Expansion of Jetstar Airways: Analysis and Recommendations

The profitability, growth, and sustainability of Qantas are outlined in this study for the upcoming few years. Industry, economic, business, and competitive analysis are examples of analytical techniques. The findings of the analyses indicate that Qantas would not be able to profit from the domestic and foreign market at a sustainable advantage over rivals. Competitors will ultimately adopt the use of currently imitated strategies, forcing Qantas to fight on an equal footing with other low-cost carriers who have more efficient cost structures. Only the expansion of the Jetstar name would enable marginally sustainable profit levels in price competition. In conclusion, results find that the company’s future positional advantage both in the domestic and international market are at stake. Recommended actions to be taken are further expansions to the Jetstar line to compete in the ‘low-cost’ international market. Continual usage of company’s buying power to expand the Jetstar fleet is most welcomed. Secondly, restructuring of staff costs to achieve effective staff costs and match (or preferable, outperform) competitors of effective cost structures. Limitations of this report include the assumption that the industry has clear boundaries, and ignoring other world economic issues.

Jetstar Airways Expansion Case: Analysis and Advice

Jetstar is an airline that was established by the parent company called Qantas in the year 2003. It is headquarter is located in Melbourne, Australia. Jet star Airways has a total number of 72 and 37 destinations and its fully owned low-cost subsidiary. It has grown to be largest airline in Australia both domestically and internationally, employing approximately 3500 workers worldwide (Elliott, 2010).

Competitive Advantage

A competitive advantage is very vital to any business enterprise since it establishes superiority for businesses against its rival competitors and also helps in developing worthwhile strategies. Jet star airways enjoys a competitive advantage through its lower costing strategy rendered in its service delivery, as compared to other airlines like Regional Express, Air north, Hinterland Aviation, West Wing, Pelican Airlines, Sharp Aviation and Skippers Aviation. This helps Jetstar to improve customer loyalty and brand reputation (Ghezzi 2010, p.214).

Extensive domestic, regional and international presence makes the Airline to become at the top as the service provider in Australia. Customer Guarantee and Price guarantee program are also key factors that the Airline enjoys in its service delivery. The Airline has also has the highest level of trust, its brand is well known allover and respected for its transparency and honesty as compared to its competitors (Ghezzi and Rangone 2010, p.233). The Airline is also known for its good reputation as it values its customers than the profits it acquires and the best quality of services it offers. Due to low cost subsidiary Jetstar is considered to hire more people in Asia who have diverse skills, thus, it enables Jetstar to improve its customer service (Kim 2017, p.78).

Macro – Economic Environment and Limitations of the Expansion Plan

Limitations of this analysis industry analysis is the assumption that industries have clear boundaries, such as Qantas’s focus on providing just air transport services and assuming its competitors do as well. Economic conditions done through economic analysis such as the GFC in Australia, has affected passenger numbers could be probably due to higher price sensitivity among potential passengers, hence a selection in other airlines with more affordable fares(Kotler 2009). We must understand that Qantas operates both in domestic and international economic conditions. Other factors include wars in parts of the world which could affect profitable routes. The current drops in oil prices might allow Qantas to reduce current fuel expenses, but this drop will also benefit other competitors, allowing them to exploit this current advantage to gain more market share in regions of the world that Qantas can’t access such as profitable US routes (Kotler 2009).

Economic Environment of Jetstar Airline

Jetstar has a strategy of improving its services and expand its operation both in domestic and international in stages. This is justified by initiating a number of projects for example combining an increase in oil prices and the introduction of federal government’s carbon tax. Pricing in the entire Airline industry seems to be a big challenge both to the service providers and consumers as a result of fuel structure (Kim 2017, p.80).

According to Dr Tony Webber, Qantas’ former chief economist who spoke to my airline and transport management students in 2010 pointed out that Fuel represents about 40% of Qantas’ costs. In Jeststar Airline fuel costs more 60% in its overall operation, this reduces its profit margin. However, to cope up with the situation Jetstar makes hedging agreements with oil companies in order to maintain the cost of fuel at an agreed level for an agreed period of time, mostly for a year or two years depending on the terms. This enables the Airline to pay the fixed rate for the fuel for the agreed period irrespective of fuel price fluctuations (Kim2017, p.83).

