The aim of this essay is to critically analyse the background of the Qantas and its decision to launch Jetstar on May 2004 that operated around 800 flights a week across network of 14 destinations within Melbourne, Sydney and Brisbane. Secondly, this essay will evaluate how Data Collection Feedback Cycle change model is used to gather major information and to critically analyse it. Thirdly, this essay will critically evaluate the background of Qantas and Virgin Blue and will also highlight various reasons that eventually led the Qantas group for the launch of the Jetstar. Fourthly, this essay will also critically analyse the revenue and profit performance of Qantas prior the introduction of Jetstar i.e. 2002.
Fifthly, it will continue to critically evaluate the trend in Qantas and Virgin Blue in 2003. Then the sixth paragraph will also critically evaluate the trend in Qantas after the launch of Jetstar. Lastly, the essay will also look into the annual reports of the year 2005-2009 and critically analyse the significant value added by the Jetstar to the Qantas group; and will critically analyse whether the executive decision of Qantas to launch Jetstar in order to retain the 60% domestic aviation market from its competitors has been a strategic success or not.
This paragraph will critically analyse the change management information gathered to launch Jetstar low cost airline in May 2004 by using the Data Collection Feedback Cycle change model. Nadler (1977) as cited in Cumming and Worley (2009:122) highlights that the Data Collection Feedback model consists of five phases that are (1) planning to collect data, (2) collecting data, (3) analysing data, (4) feeding back data and (5) following up on the data collected. In planning to Gather information to justify change Nadler (1977) argues that primary methods such as, direct interviews with CEO and key change agents, observing and identifying the need for change and the use of un obstructive measure as sampling technique, force field analysis and scatter diagrams, could be used to gather major information.
In contrast Danaher have used various published data to trace the evolution of the Jetstar strategy of its initial position, to its efforts to attain price competitiveness and service parity, followed by its highly focused, cost-effective service delivery strategy. Based on it they have developed a hierarchical model with parameters estimated at the individual level. This allows us to study not only how service design and pricing initiatives shift the perceived performance of Jetstar relative to its competitors but also how the airline can move market preferences toward areas in which it has competitive advantage. After done with the planning of the collection of data from competitors performance on its revenue, sales profits, passenger numbers and market share in 2002, 2003 and 2004 against Qantas key performance indicators for the same period between 2002, 2003 and 2004 from the Annual Reports of both Virgin Blue and Qantas domestic operations.
Nadler (1977), after the data has been collected data they are analysed using the qualitative change data such as directors report, World Business Briefing /Australia: Airline Profit(2004).The reminder of this essay will critically analyse the data collected from secondary sources such as Annual Reports, newspaper articles and journal articles to analysis the data sourced to evaluate what would be the most effective change to be implemented by Qantas in responding to Virgin Blue competition the Australian aviation domestic sectors.
This paragraph will evaluate the basic background of Qantas and Virgin Blue and will also highlight various reasons that eventually led the Qantas group for the launch of the Jetstar. After the deregulation of Australian aviation market there were several airline companies entering the market however the most significant entrance was of low fare airlines Impulse in June and Virgin Blue in August 2000. The arrival of Impulse Airlines and Virgin Blue doubled the number of players and dramatically challenged the stable duopoly of Qantas (after its merger with Australian Airlines) and Ansett, setting off a vicious price war (Traca, D., 2004). However, Impulse facing a major trouble in the cash flow agreed on May 1, 2001 to hand over its operations to its biggest rival, Qantas Airways. As per the deal Impulse stopped its passenger service under its own name on May 14 and leased 21 aircraft as well as cabin crews and pilots to Qantas. The deal led the stock of Qantas heaved by 26% closing at $3.40 per share giving Qantas a significantly stronger position in the Australian market (Gaylord, 2001).
