Airline Industry: Jetstar Airways Case Analysis

Based on the organisation that you have selected, you are required to describe the organisation’s mission, describe and classify the organisation’s strategy, and identify its? value proposition and core competencies. Using Porters Five Forces Framework illustrate these five forces for your organisation, and provide brief comments on how these forces they influence your organisation’s profit potential. Using the Balanced Scorecard as a contemporary performance measurement framework, evaluate the current financial and non-financial measures that your organisation uses.

Based on your evaluation, indicate in your opinion, the extent to which the strategies have been implemented, and make recommendations concerning additional areas (with some examples of performance measures) that your organisation could include in their Balanced Scorecard. Airline industry is very competitive as Jetstar isn’t the only Domestic Flight dominating the market. Porter’s Five- Forces Model is used to analyse the intensity and profitability of this industry.

In order to illustrate Jetstar’s competitive advantage over its competitors, Porter’s Five Forces evaluation is assessed below. Porter’s Five Forces model is essential to evaluate Jetstar Airways’ competitive advantage as it was established in 2003 as a low-cost airline by its parent company- Qantas. Explicitly in response to the threat posed by its competitor- budget airline- Virgin Blue (Jetstar Airways 2009). Intense rivalry within an industry Risk to Jetstar is High The competition in the airline industry takes the form of association rivalry as well as individual airlines competing in markets where Jetstar is at hand.

As mentioned, Jetstar was established by Qantas in response to introduction of another low- budget airline, Virgin Blue Airlines, so it was inevitable that they would soon be challenged by a novel addition to the low-cost airline industry. Tiger airlines were introduced in 2004 and now intend to take over Jetstar’s main Melbourne-Sydney route by planning to increase daily return flights between Melbourne –Sydney from four to nine

(Platt 2009). Tiger airlines introduction has inescapably threatened Jetstar’s future revenue, so much so that Qantas chief executive Alan Joyce said that “Jetstar was seeing that, so to be competitive at the leisure end we believed Jetstar needed to have direct Melbourne Tullamarine to Sydney services complementing its Avalon operations, assuring that profitable market stays with the group and it’s not lost to our low-cost competitors? (Creedy 2009). Threat of New Entry Low to Moderate A new entrant means competitor undermining the profits (Aarons, Waalewijn, 1999, pg4) of Jetstar, which is an established business.

Therefore, threat in the future for Jetstar is determined by present barriers to entry. The biggest factor that prevents a newcomer entry in this industry is the cost of entry. The airline industry is one of the most expensive industries, due to the cost of buying and leasing aircrafts, safety and security measures, customer service and manpower (http://www. investopedia. com/features/industryhandbook/airline. asp, March 25, 2011).

Other factors include high capital cost and government restrictions. Deregulation of the Australian Domestic airline market and realisation of Virgin Blue taking over the Domestic Market helped the formation of Jetstar in 2004 which was followed by birth of Tiger Airways in 2007. Introduction of Jetstar as a Cost- Leader into this market resulted in cut in market share for Virgin Blue with added competition, proving how the market could react with a new entrant every time, thus a major constraint on profitability for the industry. Bargaining power of suppliers

Low to High Bargaining power of suppliers varies from supplier to supplier in an Airline Industry. The bargaining power of suppliers depends on supplier concentration, substitute supplies, switching costs, threat of forward integration and buyer information (http://www. unisanet. unisa. edu. au, March 25, 2011). Suppliers vary from concentrated suppliers like Boeing and Airbus, to broad range of food provider on board and plane fuel provider. Boeing and Airbus hold high bargaining power in an airline industry being the main suppliers of planes itself (http://www.unisanet. unisa. edu. au, March 25 2011).

These supplier’s dominance in this industry undermines Jetstar’s and all other airlines to exercise control over suppliers and earn higher profits. As a result, these plane suppliers have upper hand in negotiating the aircraft prices. However, other suppliers who work with the airlines such as providers of on board snacks do not have the same bargaining power as they are a large industry which allows Jetstar to have a choice over who they are purchasing from.

Evidently, Jetstar will purchase their on board snacks from the supplier which is the most economic so that jetstar can make higher profits as their costs decrease. This indicates Low bargaining power of suppliers. IF WE CAN TALK ABOUT FUEL PROVIDER? AND SAY HOW FUEL PRICE RISE CANT BE CONTROLLED BY AIRLINE INDUSTRY TO THAT EXTENT AND ITS INCREASE IS EVIDENT IN PRICE INCREASE. Bargaining power of Buyers Moderate to High When discussing the Australian Domestic airline industry, airlines like Jetstar, Virgin Blue and Tiger Airways are fighting for same customers.

Thus, buyer’s bargaining power affects airlines’ competitive position in the industry (Porter, 1998, p. 48). Also it is quite noticeable that due to the expansion of e-commerce and increased online service, consumers are aware of the prices being charged and compare costs more readily through the use of websites like www. cheapflights. com. au, gives the consumers a greater bargaining power than ever in the airline industry.

Due to price sensitivity of the travellers, it has inevitably forced Jetstar to push their prices down in order to compete with “no-frills” and “budget” airlines such as Virgin Blue. Also, by prioritising the consumers, Jetstar saw that low fares stimulate the potential market with the successful pull effect and therefore Jetstar is able to increase fares to meet with the increase in demand. Threat of Substitutes The availability and threat of substitutes is another factor that can affect competition within the airline industry.

It refers to the likelihood that customers may switch to another product or service that performs similar functions (Stahl, M, Grigsby D 1997, pg 145). Substitutes for air travel include travelling by train, bus or car to the desired destination. The degree of this threat depends on various factors such as money, convenience, time and personal preference of travellers. The competition from substitutes is affected by the ease of with which buyers can change over to a substitute.

A key consideration is usually the buyers switching costs, however due to their low fare non-stop flights, Virgin Blue, Jetstar and Tiger airways can lure both price sensitive and convenience oriented travellers away from these substitutes. Virgin Blue has actually joined forces with its substitutes, such as car rentals and hotel and tour packages as they believe that these complement the Airline Industry by helping its growth and popularity. No other travel industry has such incentives and these really help the airline industry to a large extent