During the hedging period an increase in fare for airline may result to an increase in revenue when the cost of fuel increases, Jetstar also in response increases the amount charged for the ticket due to carbon tax. The tax will be charged in the ticket, thus it will be added to the cost of a ticket although commission won’t be effective to retail travel agents. All airlines operating domestically, to and from Australia will be affected by the carbon price (Ghezzi and Rangone 2010, p.220).

Revenue from the carbon price in most cases can be substantial since planned budget surplus is based on revenues from the carbon price. However, the aspect of carbon price makes change to be difficult; to curb this airline will factor the carbon price in its cost structures as it occurs with energy providers. In Australia when a tax has been implemented, governments are loath to wean themselves from a cash cow. A graphic example of this was the introduction of the GST over 10 years ago by the Howard coalition government (Kotler 2009).

PESTEL Analysis

Application of PESTEL (political, economic, social, technological, environmental and legal) analysis in Jetstar airline helps to identify environmental influences and factors that might increase the potential for crisis.

Political Factors

Terrorism has been a great threat to the airline industry in Asia; this caused significant falling in travelling. Besides, the political instability in South East Asia region, such as Indonesia, and Malaysia influenced negatively on aviation industry in Asia areas, in 1967, Singapore, Indonesia, Malaysia, the Philippines and Thailand established the Association of Southeast Asian Nations that streamlined the prosperous widespread network of trading links. So far, this political stability led to a high rate of economic growth, leading to development in industries in Asia, for example, tourism and aviation industries (Wang and HSU 2016, p.250).

Economic Factors

The economic environment outlines factors that affect either directly or indirectly consumer purchasing power and spending behavior. The economic factors have an effect on the entire aviation industry. Whenever there is crisis in the economy it leads to recession amongst the dependent countries, hence reducing the global passenger traffic. The crisis of rise in cost of fuel in the airline industry leads to an increase in the cost of operation. Hence, leading to a plunge of aviation industry's profitability, and instead incurring a loss (Wang and HSU 2016, p.245).

Social Factors

In aviation industry social factors are vital components in PESTEL analysis. The population rate in Australia increases steadily since death rate rates are minimal among elderly persons due to provisions of advanced medic. The availability of steady population is an advantage to the airline industry, since demand for its service rises up, mostly among the elderly people. Divorce rate has also risen forcing the airline industry to come up with promotional and planning policies to accommodate for those who are single or one-parent family. Trends in job market have a positive impact for the airline marketing policies. Some workers make day –return trips depending on job arrangements and work pressure. Due economic growth and opportunities for tourism the people using airline to fly for holidays has also, increased (Wang and HSU 2016, p.247).

Technological Factors

Due to technological advancement, availability of internet services has streamlined the efficiency of airline industry. The tickets can be booked online via the websites of a respective airline. This is beneficial to both the airline and passengers since much time and other costs are saved due to internet utilization. The passengers can enquire any information or select a sit in the airline via online in a convenient manner at a lower cost. Services such as electronic –ticketing, Common-Use Self-Service kiosks and bar-coded boarding passes (BCBP). BCBP can be accessed through websites, kiosk, and a check-in desk (Wang and HSU 2016, p.251).

Environmental Factors

The aviation industry is known to be environmental pollutant due to effects of carbon emissions by aircrafts, noise pollutions and large in fractures. Jetstar has a strategy to reduce this; it involves measuring its environment footprint and reduces the impact of pollution of its business. For example-the be green program which aims at identifying and managing risks and impacts of the business practices along with compliance with relevant laws and regulations (Wang and HSU 2016, p.252).

Porter’s Five Forces Model: Competitive Forces

In order to identify industrial environment within which Jetstar airline operates and competitive forces that might impacts its expansion plan, the following analysis was conducted using porters’ five forces model.

Competitive Force 1: Competitive Rivalry

Profits, prices and strategies are often driven by competitive pressure resulting from the rival companies. A company may have little or more powers depending on the quality of services it offers in the market when compared to its rivals. The absence of the competitors in the market boost the revenues of the organization. Jetstar has a two a brand strategy that enables it to assess different markets, hence deploying best products and services to suit consumers in the industry, this creates a competitive advantage. In response new rivalry has emerged from other airlines such as Singapore airline and British Airways. They try to eliminate Jetstar from market by offering low cost for air ticket and also attending to customers (Jury 2014).

