Jetstar is an Australian low-cost airline that is a wholly owned subsidiary of Qantas. Jetstar is part of Qantas' two brand strategy of having Qantas Airways for the premium full-service market and Jetstar for the low-cost market. Jetstar has approximately 9% of the Australian domestic flight share.
The airline operates an extensive domestic network as well as regional and international services from its main base at Melbourne Airport, although its regional network in northern Australia limited and far from comprehensive. Like its Qantas parent, Jetstar competes with Virgin Australia and its fully owned low-cost subsidiary Tigerair Australia. Jetstar also competes with regional airlines like Regional Express, Airnorth, Hinterland Aviation, West Wing, Pelican Airlines, Sharp Aviation and Skippers Aviation
Jetstar management thinks the company should expand its northern regional networks and include some charter flight facility. This would bring it into competition with several key regional airlines and a local charter services. Before any decisions are made you are hired to analyse the competitive situation and give advice.
There is an immense growth in airline industry due to high passenger traffic because of rapid growing tourism. Airline industry faces major challenges due to changing macro environmental factors. By Applying PESTLE analysis on aviation industry will identify how these macro factors influence environment –
Fluctuation in oil prices has major impact on airline profitability (Boin at al., 2017). The aviation industry brings a number of intrinsic risks. The business risk is not just limited to change in economic condition. The performance of benefit obligation is calculated timely. A healthy economy fosters industrial growth. Economic indicators calculate and measure the economic health of the country. Economic indicators such as gross domestic product, disposal income, level of business, consumer confidence, and per capita income (Lohmann, and Spasojevic, 2018).
Socio-culture factors- The demand for aviation or air travel has been increasing rapidly. This states changing travel preferences of the young generation. Although the fare prices of airlines are comparatively high. However, it reduces the travel time as compared to trains and buses. The personal disposable income has been increasing with purchasing power of the buyer. Reportedly, the last recorded of GDP per capita in Australia is at 55925.93 US dollars in 2017, which is highest in all last years (Pearson, Pitfield, and Ryley, 2015).
Technological factors- Technology is a driver within the aviation industry. During Second World War, technological advancement is the most prominent factor that improves safety of the aviation industry. Important technological developments include aircraft design, manufacturing those materials that will produce light and faster speed craft. The growth of aviation industry includes opening of new airport infrastructure (Taneja, 2017). Technology helps to build better infrastructural blocks, which enable development of new airport. Engineering and maintenance systems support new aircraft and avionics. Before construction, advance security and surveillance is imposed to handle devices.
Environmental factors- Jetstar Airways plans to accomplish and improve fuel efficiency so that an average of 2% annually. By 2050, the Jetstar Airways focus to reduce 50% co2. The Quantas is subject to both short and long-term climate related transition risk (Quantas, 2016). This type of risk is intrinsic part of the business operation of an aviation industry. Climate change is managed by strengthening the governance, and operational situation. It includes considering the changing factors and the way these factors effect proximity of climate risks.
Legal factors- The changing industry of airline has withdrawn commonwealth from the operation of airlines. A private owner owns and operates airport under long-term leases by raising fund through public. Private business generally focuses on earning more profits. Government intervene to regulate and run the air transport of their country (Babi?, Tatalovi?, and Baji?, 2017).
Airlines expand to diversify and position their stake international market. Sometimes business expand because of its competitors who do not steps to grow, there airline take the advantage as first movers. International expansion helps airlines to know the wants of customers all around the world. Jetstar already operates on domestic, regional, and international level (Businessjournals, 2018). Whereas, its network in northern Australia. The airways want to expand and regulate its business in northern Australia (Greig, 2018).
