The Aviation Industry has been one of the most dynamic industries in our history. From the development of the machines to the formation of a viable business model, the trials and road to success has been filled with little success and numerous examples of failure. One of the best examples of success in this volatile industry would be Qantas Airline. For nearly one hundred years, Qantas is one of the world’s oldest, most successful air carrier operations. Invoking a business model that has proven constant transformation and change is inherent to their success, Qantas has established itself as a global provider of commercial air services. The Qantas story is of success and adaptation to the ever-changing dynamics of the aviation industry. Many airlines have come and gone throughout the history of aviation, yet Qantas has endured, this case study will explain how they achieved sustainability when so many others have failed.
Business Model and Strategies
Qantas Airlines, throughout its 100-year history has continuously changed and evolved its business model to suit current needs and have an unprecedented preparedness for future operations. The airline is continuously upgrading its fleet and has not shied away from bold fleet changes. For example, QANTAS had at one time in their history been the world’s only operator with an all Boeing 747 fleet conducting international world-wide flights. QANTAS is currently branded as QANTAS – for international and domestic services, and JetStar, for Australian domestic services and has a mixed fleet of Boeing 747’s and Airbus models including the A320, A330, and the A380.
The ability to reinvent themselves and remain a world class provider of international flights services is because of the ever-developing business model and the company’s willingness to make change. These transformation programs are inherent to the successful business model and why QANTAS has survived such a volatile aviation industry.
Leigh Clifford, Chairman for QANTAS Airlines has stated in the company’s annual performance report for FY15/16 that “The Group has increased net free cash flow, grown return on invested capital and further strengthened its balance sheet, remaining in an optimal capital position throughout 2015/16. I’m especially pleased that we have been able to return more than $1 billion U.S. dollars in cash to shareholders over the past 12 months. Over the same period, earnings per share have almost doubled to reach 49 cents.” (2016 -QANTAS Performance review)
Embracing transformation has been the mantra of QANTAS since its infancy. This mentality and ability to changes is fortified through the strong leadership of the company. CEO Alan Joyce exhibits the traits of the QANTAS pioneers. He stated in his 2016 address on performance that “Transformation is making Qantas’ cost base competitive. Just as importantly, it’s changed the way we work. We’re a far more agile company. We’ve accelerated our adoption of new technology, digital platforms and data analytics. And we’ve fostered a culture that encourages diversity, inclusion and innovation. Qantas is a very different company from just a few years ago. Together with our well-balanced Group strategy, transformation means we’re resilient enough to perform in all market conditions and outperform many of our peers.”
The Qantas “Group” is the totality of all the endeavors, including QANTAS International and Domestic, JetStar Domestic, QANTAS Loyalty, and both domestic and international cargo operations. The expenditures total enormous amount of outgoing cash. The aviation industry is basically in the business of selling seats, QANTAS sells the entire experience and profits for its efforts. Expenses for catering, fuel, and maintenance are all costs associated and take away from that seat sale. The reduction of these costs are top priorities to the financial leadership and QANTAS has succeeded. A total reduction in 3% of the total fuel costs over one years is outstanding. With newer, more fuel-efficient aircraft like the A380, seat capacity and sales exceed the fuel costs and profits are made, if seats are filled. QANTAS as increased passenger revenue steadily for the past two years along with the reduced fuel costs and prices of oil world-wide.
The QANTAS team has been able to not only turn a profit in an industry where most others attempt to “break-even”, they have made huge sums of cash. The company is thriving, the stockholders receiving a return on their investment, and employees reinvesting in the company. They seem to be doing everything right in all aspects of the business. The international division of Qantas recorded $512 million dollars in profits FY 2016 and Qantas Domestic did even better with a record $578 million. These profits are in addition to the $452 million and the $346 million recorded by JetStar and Qantas Loyalty.