Competitive Force 2: The Threat of the New Entrance

International Market

Qantas is threatened by entrance of new airline which is preempted to have similar buying power of the fleet aircraft. First mover advantage: Only advantage is the safety standards that Qantas and the other airliners have set. Easily imitated. Access to Channels of distribution and relationships: Simple access to channels for any company in the airline industry as aircraft and fuel suppliers are aplenty. Airports are always willing to accept a new airliners so as long as they can meet its standards (time factor only).Legal barriers: As mentioned, international requirements for a new entrant in the airline industry.

Domestic market:

The environment in Australia is much favourable for establishment if the new airline. Qantas will first have compete with the new brand name of Jetstar and price. First mover advantage: Qantas is known to be a ‘legacy’ airline and as such, maintains its name as an ‘Australian’ name. Access to Channels of distribution and relationships: Potentially not difficult for new entrants as the Australian demand for air travel is from a very price sensitive crowd. Capacity can always be met. Legal barriers: Must adhere to Australian air traffic rules and regulations or face shutting down, like Tiger Airways having to shut down operations following the CASA grounding in 2011.

Competitive Force 3: The Substitute Products

The company will be threatened by transport means such as land and sea which are only substitute products. But air travel has always been faster and more cost effective.

Competitive Force 4: Bargaining Power of Buyers

Price Sensitivity: There is high bargaining power in jet star airline due its price preference. Consumers compare different flight services in order to establish the one that fits them. They compare the prices charged alongside the services offered before making their final decision. In general, the bargaining power for buyers is high due to low cost of switching for consumers.

Competitive force 5: Bargaining Power of Suppliers

The main suppliers of the aircraft in the aviation industry are Airbus and Boeing such as Jetstar and British Airways. Jetstar airline heavily depends on cost of fuel for its revenues. This confirms that the organization has higher bargaining power of oil suppliers. The rise in cost of fuel will automatically manipulate the cost of fuel for Jetstar. The bargaining power for suppliers is quiet high due to high demand of for fuel by different airlines but there is limited number of aircraft suppliers (Jury 2014)

Proposed Business Level Strategy for Expansion

Qantas has always been a focused business at offering passenger air transportation, under the image of Australia’s flagship airliner. It does not partake in multiple businesses. That strategy has not changed much, especially at the domestic level, where the core strategy is to provide air transportation for a lower price, at a lower cost to the company (which Qantas has done in the form of Jetstar).

In response to growing international markets and competition for ‘low-cost’ international flights, Qantas has continued to expand Jetstar to serve this purpose. Other strategies include the frequent flyer loyalty program, for attracting customer preference by allowing the earning and redeeming of frequent flyer points across Qantas’ routes and also route of fellow airliners in the One world alliance (that Qantas is a member of) (Jury 2014). Other changes include trying to lower staff costs, which is the 2nd largest expense, and possesses the greatest potential for Qantas to achieve cost reductions (Jury 2014).

Conclusions

Qantas has the potential to continue growing in the next 5 years, but will come across a lot of competition, and potentially lose market share in the international market. Jetstar gains its competitive advantage through utilization of its resources and capabilities. Besides existence of stiff competition and high cost of fuel and low cost airlines in the industry, jet star has remained strong by applying its competitive strategies. Lastly jet star needs to establish efficient and long term strategies to maintain its position in aviation. However, should it concentrate on expanding its low-cost airline Jetstar, it should be able to reap existing benefits from the domestic market.

References

Ghezzi, A., Balocco, R., and Rangone, A. 2010. How to get strategic planning and business model design wrong: The case of a mobile technology provider. Strategic Change, 19(5‐6), 213-238.

Jury, T.A., 2014. A crisis of reputation in a Social Media environment: a comparative analysis of the crisis communication strategies employed by Jetstar and Air New Zealand in a severe weather event (Doctoral dissertation, Auckland University of Technology).

Kim, S.B. and Park, J.W., 2017. A study on the importance of airline selection attributes by airline type: An emphasis on the difference of opinion in between Korean and overseas aviation experts. Journal of Air Transport Management, 60, pp.76-83.

Kotler, P and Amstrong, G .2009. Principles of Marketing, Pearson, New Jersey.

Porter, Michael E. Porter. 2009. The Competitive Advantage of Nations. Free Press. ISBN 0-684-84147-9.

Wang, S.W. and Hsu, M.K., 2016. Airline co-branded credit cards an application of the theory of planned behavior. Journal of Air Transport Management, 55, pp.245-254.