Templates for firm and case analysis. In Competition Forum (Vol. 10, No. 1, p. 22). American Society for Competitiveness.

Coman, A., & Ronen, B. (2009). Focused SWOT: diagnosing critical strengths and weaknesses. International Journal of Production Research, 47(20), 5677-5689.

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