As stated in the Annual Performance Report for FY 2016, “Operating cash flows of $2.8 billion saw a strong increase from the prior year, reflecting cost and revenue benefits realized through the Qantas Transformation Program, and lower Australian fuel prices. When adjusted for the principal portion of operating rental payments, Funds from Operations were $3.1 billion. Net capital expenditure of $1 billion included investment in replacement fleet such as the Boeing 787 for Jetstar International and customer experience initiatives including airport lounges and the continuation of Airbus A330 and Boeing 737 cabin reconfigurations. Qantas generated $1.7 billion of net free cash flow in the period facilitating net debt reduction and returns to shareholders of $1 billion in the financial year.” (2016 – QANTAS Performance Report)
What this all means for the financial stability, is a record underlying profit of $1.53 billion dollars for FY15/16. For QANTAS that is a 57% increase since FY 2014 and is expected to increase over the next fiscal year. In addition to record profits, a debt reduction plan has been set in motion. Expenses and operating costs continue to rise, yet the aggressive approach to reducing fuel costs has also paid its dividend for the airline. Fuel consumption costs have been reduced by 3% in just one year.
The Chairman, CEO, and Board of Directors statements are best summarized using the introduction published in the Company’s 2016 Annual Performance Report, it reads as “This exceptional performance reflects the strength of our Qantas Group strategy, with record results and increased margins for Qantas Domestic, Qantas International, the Jetstar Group and Qantas Loyalty, and Group-wide return on invested capital of 23 per cent. Total underlying earnings before interest and tax (EBIT) in the domestic market – across both Qantas and Jetstar – rose 30 per cent to $820 million, and total underlying EBIT from the Group’s international operations was $722 million, up 107 per cent.” (2016 Qantas-Performance Report)
The modern age aviation company template lies in the metrics and performance standards of QANTAS airline. Remarkably in an era of failing and defuncted air carriers, they have managed to not just make a few dollars, but made record profits in a world-wide recession. They have accomplished this through two Australian domestic air carriers offering the same destinations and different services. One with traditional services and the other a low cost no frills carrier. This has given name recognition and brand loyalty throughout the population. QANTAS has also established their brand as the industry leader in long haul international travel around the globe. Top tier services, impeccable safety records, and a command of the passenger experiences has made their brand world renowned and associated with aviation excellence. Industry acclaims and record setting financial performances are the benchmark for quality and profits. Every airline, both domestic and international carriers, should take a hard look at the metrics and performance standards established and follow their lead. It does go to show that a deregulated airline can make a profit and not just strive to meet the break-even mark. QANTAS and their transformation mentality that has proven time and again to work. The company will continue to thrive and be the example and standard bearer for all air carriers. The transformation process into the next iteration of aviation excellence will continue as their gold standard and operations way of being an aviation leader.
Fleet Management and Route Structure
The Qantas fleet structure is one of the most dynamic in the industry. Historically Qantas is known for frequent and dramatic changes to their fleet mix, type, and designs. At one point Qantas was the world’s only sole service provider using the Boeing 747. A bold move that met the demands of the time and the decision served them well. According to Alan Joyce, the companies continued transformation is an ongoing process and will continue to evolve as the market and demands change. On February 23, 2017 Mr. Joyce briefed the company’s first quarter performance and highlighted the importance of his commitment to transformation. “Three years ago, when we launched our $2 billion Qantas Transformation program, we wanted to make the Qantas Group a strong, sustainable business. A business that could generate returns through the cycle – in good times, but also in tougher conditions. Our first half performance shows that we continue to deliver on that promise.”
The current Qantas fleet is a diverse mix of airplane capabilities solely produced by the Boeing Corporation and the Airbus Corporation. Having limited themselves to two manufactures, repair costs, maintenance, and product support per model has a reduced overall cost. These consolidated and reduced costs allow Qantas to procure and operate the higher end qualities that come in these models. These are not bare bones transport airplanes like South West. Their fleet is a top tier luxury airline passenger experience. The overall average age of their fleet is approximately 10.8 years, which is young in aviation terms. They are also one of the first airlines to offer services in the Airbus A-380 and Boeing 747-800 which are current production models. They are the front runners at providing services with these monumental aircraft.
