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International and domestic air transportation services Essay

Introduction

The Qantas group operates international and domestic air transportation services for leisure and business traveling, freight and logistics services .It is also provides support activities including information technology, catering ground handling, engineering and maintenance. Qantas with its dual strategy brand Jetstar flies now to more than 173 destinations in 42 countries and operates a fleet of 246 aircraft. The objective of this airline is to operate a 20-strong airbus 380 fleet by 2015.The group is also a part of the world global marketing and code-sharing alliance, which
consists of 11 leading airlines. Qantas’ stakeholders are its shareholders, employees, customer, business partners and the community. Indirect stakeholders include the media, governments and non-government organizations. They all have a major influence on the business, its strategy and therefore its performance. It is to mention that Qantas group is in the unique position of having two outstanding and well established brands in both the premium and low fares categories with Qantas and Jetstar, which makes it a magnitude rival for Singapore Airlines. The headquarters of Qantas is located in New South Wales, Australia. It is split up into three main branches which include the Flying business, flying services Businesses and the Associated Services. All departments of this group have focused on one goal and that’s nothing except ensuring high quality service in most efficient way. But they long term purpose is to operate the world’s best premium airline, Qantas, and the world’s best low fares carrier, Jetstar.

Body
Comprehensive Porter’s 5 forces analysis
Nowadays, Porter’s Five Forces model is the most important force which affects the Airline industry, especially because the market is completely saturated. There are more service providers than needed in both local as well as international markets (GreenBb, 2008). The airlines continuously compete against each other in terms of customer services, technology, prices, in-flight entertainment, and many more areas (GreenBb, 2008). Actually, Porter’s Model is a business strategy tool which is used to analyze the competitiveness and attractiveness of the airline industry of which Qantas operates. It is considered as an important part of planning tool set (Kawatra, 2013).Its analysis consists of 5 fundamental competitive forces:

The rivalry among existing players: Medium to High
Qantas is faced with competition within the domestic airline industry in Australia from Virgin Blue and Tiger Airways and international competition from all major airline operators including British Airways and Deutsche Lufthansa (all three airline operators are national flagship carriers). The fierce rivalry has resulted in high cost of competition, lower profits and
slow market growth. Bargaining power of Suppliers: Medium

The main factors which determine the bargaining power of suppliers include switching costs, substitute suppliers, threat of backward and forward integration and supplier concentration. The airline supplier market for aircrafts is very concentrated as there are two main suppliers, Boeing and Airbus. Their bargaining power is high in this industry (GreenBb, 2008). This restricts Qantas, along with its competitors, from exercising control over their suppliers to generate higher profit. Threat of Substitutes: Low

The threat of alternative solution to international airline travel is somehow limited. However, the threat for domestic airline travel includes train, bus or car travel which is determinants of money, preference, time and convenience of the traveller. The ease of switching to a substitute increases competition (xiamichael, 2012). Hence, when switching cost is relatively low, the competition becomes higher and price becomes even more important. The airline industry is very competitive and as a result, profit margins are usually low. Also, the bargaining of the supplier is very high which undermines companies in the airline industry to exercise control over their supplier. With high entry cost, new competition into the international airline market is very low. Qantas can continue to dominate this market while still competing with domestic market using the Frequent Flyer programme increase loyal customer.

Threat of new entry: Low
In the world today, the airline industry is so saturated that there is hardly space for a newcomer even to squeeze its way in. The biggest for this is the cost of entry. The high cost of buying and leasing aircraft; operational activities including safety and security measures, customer service and manpower; makes the airline industry one of the most expensive industries (Q.G). Other barriers to entry which will prohibit new comers into the airline industry include Government restrictions and the brand name of existing airlines. Brand name recognition and frequent fliers point also play a role in the airline industry. An airline with a strong brand name and incentives can often attract a customer even if its prices are higher. On
the other hand, a newcomer could just enter this saturated market easier with a completely new concept or technology (GreenBb, 2008).

Bargaining power of Buyer: Medium to Decline
The bargaining power of buyers is another force that can affect the competitive position of a company. The airline industry is very competitive as they are competing for the same passengers and switching cost between airline operators is low. As a result, the buyer power is high in this industry. There are various choices presented to customers; which usually means brand loyalty or price is the main factors when selecting an airline (Q.G). Buyers for Qantas include business travelers, leisure travelers, and travel agents. In fact, they demand value for every dollar spent, therefore they expect more and more from the airline. Qantas has the frequent flyer program which rewards loyal customers and increases switching costs for a passenger selecting a rival airline operator. Add to this, the technology developments help the Qantas to reduce the buyer power (xiamichael, 2012).

Conclusion
The airline industry is very competitive and as a result, profit margins are usually low. Also, the bargaining of the supplier is very high which undermines companies in the airline industry to exercise control over their supplier. With high entry cost, new competition intothe international airline market is very low. Qantas can continue to dominate this market while still competing with domestic market using the Frequent Flyer program increase loyal customer.