Airlines have been adopters of cutting-edge revenue management (RM) technologies since 1970s. Competitive advantage is achieved when the company has its product or service that can differentiate it from other competitors. Airlines focus on how to price core tickets. Majority of revenue comes from ancillary items and services such as on-board food, extra legroom, premium seat selection, and checked baggage. Jetstar airways have noticed that giving importance to ancillary sales cannot continue to change its revenue management strategies. Jetstar airways decide to adopt tactics and product suggestion that is most preferable to customers of northern Australia both at the point of sale and during the journey. The increasing power of optimising and analysing analytics can create transparency for the profile customers. As Jetstar airways expand its international operations, Jet airways should implement efficient fuel using strategies to change the fleet for future generation of B787 so that they can create cost efficiencies for fuel. Jetstar should review its network and schedule to make efficient aircrafts for performance maximisation. From achieving performance, Jetstar reduce the economic risk that is caused due to uncertainty of fuel price. Jetstar airways considered either merger or acquisition to regulate its international strategies to expand in Asian regional market. The company should have the potential to increase traffic by attracting the customers towards the fare. Security concerns and political issues regarding uncertainties have interrupted global tourism. Expanding low-cost airlines will encourage tourism at the international level.
The theory of Porter`s five forces model is based on the five forces that increases the intensity of competitors and market attractiveness. Porter`s model is useful in both understanding the strength of the company`s competitive position and opportunity for a company to look for future profit and move on. Following are the given five forces-
Bargaining power of suppliers- The two major suppliers of Jetstar airways are Airbus and Boeing. Thinking of shifting or switching to another supplier can cost high. Fuel price is determined by global oil market. Deregulation has given to restrict competition between Jetstar airways and Virgin Blue. The competitors of Jetstar airways has launched leisure traveller by developing their business travel market. In response it its competitors, Jetstar airways has expanded extensively to broaden its operations. One of the Jetstar airway`s competitors, Ansett collapsed in regional airlines. Jetstar airway owns wide range of regional airlines (Forsyth, 2018). It dominates many routes and is the only airline on some routes. Nevertheless, Virgin blue amalgamated with Ansett group airlines, Kendell and other airlines compete with the varying services of Jetstar airways.
Threat of New entrants- Threat of new entrants is growing high because there is no barrier on entry in airline industry because airplanes can be leased if the new entrants do not much technology and capital to buy a new one (Matusik, and Fitza, 2012). Leasing also reduces the exit cost from the airline business. Passengers and flyers wish to compromise rather than paying higher fare even when the flight services have low standard. Customer loyalty matters but Low cost rules the flight services for short distance.
Bargaining power of Buyers- Australians has good personal disposable income but it differs from individual to individual. Australia is a growing country with tremendous potential in the market. The influx in capacity will pressurise low yields. Burden issues of nonstop flights from Australia to Vietnam improved Jetstar, until that it has withdrawn since 2012 (Nguyen, 2015). Consumers have strong bargaining power with Jetstar airways, which is attributed due to low price based preference. Costumers select the same airline, which offers best value for their money. Technology enables the customers to compare the flight fare and services through flight centre and sky Scanner. This enables the customer to make best choice out of all available fare according to their wish because switching costs for the customer is low that increases the bargaining power of buyer.
Threat of substitutes- Porter`s threat of substitutes defines the availability of the product which facilitates purchase of another product rather than industry`s product. The substitute product meets the demand of the customers in the same way the industrial product meets. Transportation accomplishes many substitutes for long distance such as trains, cruise boats, and cars are cheaper generally. The major advantage that air travel has is in terms of time saving.
Rivalry among existing competitors- Main competitors are tiger airways and virgin Australia. In 2005, it has emerged as international service provider. Level of competition differs within every sector. Jetstar airways domestic network is extensively strong as it is wholly subsidised with Quantas. However, low-cost and budget travel niche, which helped Virgin Blue to establish. By looking at the Virgin Blue success, Jetstar Airways is initiating to expand share of budget travel market.
Business level strategy details the plan, which provides value to customers and win the advantage of competitive advantage by using and squeezing the core competencies in the service market. Business leaders consider market details to make and establish strategies for marketing and pricing. With the ultimate goal of satisfying needs of customers with airline services, business use strategies to gain competitive advantage (Leonard, 2018). With the increasing demand in air transport for the next 20 years, Qantas and Jetstar will have the ablity to lead the airline industry. The Qantas`s domestic group has proven. Currently the group is giving satisfactory return to its existing shareholders. Jetstar has built leading position in its domestic market (Australia). The profit has been increasing at Qantas loyalty and Jetstar with the rise in Asia`s people and their customers. Jetstar is planning to build a pan-Asia brand with $85 million increase in profitability from Asia.
(Source: Colgan, 2016)
Create add-on services- Install setup to support the customer with unique services by offerings. Training to new comers is a good way to manage greater revenue and add value to services (SunTrust, 2018).