Their oldest models are 737-300’s with an average age of 30 years amongst that type. Qantas also does not lease their airframes, they are the owner/operators of their fleet. The constant upgrading and new purchases keep them as a world leader in international services.
Qantas has established routes from Australia to the rest of the world, including destinations like New York, Los Angles, Singapore, Japan, and China. These routine and scheduled routes meet current demands as well as do the regularly scheduled routes operated domestically by Qantas and JetStar. The future schedule is much harder to predict and Qantas is always on the watch for new routes and new service locations. Both international brands, Qantas and JetStar are being marketed to emerging markets around the world. Alan Joyce provides his insight into the international markets and the future routinely. Recently he was quoted “Where Qantas International has added capacity, it’s been directed to Asian markets where demand is strong. Asia was also a bright spot for Jetstar. Jetstar’s international operations had a strong result off the back of growing demand between Australia and places like Indonesia and Thailand. And the Jetstar airlines in Japan and Singapore improved their performance again. The Jetstar Group overall reported another record half year profit, helped by a strong domestic performance.” These emerging international destinations are being addressed and services and fleet adjustments are being made to service these destinations.
The Qantas scheduling situation is unique due to the many destinations serviced and what airframes service certain places. There are passengers that want to fly on the A380 for the novelty, not just the destination. Qantas has recognized this and promotes these flights on this special airplane. The scheduling and marketing of these flights aids in the filling these enormous airplanes.
The Qantas route structure is also unique and has been tailored to the capabilities and location of their operation. Sydney, Australia is most the HUB for all domestic and International flights. The spokes are each point A to B destination in both modes. However, with the longevity and distance of each flight to reach its destination and return almost make the route structure like a point to point operation. They are servicing their entire continent and worldly destinations from Sydney. There are very few flights that continue to other destinations after their initial transoceanic trip. Location has dictated the HUB and the spokes have become the single point destination and return. Their maintenance and overhaul facilities are also located in Sydney with some locations throughout the world for ease of maintaining a flying fleet. Having an airplane grounded in China with little to no maintenance support does not work out, but major work and services are planned for the home location.
The Qantas overall operation provides a unique set of challenges and demands from fleet choice, scheduling long haul flights, and their location and service destinations. The company has continually met these challenges head on with the ability and willingness to be fluid and prepared for change. It is the “transformation” mentality echoed from the leadership down that facilitates the success experienced year after year. Being on the of the world’s most profitable and oldest airlines providing both domestic and international services under numerous brands, Qantas has set a benchmark for success and service.
Marketing
The Queensland and Northern Territory Aerial Services (QANTAS) has a rich and storied history which started close to one hundred years ago. Throughout their history, Qantas has transformed their business model several times. They have even changed their entire fleet on several occasions. However, one thing has remained constant throughout, which has been to provide a top tier world class flying experience. Their marketing strategy has evolved over the years and kept pace with the times, but pure customer satisfaction for each passenger remains paramount to the company. In the early years, word of mouth was the only way to advertise, and satisfied customers provided the positive communications needed to expand the business. Fast forward to today and that word of mouth advertising still has its place and it works. Qantas is known as that top tier international carrier throughout the world, and the bottom line remains customer satisfaction and a positive flight experience.