Qantas, Australia’s leading domestic and international carries launched a budget airline called Jetstar in May 2004 (Qantas annual report, 2004). With Jetstar Qantas’s aim was to cover the low fare segment of the aviation industry, which came into existence in the year 2000 with its competitor, Virgin Blue. Virgin had been successfully eating up QANTAS market share by attacking it from below as a no frills provider. In 2001 the collapse of Ansett in domestic market, led Qantas to lease extra flights, add hundreds of special flights in order to help stranded travellers due to Ansett crisis. At the time Qantas flew more than 50,000 former Ansett passengers for free and other 65,000 on heavily discounted fares.
Due to this Qantas was able to deliver a profit before tax of $631m and net profit after tax of $428 million at the end of 2002, 30 June, despite of the fact that the world’s aviation market was suffering from “constant shock syndrome”, due to the September 11 attack followed by bombings in Bali, the war in Iraq and of course the devastating outbreak of Severe Acute Respiratory Syndrome (Qantas annual report, 2003). The shutdown of Ansett also highly benefitted Virgin Blue, since the event provided a wide opportunity for Virgin Blue to grow rapidly and become Australia’s second leading domestic carrier. In 2000 it started with only one route (Brisbane to Sydney) with two aircrafts and a team of just 200 people. In 2001, with the opportunity to widen its market segment, 14 new routes were launched (virginaustralia – history).
The aim of this paragraph is to highlight how Qantas and Virgin Blue became the only two players in the Australian domestic aviation market in 2002. It will also look in to the key financial indicators of both the companies so that a comparison could be drawn out. In 2002 there were only two companies that survived the fare war of 2000-2001. One of them was Qantas that gained 80% of the domestic market share following Ansetts cessation. Whereas, the number of international passenger declined by 11% which makes an average decline of about 25% in global aviation market (Traca, D., 2004). In the same year Qantas domestic carried 1485 million passengers making a RPK of $2034 million and the ASK of $2503 million (Traffic and capacity statistics, 2002).
Qantas announced its financial results for the year ended 30th June 2002. As per the financial result the company had $631 million of profit before tax, a net profit after tax of $million, revenue of $ 10,968.8 million and earnings per share of 29.1 cents (Qantas annual report, 2002). The other survivor of the fare war, Virgin Blue managed to emerge as second Australian Domestic carrier, covering of about 20% of the domestic market (Traca, D., 2004). Due to its strategic low operating cost and soaring market share, it was able to achieve net profit before tax of $34.8 million and revenue of $388.3 million. In this year the airline carried 3.2 million passengers, its traffic as measured by RPK’S was 3169 million, capacity measured by ASK’S was 3898 million (Virgin Blue annual report, 2004). In March 2002 Patrick Corporation, the premier port cargo handler, bought 50% of the airline. This change made Godfrey, chief executive of Virgin Blue confident about the enlargement of the domestic operation and also expansion into the international market with service to South Pacific (Traca, D., 2004).
This paragraph critically analyses the key financial indicators of the Qantas and the Virgin Blue of the year 2003. It will also highlight how Virgin Blue concentrating only of the leisure domestic market was slowly overcoming the market share of Qantas. In 2003 Qantas domestic carried 1768 million passengers making a RPK of $2262 million and the ASK of $2683 million (Traffic and capacity statistics, 2003). Qantas announced its financial results for the year ended 30th June 2003. As per the financial result the company had $502.3 million of profit before tax, a net profit after tax of $343.5 million, revenue of $11,374.9 million and earnings per share of 20 cents (Qantas annual report 2003).
Speaking of announcements, in the Annual General Meeting held on 16th October 2003 it was announced that “the airline is investigating the establishment of separate domestic low cost airline to service the leisure market in Australia” (Preliminary monthly traffic and capacity statistics, July 2003).In this same year Virgin Blue carried 6.8 million passengers, its traffic as measured by RPK’S was 7194 million, capacity measured by ASK’S was 9078 million. Taking advantage of the fact that Virgin Blue had no other competitor serving the price sensitive market of Australia, it earned revenue of $914.6 million, compared to previous year the revenue earned up roared by 135.5% and the number of passengers carried also increased by 107% (Virgin Blue annual report, 2003).