Factor| Characterization (Current)| Future Trend|
| Threat Rating| Key Rational| Threat Rating| Key Rational| Rivalry Among Existing Competitors |
Degree of seller concentration?| Y-H| There are more airline companies as compared to the customers’ requirement, that’s why this market is saturated.| Y-H| Top class air lines are also now focusing on the lower price to gain maximum market share.E.g. Qantas has initiated jet star. | Rate of industry growth?| Y-H| Yes, it’s growing but the substitute factors also make it very hard to maintain that growth rate. And also there
is Lack of diversification| Y-H| In future It would be same as it is according to today’s forecasting.| Significant cost differences among firms?| Y-H| Major costs and expenses are same but it depend on the destination airline is operating.| Y-H| Same trend will continue.| Excess capacity?| Y-H| There is immense competition in airline industry that leads to excessive capacity as compared to demand. | Y-H| Customers’ growth will be overcome by the competitors’ competition. | Degree of product differentiation among sellers? | Y-M| Qantas has both high cost carrier as well as low cost carrier.| Y-L| Innovation and technology will lead to new opportunities to the airline industry.| Brand loyalty to existing sellers?| Y-H| There is no brand loyalty by the customer because of price competition in the industry.| Y-H| Same trend Will Remain as it is.| Buyers’ costs of switching from one competitor to another?| Y-H| Just one click for changing the airline from their computer screen.Most of customers change the airline on the bases of price factor| Y-H| No change in near future.| Strengths of exit barriers?| Y-H| because of high capital cost for equipment (air planes) and other facilities there would be a huge waste.| Y-M| Some factor like technology might help to reduce the cost| Can firms adjust prices quickly?| Y-H| Of course with considering price strategies they would adjust.| Y-H| Same costing strategies.|

Factor| Characterization (Current)| Future Trend|
| Threat Rating| Key Rational| | Threat Rating|
Threats of New Entrants |
Significant economies of scale? | Y-M| It would cost a lot to buy/lease an aircraft| Y-H| The costs of buying or leasing aircrafts are decreasing. | Importance of reputation or established brand in purchase decision?| Y-H| The competition is based on price| Y-H| The competition is based on price| Entrants’ access to distribution channels?| Y-H| High accessibility to lots of websites and application would make it much easier and also There are flight centers and travel agencies| Y-H| With the fast growing technology it will open even more doors through the accessibility to distribution channels| Entrants’ access to technology/know how?| Y-M| professional courses which could make it possible to learn how to use the technology| Y-L| The number of skilled labor would decrease| Entrants’
access to favorable location?| Y-H| All the firms operate from airports.| Y-H| All firms operating from airports.| Government protection of incumbents?| Y-M| There should be some government regulation But it still going to be attainable| Y-L| More regulation would be needed in order to make the environment more secure and safe|

Factor| Characterization (Current)| Future Trend|
| Threat Rating| Key Rational| | Threat Rating|
Pressure From Substitutes |
Availability of close substitutes?| Y-M| Tele conference, online chats and VOIP could replace the be exactly at the place Also for short distances it could be replaced with railways, buses, personal transportation.But still it could be the best choice for long distance and international traveling and also the fastest way.| Y-H| Their impact becomes significant when the speed advantage of aircraft becomes less important| Price-value characteristics of substitutes?| Y-M| They are all the same, even sometimes it could cost more| Y-H| Substitutes’ costs will decrease while airline costs are relatively fixed.| Availability of close complements?| Y-M| Frequent flyer programs, hotels, and tour packages| Y-M| Complements environment would be limited| Price-value characteristics of complements?| Y-M| The prices are reasonable but there are alternatives than going after packages and loyalty programs| Y-M| -|

Factor| Characterization (Current)| Future Trend|
| Threat Rating| Key Rational| | Threat Rating|
Power of Suppliers |
Is Suppliers’ industry more concentrated than industry it sells to?| Y-H| Suppliers such aircraft and engine producers are consider as oligopoly | Y-M| There will be more supplier| Few substitutes for suppliers’ input?| Y-H| There would not be that much substitution for the suppliers| Y-M| There will be more supplier| Do firms in industry make relationship-specific investments to support transactions with specific suppliers?| Y-H| Airport services are concentrated in the small area of air ports but low changing costs.| Y-H| Same Trends expected.| Are suppliers able to price discriminate among prospective customers according
to ability/willingness to pay for input?| Y-H| With a high competitive industry and the limited suppliers and fixed regulations price discrimination threat is highly expected.| Y-M| More manufacturers/service providers are expected.|

Factor| Characterization (Current)| Future Trend|
| Threat Rating| Key Rational| | Threat Rating|
Power of Buyers |
Is industry buyers more concentrated than the industry it purchases from?| Y-H| Because there is a very competitive industry price discrimination mostly happens | Y-M| There will be more supplier.| Do buyers purchase in large volumes? Does a buyer’s purchase volume represent large fraction of typical seller’s sales revenue?| Y-H| There would be a high scale of supply and low scale of demand with the buyer’s market| Y-H| There would be a high scale of supply and low scale of demand with the buyer’s market| Can buyers find substitutes for industry’s product?| Y-H| Separate transactions | Y-H| With more transactions expected but still not enough for a high volume purchases. | Are prices in the market negotiated between buyers and sellers on each individual transaction or do sellers “post’ a “take-it-or-leave it price” that applies to all transactions?| Y-H| Websites increased the price transparency | Y-H| Same trends expected.|

Bibliography
GreenBb. (2008). Industry Analysis.
Kawatra, P. (2013, january). Porters Five Forces Model. Retrieved from http://www.studymode.com/course-notes/Porters-Five-Forces-Model-1340484.html. Q.G. (n.d.). The Qantas group international and domestic air transportation services. Retrieved from http://www.ukessays.com/essays/management/the-qantas-group-international-and-domestic-air-transportation-services-management-essay.php. xiamichael. (2012, June). Qantas 5 Forces. Retrieved from http://www.studymode.com/essays/Qantas-5-Forces-1021718.html.


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