Strategic Management Assignment: Impact of COVID-19 on Qantas Group
Question
Task: Read the following case study and prepare a well-researched strategic management assignmentanswering all the following questions.
“The Qantas Group faces some significant challenges, but we’re fundamentally optimistic about the future. Almost two-thirds of our pre-COVID earnings came from the domestic market, which is positioned to recover quickly. We have the leading full service and low fares airlines in Australia, where distance makes air travel essential, and diversified earnings through Qantas Loyalty and Qantas Freight.
As a business, we’re focused on returning to profit and building long term shareholder value. As the national carrier, we remain committed to supporting tourism, connecting regional communities and safely flying millions of people every year.”
Alan Joyce, Qantas Group CEO.
Qantas was founded more than 100 years ago in the middle of turbulent times. In 1920, the world was recovering from the Great War and a devastating pandemic. Throughout our long history, we’ve faced many periods of upheaval, uncertainty and dealt with many sudden shocks. We draw strength from this history and know we’ve always come back from a crisis stronger than before. In June 2020 Opens external site we outlined a three-year plan to guide the Qantas Group through the COVID-19 crisis and towards a brighter future. The overall aim was to right size and restructure the business to remove $1 billion of costs from the business annually from FY23 onwards.
After the first year, our plan is ahead of forecasts, with savings of more than $650 million in the first 12 months. Since the start of the pandemic, we’ve played a vital role keeping regional Australia connected. We’ve also operated hundreds of charter and repatriation flights to bring Australians home, and thousands of freight flights to carry foreign aid and local exports.
As national vaccine targets are met and restrictions ease, we’ll repair our balance sheet and pursue new opportunities – including Project Sunrise, our ambition for more non-stop international flights. The vaccine roll out and national re-opening plan has also given us more certainty around the restart of our International business. All Australian states are on track to reach the 80 per cent target by December 2021 – which is the trigger set by National Cabinet for starting to carefully open to some parts of the world.
The nature of COVID means our assumptions may have to change, as they have several times already. But through the difficult decisions we’ve made since the onset of the pandemic we’re now in a much better position now to deal with uncertainty. We’re confident that as restrictions ease and we return more of our people and aircraft to the skies, the Qantas Group is positioned for long-term success.
1. What are the Needs for a balanced approach to objective setting (post covid19 Analysis).
2. What industry dynamics and the forces will be driving change
3. What are the company’s strengths and weakness in relation to the future market opportunities
4. Write the report as if it is 2025 and indicate why the situation is as it is – cite evidence
5. What essential resources required by Qantas to maintain merger and acquisitional status with its international partner Air lines.
Answer
Introduction
International business disruption has been prominent for Covid-19 pandemic which has created a major issue for the international market. The international organisations have been facing major challenges due to long term government lockdowns which have jeopardised the travel and tourism industry. International organisations have been trying to improve their conditions through developing cost cutting strategies. This report is based on developing a detailed understanding related to covid-19 pandemic and its effects on Qantas group as well as the process through which it is trying to deal with this situation in an effective manner.
Needs for a balanced approach to objective setting
Balanced approach in business development has been an important factor based on which the profit margin of an organisation depends. After the situation of the pandemic and with easing lockdowns, it has been important for the company to develop a balanced approach through which the organization can operate depending upon new objectives for business development. The organization has developed a three-year plan based on which it is trying to reduce $15 billion during the three-year period targeting 2023 (Qantasnewsroom.com.au, 2021). This plan has been necessary for the organisation as it has met a huge loss in the Covid-19 pandemic period. Qantas has identified that its underlying loss before tax has been $1.83 billion and statutory tax before loss has been $2.35 billion (Qantasnewsroom.com.au, 2021). This has been a huge setback for the company due to which the company is trying hard to recover its business through taking necessary measures in an appropriate and balanced manner and not harming the traditional business values. In this condition the organisation has to focus on developing its business process in order to ensure the stability of the organization in the international business market.