This paragraph will critically analyse the launch of Jetstar in May 2004 and the changes that it brought in the key financial indicators of Qantas and as well as of Virgin Blue. Following the announcement made in 2003 Annual General Meeting Qantas Introduced Jetstar in May 2004. In the first year Jetstar alone carried 273,000 passengers. Prior Jetstar Qantas already had Qantas Domestic and Qantas Link serving domestic passengers. With these three Qantas in total carried 1973 million passengers. Compared to 2003/04 the number increased by 9.4% (Traffic and capacity statistics, 2004). In the same year Total Domestic (Qantas, Qantas Link and Jetstar) traffic was measured in Revenue Passenger Kilometres (RPKs) of $2451 million while capacity, measured in Available Seat Kilometres (ASKs) increased to $3021 million (Traffic and capacity statistics, 2004).
On 19 August 2004, Qantas announced its financial results for the year ended 30 June 2004. In the announcement it was stated that the company had achieved a profit before tax of $964.6 million and a net profit after tax of $648.4 million. Similarly, $11.4 billion of revenue, earning per share of 35.7 cents (Qantas annual report, 2004/05). Despite increasing domestic competition during the year Virgin Blue continued to show strong growth and profitability. During the year Virgin Blue carried over 10million (m) passengers, an increase of 53% compared to previous year. Doubling its passenger number the third time in a row in this same year it welcomed its 20 millionth passenger. Its revenue for the 2004 financial year was $1362.3million which is 49% more than the previous year.
In the same year profit before tax was up by 45% to 226.2million and a Net Profit After Tax of 158.5million (Virgin blue annual report, 2004). Till March 31, 2004 Virgin Blue had 44 Boeing Net Generation 737 – 700 & 737 -800 aircraft out of which 36 were leased and 8 were owned. However, during the year the fleet was increased by 15 aircrafts. Since the day of establishment Virgin Blue was committed to keep its cost base low and they are continuously working through it so that they could consistently provide their customers with low fares travel. Their cost per ASK for the financial year 2004 was 8.16 cents whereas a year before it was 8.48 cents. A decrease of 3.5% put the company on a good front in terms of scale and productivity (Virgin blue annual report 2004). The Australian discount airline Virgin Blue, has won 30% of the market from Qantas, the national carrier, which will introduce a low-fare airline, Jetstar. Fare surcharges are being imposed by both groups as fuel prices rise (Shaw, 2004). Jetstar’s initially offered $48 for Melbourne to Hobart route and from $54 for Sydney to the resorts south of Brisbane.
The price was similar to what the price Virgin Blue was offering at the same period. All Jetstar flights offered one class of travel, with unreserved seating. In contrast Virgin Blue offered assigned seating and baggage connections to final destinations (Henly, 2004). This paragraph critically analyse the key indicators for Qantas and Virgin Blue for launching Jetstar in May 2004. It is very clear with the annual report that Jetstar has been profitable ever since it was launched in the year 2004 (Jetstar Media centre). However, the road wasn’t quiet smooth in the initial years. From its launch Jetstar was exclusively using a “low price” message in its communication, but it was lagging way behind Virgin Blue in terms of quality. The Jetstar overall quality disadvantage was greater at 22.3% (6.02 versus 7.75) (Danaher et.al, 2011. pp. 586 -594, Fig 3).