Faster service- Providing faster services to customers attract them for the convenience. Creating new strategic offerings can deliver products to customers as soon as possible, which allow the company to extract and wipe premium price and get a competitive market edge (SunTrust, 2018).
Bundling products- By adding new product into the mix can increase the variety of offerings to customers. One’s the customers are aware of offerings, there is possibility of repetitive selling of goods to the existing customer (Whyte, and Lohmann, 2015).
Before forming business strategies for expansion, Jetstar airways have to use some common tools to identify and analyse macro factors of the environment. Some of the tools such as PESTEL analysis, Porter`s five forces model, and VIRNE (value, inimitable, rare, and not substitutable) framework helps the company to identify the micro and macro factors, which influences the operations. Jetstar Airways have the advantage at the marketplace because it is wholly subsidised by Quantas. Most of the airlines focus on responding positively to the services in the aeroplane, which may increase revenue management. Jetstar airways should design its marketing strategy that focuses on customer wants.
Boin, R., Coleman, W., Delfassy, D., and Palombo, G. (2017) How airlines can gain a competitive edge through pricing. [online] https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/how-airlines-can-gain-a-competitive-edge-through-pricing [Accessed 25/07/18]
Whyte, R. and Lohmann, G. (2015) The carrier-within-a-carrier strategy: An analysis of Jetstar. Journal of Air Transport Management, 42, Pp. 141–148
CAPA, (2016) Jetstar Pacific plans fleet and international expansion for 2016 as VietJet competition intensifies. [online] https://centreforaviation.com/analysis/reports/jetstar-pacific-plans-fleet-and-international-expansion-for-2016-as-vietjet-competition-intensifies-270869 [Accessed 25/07/18]
Matusik, S. F. and Fitza, M. A. (2012) Diversification in the venture capital industry: leveraging knowledge under uncertainty. Strategic Management Journal, 33(4), pp. 407–426
Lohmann, G. and Spasojevic, B., (2018) Airline business strategy. The Routledge Companion to Air Transport Management, p.139.
Pearson, J., Pitfield, D. and Ryley, T., (2015). Intangible resources of competitive advantage: Analysis of 49 Asian airlines across three business models. Journal of Air Transport Management, 47, pp.179-189.
Babi?, R. Š., Tatalovi?, M. and Baji?, J. (2017) Air transport competition challenges. INTERNATIONAL JOURNAL FOR TRAFFIC AND TRANSPORT ENGINEERING (IJTTE), 7(2), p.144.
Quantas, (2016) Qantas Annual Report 2016. [online] https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf [Accessed 25/07/18]
Nguyen, T. K., (2015) Benchmarking passenger air transport marketing activities in Vietnam: case company: Etihad Airways.
Mhlanga, O. (2017). Impacts of the macro environment on airline operations in southern Africa. African Journal of Hospitality, Tourism and Leisure, 6 (1).
Taneja, N.K., 2017. Driving airline business strategies through emerging technology. US: Routledge.
Leonard, K. (2018). Five Types of Business-Level Strategies. [online] https://smallbusiness.chron.com/five-types-business-level-strategies-781.html [Accessed 25/07/18]
SunTrust, (2018) Organic Growth Strategy - Expanding your Competitive Advantage. [online] https://www.suntrust.com/resource-center/commercial-corporate/article/organic-growth-strategy-expanding-your-competitive-advantage#.W1hJOdIzbIU [Accessed 25/07/18]
Businessjournals, (2018) 5 benefits of international expansion. [online] https://www.bizjournals.com/bizjournals/how-to/growth-strategies/2017/12/5-benefits-of-international-expansion.html [Accessed 25/07/18]
Greig, D., (2018) When does Airline Competition become Predation. In Competition versus Predation in Aviation Markets. US: Routledge.
Forsyth, P., (2018) Predatory Behaviour in Australian Aviation Markets. In Competition versus Predation in Aviation Markets. US: Routledge.
Colgan, P. (2016). Qantas is trying to manage these mega-trends that could apply to any startup. Retrieved from: https://www.businessinsider.com.au/qantas-is-trying-to-manage-these-mega-trends-that-could-apply-to-any-startup-2016-
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