A more cost-effective mode of business can be beneficial for the organisation as this will reduce the organizational expenses and result in the development of a degraded business environment. Due to the international border closure the airline business completely took a downturn creating a major issue for the company in mainly the first half of the year. With the closure of international borders and strict government lockdowns out of 100% 30% of the international flights was suspended and 70% of the domestic flights came to a halt for flying (Flightglobal.com, 2021). The domestic and the international flights were cancelled due to the development of a medical emergency situation at the time period. Due to this reason a balanced plan is necessary for the organization that will be beneficial for the company in securing its post covid losses and ensure proper business stability. The organization has a long and traditional history and the company for retaining the traditional history has focused on a three-year plan that will be targeting FY2023 in order to engage in a cost cutting procedure for increasing profit margin and overall business revenue.
Improving the balance sheet will be a beneficial step which the company can take in order to improve the situation and develop their organisational financial condition as it has gone through a tough situation. Domestic and international flights have suffered greatly due to the closing of borders and declaration of international emergency which created a panic within the people. These have been massive issues which prove the urgency of the organisation to develop a proper structured and balanced plan in order to improve the business development process. As mentioned by Nastase et al. (2019), strategic business development helps in ensuring organisational financial stability through which a better business process can be constructed. It is necessary for international organisations to develop their business process for which they have developed a strategic balanced cost cutting plan which aims to deliver $650 million business revenue in one year. The main objective of the organisation has been increasing the domestic service through which string cash generation can occur.
Industry dynamics and the forces driving change
Industry Dynamics
The internal aviation industry has been suffering from a constant loss. It has been identified that an estimated 12400 aircrafts have been placed in storage and the international passenger revenue was down $314 billion (Aph.gov.au, 2021). The International Air Transport Association (IATA) made estimation that 75% of the members of the organization can be able to tackle their costs upto three months after which they can face a serious scarcity of cash. This has been a serious issue for the international aviation industry. With constant government lockdowns and sealing of the International borders it has been identified that the airline organisations have been facing serious financial issues in their business leading to suspension of international air travel.
Figure 1: International Air Transport Association impact assessment on the aviation Industry
(Source: Aph.gov.au, 2021)
However, after the vaccine development and international business growth, the Qantas Group is again trying to improve its business development and secure its financial stability. However, it is getting hard for the organisation to cope up with the big losses. As the number of passengers in the 2020 and 2021 has been comparatively considerably low, it has created a huge issue for the company in the current context. However, with the passage of time and the development of vaccines the international rules and regulations have been loosening up and the organization is thus aiming to improve its business process by following three main factors which are rightsizing, restructuring and recapitalisation (Qantasnewsroom.com.au, 2021). Depending upon these three strategies the company aims to improve its condition and increase its business revenue gathering to a beneficial extent.
Figure 2: Decrease in number of passengers of Qantas
(Source: Statista.com, 2021)
Forces Driving Change
Decrease in international and domestic flights
The sharp decline of passengers after the outbreak of covid-19 has created a major setback for the international aviation industry and Qantas Group has been also facing issues in domestic and international traveller shortage. Qantas had been greatly relying on its pandemic outbreak which had been prominent in the current time period. There has been a 15.33% decline of passengers in 2020 compared to 55.81% 2019 and in 2021 the number again decreased by a further 24.61% creating a massive issue for the company to continue its business process (Statista.com, 2021). This has been a great driving factor for the organisation to develop a constructive plan which can improve its business conditions by increasing profit margins.
Financial loss
The company went through a serious financial loss due to decline in passengers and various other factors. The company had an underlying tax loss of $1.85 billion and $2.4 billion statutory loss before tax (Qantas.com, 2021). This also has been a great driving force for the organisation, based on which the company is trying is focusing on three pillars of the plan which are delivering today, looking ahead and acting responsibly. The company thinks that through maintaining these three factors, a balanced change can be developed within the organisation which will ensure a better understanding in business development. Thus, increased financial loss will be a major factor in acting as a driving factor in business development.