Qantas’ product has remained the same since their inception, the flight experience. It boils down to the selling of seats on an airplane in most cases, as it should. Qantas has the same result in mind, selling seats, yet tackles the problems in different ways. One example would be their airplanes and the products to whom they are very specifically marketed. Instead of marketing the airline directly, Qantas has marketed the experience and considers each paying customer’s price point. They have accomplished this through a multi-carrier plan, meaning two separate airlines providing domestic services at different price points. According to CEO, Alan Joyce, “The Qantas Group’s main business is the transportation of customers using two complementary airline brands – Qantas and Jetstar. We have built a reputation for excellence in safety, operational reliability, engineering and maintenance, and customer service.” Qantas Domestic and JetStar are both airlines operating domestic services in Australia and are both owned by Qantas. JetStar offers a no-frills approach to travel and offers significantly lower prices to these locations. Qantas Domestic however, offers the traditional upscale full service flight experience that they are known for to the same destinations at a higher price. This has enable the customer to choose either cost over services or vice versa. This marketing method still addresses the product, which is selling seats, yet provides the customer with options based on their budgets and needs.
Qantas international’s product marketing is handled slightly different. The product here is still the selling of the seat, but when the Qantas method is applied, things change. Again, it is the overall experience that is the focus for this airline. Qantas’ fleet choice is number one on the marketing list, with ships like the Boeing 747-800 and the Airbus A-380. People travel and choose destinations, just to fly on these machines, according to Qantas leadership. Comfort and ease of travel are essential to Qantas. Wider seats and inflight entertainment along with more non-stop international destinations than any other airline make their product more enticing to travelers. Qantas relies heavily on the established “name and reputation” of their airline for repeat customers. Brand recognition and loyalty maintain their market share bring in additional customers over time. Convenience and ease of travel are the standards established for the international traveler by Qantas. This unmatched service and available destinations set them apart from the other carriers.
The second “P’ in this marketing discussion must be price. The cost of a ticket is the key to this business. Priced too high, customers will not fly. Priced too low, the airline cannot sustain operations. Most fares charged by Qantas are determined by the market, and the market fluctuates. Qantas additionally determines their price points based on what other airlines are charging. This pricing strategy keeps Qantas competitive and in-line with the market shares. For their domestic/international no frills airline brand, Jetstar, Qantas has employed a price penetration model which offers the lowest possible price for every flight. Qantas International and Domestic also offers a full fare prices which offers customers flexibility. This flexibility for paying full fare allows the customers to change, modify, and/or cancel their reservation at no additional costs. This incentive for the business traveler is an incentive most will not overlook. The multiple pricing methods used by Qantas offer a wide range of options for customers through both their domestic and international brands. One additional option employed by Qantas is a cost margin method, where the price set for fare is figured by the cost of the conducting the flight with a full complement and an additional add-on strictly determined as profit.
For the 3rd “P” in this discussion, Promotion, is an essential part of any business. Word of mouth may have been sufficient 80 years ago, but in today’s day and age it is simply not enough. With technological advances, internet availability, and mass media, exposure to advertising is plentiful. Qantas currently has three major marketing campaigns underway, mostly limited to the Australian region. Their current “Welcome Home” campaign is aimed at domestic travel and bringing people closer together using the Jetstar brand. This campaign has been hugely successful and is expected to continue through the summer 2017. Additional promotions, including web advertising and search promotions are also used by Qantas. This being fees are paid to search engine facilitator ensuring the Qantas Brand is located first on searches and adds are associated in side-bar advertising on web pages. Since the advent of social media, Qantas has established accounts on all of the most popular platforms like Twitter and Facebook to keep their customers informed and feeling as they are part of the team. Along with traditional advertising such as newspapers, magazines, radio, and television, Qantas has embraced the handheld generation. They also announce changes and improvements through the social media outlets. On February 23rd, Qantas Tweeted “Qantas has revealed its next generation Premium Economy seat, which will debut on the airline’s fleet of Boeing 787-800 Dreamliner’s from October. Wider and with more functional space overall, the new seat has a unique recline motion that provides a class-leading level of comfort.” This type of advertisement reaches each subscriber instantly and allows for real time feedback from its customers.