Jetstar was already appealing on the price front, and then it addressed its deficit in quality and tackled that by focusing on some specific sub attributes (not disclosed by the company) that provided Jetstar a good opportunity to overcome the point of difference with Virgin Blue. Then the price perception of Jetstar relative to Virgin Blue dramatically improved from 6.9% deficit in March 2008 to 2.5% deficit in only 3months i.e. 7.42 versus 7.62 (Danaher et.al, 2011. pp. 586 -594, Fig 3). Since the establishment the main concern as a parent company for Qantas Group was that whether Jetstar would financially be profitable in its own right. Hence, it did by earning revenue of $1.020 billion, $1.414 billion, and $1.605 billion in the year 2007, 2008, and 2009 respectively.
It was 7%, 10%, 12% of Qantas group revenue respectively (Qantas annual report, 2009). Similarly, in the same order the profit earned was $79 million, $104 million and $118 million (Danaher et.al, 2011. pp. 586 -594, Table 2). Similarly, speaking of market share of Jetstar, it has increased by 29% from the year 2008-2009. Earlier with the perceived mediocre price competitiveness and low quality it was in a poor position as compared to Virgin Blue, whereas, with the necessary remedies taken within the 1st quarter of 2008 it was in position almost equal to Virgin Blue in terms of covering the large proportion of the target market. Jetstar Market Share of Domestic Australian Leisure Air Travel was 14% in the first quarter of 2008, with the changes made the market share increased to 14.6% and it gradually kept on increasing and it had 18.1% of market share in March 2009. Further, with the increase in profit it improved its perceptual position, whereas, Virgin Blue has remained relatively stationary.
In conclusion if we are to pay close attention to the domestic growth strategies of the country’s largest airline company; Qantas, its decision of launching Jetstar seems be a successful strategic decision. It was matter of concern that the Virgin Blue an airline company focusing on the price sensitive market would whether survive the competition with 82 year old veteran airline company. However, with its striking approach of low fare Virgin Blue today covers 35% market share of the domestic aviation sector. By critically evaluating the financial indicators of both companies for the year 2002-2004 and also following the series of events, it becomes quiet clear that though Virgin Blue had started small it managed to cover 20% of the target market in 2002.
In further years concentrating only in the no frill travel it was able to hold the 30% of the market share, which became a matter of concern for Qantas because though it was making more profits then Virgin Blue it was losing it domestic market grip, therefore, led to the launch of Jetstar. However, even after the Launch of Jetstar Qantas performance was not like it was expected because in the year 2004 Qantas domestically carried only 2061 million passengers which were only 88 million more than the last year. However, with the necessary major changes (not disclosed by the company) Jetstar alone was able to regain the market share of 18.1% by March 2009.
Gaylord, B. (2001). Qantas to Absorb Competitor As Fare War Takes a Victim. The New York Times; Business Day. 11Shaw, J. (2004). World Business Briefing /Australia: Airline Profit. The New York Times; Business Day. Henly, G, S. (2004). Travel Advisory; New Offshot of Qantas Offers Lower Fares. The New York Times; Travel Danaher. J. P., Roberts. H. J., Roberts. K., Simpson. A. (2011). Applying a Dynamic Model of Consumer Choice to Guide Brand Development at Jetstar Airways. Marketing Science, 30(4), 586 – 594. Doi: 10.1287/mksc.1100.0619
Traca. D., (2004). Virgin Blue Fighting With National Champion. INSEAD, 5179. Traffic and Capacity Statistics. Retrieved from:
http://www.qantas.com.au/travel/airlines/investors-traffic-statistics/global/en Jetstar Media Centre. Retrieved from:
Nadler, D. (1977). cited in Cumming and Worley (2009). Organization development & change, 9th edition, South- Western Cengage Learning. Qantas annual report (2002). Retrieved from http://www.qantas.com.au/infodetail/about/investors/2002AnnualReport.pdf Qantas annual report (2003). Retrieved from http://www.qantas.com.au/infodetail/about/investors/2003AnnualReport.pdf Qantas annual report (2004). Retrieved from http://www.qantas.com.au/infodetail/about/investors/2004AnnualReport.pdf Virgin Blue annual report (2004). Retrieved from
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