Changes in international travel rules and regulation
After the development of their vaccines and easing of rules and regulations the international aviation industry has been targeting to develop and increase its operations within the domestic and the international markets. As per the new guidelines of the IATA, the ceasing of international borders has been lifted and travellers who have any medical emergency can engage in international or domestic travelling. The IATA has made a map based on which regular basis monitoring of countries Covid-19 rates will be done based on which the flight regulations will be maintained (Iatatravelcentre.com, 2021). The new rule set by IATA providing allowance for international travelling has been a major factor for the development of the travelling population. This will also be a driving factor for the organisation to construct the plan in a detailed manner with proper strategic concern.
Figure 1: Covid-19 Travel Regulations Map
(Source: Iatatravelcentre.com, 2021)
Company’s strengths and weaknesses in relation to the future market opportunities
Strength
Good brand value and market reputation
Qantas Airways has a good brand value as it has a history of serving people from the last 100 years. The organization tries to provide quality services to its customers through which it tries to achieve better customer satisfaction (Qantas.com, 2021). This is a positive factor for the organisation as the customer satisfaction rate of the organization is positive. Along with that, the organisation also has a productive market reputation as it provides quality service at a quite reasonable price. This has been an important factor for the organization that is creating a strong market presence in the Australian as well as global aviation industry.
Strong Infrastructure
Figure 2: Fleet Group of Qantas
(Source: Investor.qantas.com, 2021)
Qantas has a strong organizational presence which is prominent in creating a major understanding in business development. The organization has a previous brand image which is positive in gathering customers. Apart from that, the infrastructure of the organisation is positive and will be capable of handling the customers in an easeful manner like prior pandemic situations. The organization has announced that the prime factor that the organisation will maintain will be safety and security of its customers. The organization will take all the necessary initiatives for starting its operations after covid-19 pandemic based on which its customer satisfaction will improve.
Protective strategic plan
The strategic plan of the organization will be productive as the organization will be strategically planning for cost cutting and increasing equity which will be efficient for the organisation to ensure proper business practices. The board of directors after proper meetings and group discussion will be delivering the strategizing balancing plan which will secure the organizational position in the international market and ensure better financial stability. It has been identified that after developing the restructuring plan, business is expected to grow. The initial implementation of the plan has provided the organization $650 million in one year and a total liquidity rate of $3.8 billion (Qantasnewsroom.com.au, 2021). Thus, this strategic plan will be beneficial for the organization in capturing future business capabilities.
Weakness
Low profit from international flights
The low profits from the international flights has been an existing issue for the organisation as the company after being the flag carrier of Australia is facing tremendous pressure to operate in the international market for its limited ticket price and quality service. After being the flag carrier, the industry has been unable to gather high profits that are creating a major issue for the company in operating in the international markets.
Low capital strength after Covid-19
After the cvovid-19 pandemic, the capital strength of the company has been considerably low as the organization has not been able to attain a better profit margin. The organization's share at the advent of Covid-19 has been degraded to a major extent which decreased the capital strength of the organisation and coping with that in a short span of time will be a challenging factor for the organisation which the organisation has to focus on.
Figure 3: Drop of share prices of Qantas
(Source: Smh.com.au, 2021)
Description of situation based on 2025
The three-year plan which has been developed by Qantas Group will be beneficial for the organisation and it will guide proper recovery and increase the growth of the organisation in the changed market. After proper implementation of the three-year strategic balanced plan it can be identified that the costs will be reduced by $15 billion during the total 3-year period. After 2023 it can be estimated that 1 billion ongoing cost savings can be experienced by the organisation. As per the plan the organisation has aimed to focus on job cutting and storing of 100 aircrafts in grounded positions for at least 12 months. This will be a significant step for the organisation as the equity rate of the organisation will be raising up to $1.9 billion in terms of accelerating the recovery of business processes in the future market development areas. The main idea of the organisation will be rightsizing, restructuring and recapitalisation of its business process through which the organisation can develop itself and ensure proper business stability. The organisation is planning this by cutting the jobs of 15000 employees and reducing the workforce, which will be one of the beneficial steps in terms of saving cost (Qantasnewsroom.com.au, 2021).
