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The first is the cost of running the airlines itself. An aircraft requires whole crews of engineers to maintain its functionality. And then there’s the market. Competition comes from various international airlines, each offering a different route and different types of services. Those two factors comes to a conclusion: Any airlines who can offer less in terms of ticket pricing will win the market. This causes a new trend within the industry: The Low Cost Carriers. The new trend is highly popular for the new players who seeks to break into the Industry.
By offering a price that is less than the current popular or flagship airlines, these new he domestic market of a country, using the country tourism as part of its marketing strategy. This creates a distortion within the airline industry. Other “full cost” airlines had no choice but to drop their prices or create a new branches that cater to that market segment in order to compete. It has not been a good year for Santa. The Airline has claimed its first quarter loss. The timing of the loss comes as very odd, as the first quarter is usually the time they make their profit. Competition is also a huge problem for Santa.
Its on-going capacity and price war with Virgin Blue is making he airline slumped even more. The airline isn’t always this capped and underwhelming. In its heyday the airline brokered many partnership for its benefit. Despite that it still brokered a partnership with Emirates which cost them their European routes. And there is also the matter of the Santa Sales Act. This act has a single purpose, to keep the airline “Australian”. It capped the foreign ownership of the airline by 49%, Relegating 35% of the airline share for public but restricting a single foreign owner to a 25% share. Wisped). This limits them in terms of gaining new investors and a bigger capital. Virgin Blue on the other hand, holds only 25% of its own shares allowing many transnational industry player to hold a bigger stake in their company in turn giving them more access to more capital. This helps virgin blue to gain more to the domestic markets segment and of course by using the Australian domestic tourism, the low prices that they are offering attracts more customers. Santa can still rise from this situation. Consumer power is really high in this business.
If Santa wants to regain its domestic customer, they may have to consider repealing the Sales act imposed on them, giving them the probability of attaining a egger sum of Capital. Good decision and management making also comes in handy. Most of their trade agreement should be revised. For example, the Emirates partnership. The partnership has gained Santa name a larger scope upon the Europe route via Dublin hub but there are always other ways to do that without losing their grip on the direct European routes. (Australian Business Traveler. 2013).
Alan Joyce is a capable leader, but perhaps instead of new uniforms he should be looking at other segment of travel, for example, the religious segment. Over 3 million Muslim people each year make their pilgrimage to Mecca, a segment like that is most likely profitable in a way. By doing so, perhaps they can be what Santa is destined to be: A Strong Australian Airliner. Introduction Australia is unlike other nation. It is a whole country consisted of a whole continents. It is divided by six states and two major territories. Its cities are far apart.
It has a plethora of natural and commercial tourism cite. A perfect continent for the airline industry. The Queensland and North Territory Aerial Services or commonly known as “Santa”, is Australia’s oldest and largest airline. According to Wisped, the airline was founded on November 16th, 1920 by Paul McGinnis, Hudson Fish, Versus Master, and Arthur Braid. Back then, the airline’s original duty was to send mail and linking railheads throughout Australian territory (Wisped)l . The airline’s operation was subsidized by the Australian government, making it Australia’s Flag carrier.
Soon the airline turns itself to focus more on commercial purposes and which caps Quanta’s foreign ownership to 49%. This is done in order to keep Santa internally Australian. But In recent years, the airline has gotten into some troubles. This essay included the analysis of the trouble that Santa is going through and a few recommendation. Analysis Players Santa One of the oldest airline in the world. Founded in 1920, it is Australia’s flag carrier airline. Santa is based in Mascot, Sydney, New South Wales. Current CEO Alan Joyce.
Virgin Australia Santa’ main competitor. Part of Sir Richard Abrasion’s Virgin brand. Founded in 2000 as Virgin blue, this airline has successfully transformed itself from a backpacker airline to an international airlines. Current CEO is John Brochette, a veteran of Santa. Industry The Airline industry is the provider of long range transportation. It’s market consists of many segments. For example, the leisure traveler and the business traveler segment. Pricing and routes are affected daily by many global condition and economic situation. The best example is fuel prices.
At current prices (with Brent crude at about SUDS 1 5), Jet fuel prices are close to the tipping point for airline profitability and, while limited fuel surcharges may hold, it is doubtful the market is sufficiently resilient to absorb much more in the way of higher fares. The double impact will translate quickly to the bottom line. Price increases unfortunately stimulate an almost inverse correlation relationship, where costs increase on one side and yields soften as discretionary spending slows. (Airliner’s. Com, 2013). This means that when Jet fuel cost rises, the ticket price rises and the demand to fly goes down.
Five Forces Analysis Threat of Substitution Today’s modern technology allows us to eliminate distances. International meetings can be less costly by using today’s video conference technology. Though the human presence factor is still considered a prestige and at times a direct hands on action is added, some of today’s industry prefer the less costly technology alternatives. Threat of New Entrance 2 decades ago, it is more costly to fly than it is today. The picture above shows ticket prices from 1979 to 2011. A lot of factor contributes to this. Low Cost airline business model is one of them.