The final “P” in the puzzle is place. In the Qantas story, the place is arguably the most important and the roots to its success. The place can mean several things, such as the place it all started, the place where flights originate, and lastly the place where flights go. These places are equally important. Qantas is a world leader in International Travel as well as Australian first and largest Domestic provider through the Qantas and JetStar. JetStar also provides a low cost International option for customers on a budget. The Qantas brand is truly global and amongst few airlines of such scale and worldwide influence. Qantas’ international routes cover the globe and offer services to destinations including Dubai and the Middle East, Europe, South Africa, South America, Asia, and North America. Qantas conducts business all over the world and code shares a portion of the business, except in Australia.
This concludes the four “P’s” of marketing and how Qantas Airline applies the principles needed to be successful. The Qantas product is top tier, the prices are competitive, the promotions are realistic, relevant, and current, and the places speak for themselves. Qantas is known for transforming their fleet and business model to keep ahead of the industry pace and be that trend setter they have always been.
International Operations
Qantas is considered one of the world’s top tier international air carriers. They have perfected international operations out of necessity due to the isolated location. Qantas does provide domestic services throughout the Australian continent, however, the main source of revenue and the bulk of their operations are geared towards providing the world class flying experience their customers have become accustomed to. Qantas’ base of operations is Sydney, Australia and they have been servicing international destinations since pre-WWI.
Their current fleet for their primary international long haul flights consists of the two of the world’s premier largest aircraft. The Boeing 747-800 has been in Qantas service since its introduction, as well has the Airbus A-380. The international services provided by Qantas has been recognized and awarded in numerous forums. They were awarded the Best First Class at the 2012 Australian Business Traveler Awards. Additionally, their fleet boasts Cleaner and more efficient than ever before, “burning 17% less fuel per seat than today’s largest jets and producing around 60% less carbon dioxide than the average family car, per passenger kilometer.”
Qantas is one of the world’s most recognized airlines and a founding member of the OneWorld® alliance. It serves almost 80 destinations in 20 countries. As the only Australian airline in any global airline alliance, it offers an extensive domestic network besides serving points in Asia, the South Pacific, Europe, North and South America and Africa. As a participating member in the OneWorld alliance, Qantas customers can reach just about anywhere in the world. The code sharing and affiliations has made Qantas on of the only airline truly capable of sustaining long haul operations on a regularly scheduled basis. With destinations in the U.S., Europe, Asia, and the Middle East, Qantas’ has the global reach. Routes extend from Las Angles to London to Dubai to Sydney. “Qantas code-shares with OneWorld partners American Airlines, British Airways, Finnair, Japan Airlines and LAN, and has additional commercial agreements with Aer Lingus, Air Niugini, Air North, Air Tahiti Nui, Air Vanuatu, Alaska Airlines, Alitalia, Asiana Airlines, Bangkok Airways, China Eastern, China Southern, El Al, Emirates, Fiji Airways, Jet Airways, Jetstar, and Vietnam Airlines”. (OneWorld 2017)
The relationships developed through the OneWorld Alliance has elevated the level of service expected and greatly enhanced the capabilities of Qantas. The benefits of such an alliance has increased sales, filled seats, and ensures more return customers. The level of service for international flights is a tiered system for both models of airplanes flown. Qantas offers four cabin classes on most of its long-haul international flights, including First Class, International Business, International Premium Economy (on flights operated by Boeing 747-400s and Airbus A380s) and International Economy. Frequent flyer programs and the benefits shared amongst alliance partners streamlines the system and enhances customer satisfaction.
Qantas’ primary business is providing the pinnacle of the international flight experience. This is echoed throughout the company and reinforced from the top down. Affiliations are chosen specifically to extend the range and service of the Qantas brand. The code shares, the One World alliance, as well as the Qantas brand are closely monitored by the leadership and Qantas believes in remaining in a transition and transformation phase of their business model, according to the company CEO. They are constantly reevaluating the processes, services, routes, and destinations to remain a world leader. Their fleet is constantly being upgraded to a premier level and operations refined to provide the customer the best possible experience. Without the OneWorld Alliance and the code sharing agreements, Qantas would still provide the long-haul operation, however it would be point to point, most originating the Sydney