On the contrary it can be expected that 15000 job cuts can create a negative impression on the organisations reputation as negative organisational culture can be developed where employees I will not feel secure to work for Qantas group. After judging this from an individual and unbiased perspective it can be identified that the organisation will face negative publicity in the international market and a bad impression will be generated towards the company. As stated by Kurdi et al. (2020), employee satisfaction within an organization can lower employee motivation and derogate organisational work culture. The organisation can face lack of employee satisfaction as sacking of 15000 employees' jobs may create a fear of losing jobs within the existing employees. The organisation after 2023 has to reappoint its old employees to ensure better image development of the organisation in the international market. The Qantas group has to focus on maintaining a positive organisational culture through which a productive workplace can be constructed.
Essential resources required by Qantas to maintain merger and acquisition status with its international partner Airlines
Finding the right partner and developing trust
Finding the right partner is necessary as trust development is a major issue in merger and acquisition. Qantas in order to develop a trusted partnership has to engage in proper communication development through which organizational trust development occurs. Ensuring organisational relationship is necessary for an organisation to maintain. According to Maung et al. (2019), partnership development in business is necessary in terms of securing long term trust within the organizational bodies. A strategic partnership for Qantas will be beneficial as the capital strength of the company at the current timeframe is low. The company if engaged in merger and acquisition will be able to gather better sales revenue as it will be efficient in gathering a better customer pool in the international Aviation industry. Partnering with travel booking organisations will be a productive option for the company as it will secure long term business stability for the company and increase profit margin to a greater extent. Make my Trip, Expedia, Go Ibibo or others can be a productive option for the company as this will increase the rate of customers of the company and secure the long-term profits for the company. The organization by following this step will enjoy a long-term benefit and the future stability in financial security will be secured. As stated by Thomas and Paul (2019), organizational communication is necessary in terms of understanding other partner’s the perspectives and securing business integrity. Thus, the organisation has to develop proper communication with the partnering organization through group board meetings and negotiations about the terms and conditions of business. It will be one of the efficient steps that will mark the success of the organization in the international perspective.
Fulfilling Legal and Governmental laws and regulations
Securing legal and government support is also an important factor prior to partnering. The organisation has to maintain proper rules and regulations for international partnership that will maintain organisational security to a major extent. Australian Corporations Act 2001, “Chapter 6”, “Part A” has to be maintained by an organisation when engaging in Merger and Acquisition. This will be an important factor for the organisation which will be efficient in ensuring organisational development. Qantas in order to develop its business process has to focus on maintaining the rule of the Australian Government. Apart from that, the organization also has to ensure the policies of ASIC Takeover Panel which will be beneficial for the companies that will ensure proper business development (Iclg.com, 2021). Qantas has to focus on these policies in order to ensure business sustainability for a longer period of time and avoid legal turmoil in the operating country.
The company also has to maintain Foreign Acquisitions and Takeover Act 1975 and Income Tax Assessment Act 1977 will also be necessary for Qantas as this will ensure the abiding of industry specific legislation in providing sustainability in the international aviation industry (Iclg.com, 2021). The organization already has a partnership with major airlines companies of the world like Emirates, American Airlines and others based on which it already has a stable industry specific brand value that will be helpful in securing a major understanding for the company in the international perspective. In this perspective, the organisation must abide by these legal factors, which will ensure proper business stability in the international market. It can be expected that the company will develop itself after the implementation of the three year strategic plan which will result in maintaining organizational stability in the international market.
Figure 4: Partnering airlines of Qantas
(Source: Qantas.com, 2021)
Conclusion
Thus, it can be concluded that strategic planning in business processes is necessary to secure long term stability in terms of financial strength. In the case of Qantas Group, the organisation has developed a three-year plan based on which it aims to decrease its operational costs and gather better profit development and increased sales revenue. It can be expected that the organisation will be able to successfully implement its three year plan and develop its business revenue growth however the organisation needs to concentrate on improvising the three year policy as it leads to the job cuts of 15,000 employees, which is regressive for the organisational reputation in the international aviation industry. Due to this reason, Qantas can concentrate on improvising its 3-year strategic plan based on which the company can attain a better business revenue growth with positive organisational culture and international reputation.
Reference List
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