This model originates from the southwestern airline model. An American low cost airline that has recorded a 31 year long profit. The model introduces 3 methods to reduce cost: ; Flying Just one aircraft type – to cut down on training and maintenance costs. ; Using smaller, less congested airports – to avoid schedule disruptions caused by multiple aircraft demands. ; Eliminating meal service and seating assignments – to allow aircraft to be turned Some players like the Indonesian run, Lion Air even uses second hand aircraft in order to cut cost.
This model trends allows new players to enter the business without the usual cost constraints. So the threat of new entrance is quite high. The Power Of Buyer The airline industry is the single provider of air transportation. It has no single large client so the power of buyer is really low. E. G Buyer can’t decide whether the flight will provide meal during the flight or not. The Power Of Supplier If the airline only uses one aircraft then the power of supplier will be high. Those who have chosen to use the low cost model will be in this list.
But this can be counter acted by choosing more airplane provider in order to get a better deal. Competitive rivalry in the airline industry is at an all-time high. By utilizing means like buying an established airline’s fleet of secondary planes, new players are emerging from everywhere. But this business is still heavily governed by Jet fuel cost. In order to counter this, one of the industry players, Virgin Australia has started to look for alternative energy produced from biomass (frustratingly. Co. AU, 2012) There are currently two major players in the Australian Market.
Santa and Virgin Blue or Virgin Australia. Both are competing for domestic and international flights. Virgin successfully transform itself from backpacker airline to a business airline. Simple strategies like providing free food on select flight has made it a choice for Australian people when it comes to domestic travels (telegrapher. Com. 2013)4 . Santa on the other hand is struggling to keep the airline’s 65% market share (which is now at 64%) (SMS. Com, 2013)5. In order to compete with Virgin air, Santa acquired Impulse airline and created the Starters Brand, a low cost alternative based on Melbourne.
Currently Santa is trying to defend the airline domestic market share of 65% from its fast growing rival, Virgin Australia. But this seems futile because of a few factors. 1. Santa is bound by the Santa sales act. It purpose is to privative Santa. It state how Santa shares are sold and limits the foreign ownership of the company thus limiting its access to a bigger capital sum. On the other hand virgin Australia is not limiting itself to such boundaries. It only hold 25% control shares in its own company. Thus allowing foreign nationals and international airlines to invest in their share, making partnerships easier as well. . Santa act also retains that Sydney is the default base of operation. Sydney location is none advantageous compared to say Perth or Darwin. The fact that Santa does not have any direct flights to South America further cripples the airlines base. Currently the CEO of Santa, Alan Joyce is still lobbying the government to level the playing field with virgin. By doing this Joyce hopes to repeal the Santa sales act allowing the airline to chive more capital and smoothing its advance in the international and domestic markets. ( http://blobs. Cricket. Com. U/, 2014) Competition for Santa comes from various places and nationals. One of them is virgin Australia airlines. The airline is taking over Australian domestic market by storm. The airline comes from a low cost CEO of Virgin airlines. It took a huge risk by planning an overhaul to make virgin an executive carrier by adding a lot of amenities that a flagship airline has like a first class facility and meal options. This risk pays off because of the current timing. In 2011, Santa decided to ground their whole fleet due to conflict interest between the government and trade worker union. (Heralds. Mom, 2013) This prompts the customer to look for an alternative resulting in a modest success for Virgin Australia. At first Santa tries to compete with virgin’s domestic route by acquiring impulse airlines. Santa rebreeds them into Starters airways. But this endeavor started a bit late and confidence for the new brand is already low at best. Public opinion comparing the airline service to it’s competitor is also one of the factor that brings his brand down (Extend, 2003). Santa is a household name in the world. It is one of the oldest airlines in the world. The name Santa alone brings prestige.
But the limitation imposed by the government is not helping the airline to compete in this economic climate. If any it only further the competitions effort to thwart the domestic market off Santa. The Santa sales act ensures that Santa is still in the Australian government reach of control. Of course The act has its benefits. Santa is entitled for a bailout and a survival plan. But what company in the world hopes solely on a survival plan? Repealing the act would have increase the risk, but with good management and more innovation like new routes Santa should run Just fine.
Santa should reconsider their position as the nation’s flag carrier, it is symbol as an international connection. But more importantly as a symbol of the Australian people. It doesn’t matter where you place the base of operation Santa. It doesn’t have to be Sydney. It can be Darwin, Papua new guanine or Singapore. So long as it is strategic and complies with today’s trend. Or at least if Santa really still wants to make Sydney a hub, it should tart to consider the possibility of many other segments.
For example, the South American direct carrier route. Another example is entering the religious traveler segment. This is supported by the fact that each year millions of people goes to pilgrimage to their respective place of faith. Conclusion For a big airline like Santa there are always challenges. Fuel prices and market competition to name a few. But overcoming these challenges is key to bettering the airline and creating a business model that suits the economic climate. The airline industry is a business that follows and creates trends.
If Santa wants to succeed, the airline should spend more time observing and adapting(after a period of research of course) the trends. The government will always support big businesses like these. But knowing the current competition they should reconsider Santa Airlines woes with the sales act. Repealing or revising it will do Santa a lot of good. Santa CEO Alan Joyce should also reconsider a lot of things before investing to some marketing ploy(e. G new uniforms) instead focusing on the real macro items like route management and maybe fuel alternative, eliminating it’s dependencies on crude