Top-Down Analysis of Australian Airline Industry

5AUSTRALIAN AIRLINE INDUSTRY

Top-Down Analysis of Australian Airline Industry

Top-Down Analysis of Australian Airline Industry

Like any other sectors of the economy, the airline industry in Australia has affected by many changes taking place in its economic environment. The Australian aviation industry has been very sensitive to local and international economic changes. To adjust to changes, small and big industry players such as Virgin Australian airline and Qantas were forced to evaluate their pricing and business models to suit customers’ evolving market wants in various economic conditions. The report analyses top down and down up analysis of Australian airline industry with the focus on two airlines namely Quanta airway and Virgin Australian airway operating in the country (Kain & Webb 2013).

According to Kain & Webb (2013), Virgin is an airline company operating in various continents such as Australia, Asia, Europe, and America. Quanta airway is a public company with operations in many continents such as Australia and New Zealand. The company also operates in the United States and the United Kingdom. Nand, Singh & Power (2013) adds that the two companies get revenues from the airline industry and hence any fundamental changes can affect how they operate in the market. Both provides employment for thousands of people and contributes significantly to the industry. Quantas is the most dominant with markets of over 60%. The Australian airline is reported to be over $12 billion internationally but in the domestic context, it is said to be over $12 billion.

Top-down Analysis

Top-down analysis of the aviation industry focuses on how the industry affected some of the major players such as Quanta and Virgin in Australia. Economy factors across the world are some of the major catalysts for the industry growth. In assessing how the airlines have performed and effect on the players, it is paramount to look at some economic indicators. These indicators are like gross domestic product (or GDP), the interest rate in the industry, the disposable income of the consumers and others. Interest rate as fluctuated in the decade and this has impacted players like Qantas and Virgin airlines profitability (Nand, et al. 2013)

Throughout financial crisis experienced in the world, the aviation industry has defied the global trends in terms of profit and market growth. The market has significantly grown due to increased corporate travel. The GDP of the airline is more than AUD1 billion and serves more than 20 million passengers (Nand, et al. 2013). In the last decade, the companies realized excess profits. However, all players including Qantas and Virgin have been forced to rethink their strategy due to the effects of the global financial crisis. One of the strategies is rebranding to remain competitive in the market (Sarina & Lansbury 2013).

Due to the economic effect, the leading Virgin Australia and Qantas realigned for competition to expand the market and fight the market dominance of others. The first strategy includes Qantas applying capacity brakes and seats by Qantas amongst other strategies. The effects were as a result of cloud ashes in the country, low income among likely consumers and rise in fuel jets. However, despite these enormous challenges, the industry is expected to grow in the coming years due to growth in the consumer base (Sarina & Lansbury 2013).

Summary Recommendation

According to the report, the airline industries across the world have in one way been affected by the economic meltdown in the world. The Australian airline is not an exception to this ripple effect. In the domestic market, the industry has also been grossly affected due to the rise of fuel jets and natural catastrophes such as ash cloud. These national and international factors have had effects on some of the major players such as Qantas and Virgin Airways. As such, they have been forced to rethink the market strategies to stay competitive in the market. These reveals how the industry has an effect on the primary player’s performance and that change in the economic fundamentals has lasting repercussions in the market.

As such, the paper makes some recommendations on what should be done. To avoid ripple effects to the players the government can intervene to soften the situation. In the case of an economic crisis, the government of Australia should exempt the taxes paid by the industry to cushion them from economic shocks. For example, jet fuel should be tax exempted to make it cheaper and affordable to the airways. This will make it possible for the firm to charge fair prices to the consumers. On the other hand, there is a need to encourage other to enter the market to inject competition. When there are dominant companies like Qantas and Virgin, they have the power to determine prices making consumers less potent. In the opposite case, it will make customers more powerful when it comes to price determination.

Conclusion

In conclusion, the global economic environment is so much connected. The effect on the economy is felt across the world. This further goes affect the major players and lastly the consumers. The Australian industry has been hit by the rise in jet fuels and global economic crises. This further affects the company’s level of competition and market strategy. To avoid such circumstances the government can step in to cushion the consumers from any effects such as tax exemption and further deregulation of the industry amongst other things.

References

Ashwini Nand, A., Singh, P.J. and Power, D., 2013. Testing an integrated model of operations capabilities: an empirical study of Australian airlines. International Journal of Operations & Production Management33(7), pp.887-911.

Kain, J. and Webb, R., 2003. Turbulent Times: Australian Airline Industry Issues 2003. Information and Research Services, Department of the Parliamentary Library.

Sarina, T. and Lansbury, R.D., 2013. Flying high and low? Strategic choice and employment relations in Qantas and Jetstar. Asia Pacific Journal of Human Resources51(4), pp.437-453.