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Qantas Airlines Business Report
Established in 1920, Qantas is the world’s 11th largest airline and the 2nd oldest. It was founded in the Queensland outback as the Queensland and Northern territory Aerial Service (QANTAS) Limited, by pioneer aviators Hudson Fysh, Paul McGinness and Fergus McMaster. Qantas was a former government owned business; it did not view profits or efficiency as its prime goal. In 1993 a 25% stake was sold to British Airways. Qantas was privatised in 1995 and has had to adopt management practices to overcome both internal and external influences and had to change its narrow-minded culture. Although Qantas is primarily a passenger airline, air freight is also an integral part of its core business. Other Qantas operations include catering, tourism and E-commerce devoted to transport and air travel.
Qantas has undertaken significant changes over the last decade to cope with internal and external factors such as the terrorist attacks on September 11, 2001 which effectively reduced the demand for international travel. Qantas initially reduced its international travel flying capacity by 11%. Fortunately, the collapse of Ansett which halted domestic competition in the Australian aviation industry which had dropped the bidding price war for consumer finances, softened the blow on September 12, 2001.
The source of change:
The factors that had caused Qantas to change were that Qantas had to become:
• A more competitive, efficient and profitable business with less competition in the domestic markets.
•Qantas had to pay taxes and levies paid by other business in Australia
• Qantas had to make an increased profit and pay a dividend to its shareholders which increased over the years of management
The main factors, which caused Qantas to change was that, the business was under government ownership until 1995, with a classical/scientific management structure. Meaning the business maintained a:
• A strict hierarchical organizational structure
• Clear lines of communication and responsibility
• Jobs broken down into simple tasks; division of labor and specialization
• Strict rules and procedures
• Impersonal evaluation of employee performance to avoid favoritism and bias
• Formal record keeping
Also Qantas was running with an autocratic leadership style meaning autocratic managers like to make all the important decisions and closely supervise and control workers. Managers do not trust workers and simply give orders (one-way communication) that they expect to be obeyed. This approach derives from the views of Taylor as to how to motivate workers and relates to McGregor’s theory X view of workers. This approach has limitations but it can be effective in certain situations. For example:
• When quick decisions are needed in a company (e.g. in a time of crises)
• When controlling large numbers of low skilled workers.
Qantas also possessed a long chain of command, lack of financial accountability to it government owners, and had a top down communication style.
The nature of change:
As a result Qantas had to change management practices, be more efficient, competitive and profitable.
Qantas changed management practices following domestic airline regulation in 1991 and privatisation in 1995. The aim was to become more: competitive, efficient and profitable. Major changes were initiated that led to:
• Flattened management structure to create a more worker friendly environment and establish a shorter and more efficient line/s of communication and a wider span of control within the organization.
• Increased flexibility and communication
• Increased training, multiskilling and the development of work teams
• Participative approach to change and employment relations
• Eradication of inefficient work practices
• Placement of executives on performance contracts
• Introduction of new technology
The following page displays the new flatter management structure:
(Source from Qantas.com.au)
Qantas management now exhibits elements of a range of modern management theories such as:
• Greater emphasis on human resource management
• A more democratic style of management where employees have more input into decision making.
• A stronger sense of leadership who possesses directorial characteristics
• Focus on managers using power and influence to achieve their goals.
• Balancing the interests of competing stakeholder groups.
• Management practices at Qantas are more flexible and adapted to suit challenges in society such as the reaction to terrorism, the introduction of viral disease and the ever changing market and customer requirements.
The outcomes of the changes saw a more effective/ more efficient management structure, allowing Qantas to deal with changes in the internal and external business environment more effectively.
How the change was managed:
Challenges that required managers to react and ensure that changed occurred was the event of September 11, which caused:
• A catastrophic industry crisis as 200 000 staff were cut in the world aviation industry.
• Qantas had lost 11% of its international air traffic and profits fell by $300 million.
Also the collapse of Ansett, which:
Qantas capitalized on by increasing its domestic share of the market from 55% to approximately 80%. Qantas management had effectively filled the gap left by Ansett by moving planes from the depressed international routes to the company’s expanded domestic market and by leasing planes from overseas to expand its aircraft fleet by 15%/ .
Qantas also reduced costs by
• Downsizing 600 staff and the purchase of more efficient aircraft
• Lobbying government for protection
• Outsourcing maintenance of its fleet overseas (Thailand)
• Relocation of planes from international to expanding domestic market
• Considering of selling catering operations
• Sale and lease back of terminals
Qantas also had technological improvements, which included:
• Flight update information using SMS to business travelers
• $300 million in-flight entertainment system
• $10 million passenger screening and anti-terrorism system
These are examples of external and internal challenges that have demanded new responses and strategies from Qantas management.
How management ensured change occurred:
Qantas management has responded to change by implementing their new business goal: to become a more competitive, efficient and profitable business and modifying its business structure through the use of outsourcing; a flatter business structure and entering into strategic alliances. The management needed to take both internal and external influences into consideration to ensure the changed was implemented with minimal resistance to such change.
Qantas has increasingly looked to outsourcing (i.e. contracting out business operations to outside suppliers), to become more cost effective and to simplify its business.
A clear example of this is when Qantas spent $14 million in sending seven of its Boeing 767 fleet to Singapore in 2002 for maintenance following three sent in October 2001.
However, there are a number of challenges that have presented themselves and have made Qantas difficult to carry out change in the workplace. A major concern was the financial costs involved. To maintain its position in the global market, Qantas needed to spend $13 billion over the 10 years on new and more efficient planes, upgrades to its current fleet, fit-outs, in flight entertainment and improved terminals.
To spend such finances, Qantas announced in July 2003 that it will reduce its capital expenditure in 2003-4 and it will also delay of some of the new planes it has committed to purchase over the 4 following years.
Then there is also the issue of redundancy payments. Labour accounts for 30% of Qantas’s total costs. As part of its plans to reduce costs Qantas announced in April 2003 that 2000 positions would be made redundant, a further 800 would be lost by attrition and 400 to 600 full time jobs would be made part-time.
Any significant change at Qantas requires staff to learn new skills especially when new technology is introduced. This raised the cost of training and retraining staff. To cope with retraining, Qantas ran a three week training course in service skills and cultures for its flight crew before the launch of its new airline Australian airlines in October 2002. Then in 2003 Qantas developed and implemented new security training for all in-flight and cabin crew.
As it can be concluded, Qantas Management allowed a phased conversion for its old system to its new management style and structure to ensure it was implemented with minimal resistance.
Social and ethical responsibilities of managers:
Qantas is one of the top airlines worldwide and has an enviable air safety record, and the businesses social and ethical responsibility is to revise mission statement and objectives.
The mission statement is essential to the planning process because it explains why the business exists. Any change needs to clearly communicated to all stakeholders, employees, customers, suppliers and interest groups. Any change in the business environment will result in a revising of the strategic objectives, which are used in as a basis for operational and tactical activities.
Managers have to revise the social and ethical responsibilities before a change can occur to make sure that the change will be:
• Ecologically sustainable: which means that there is no negative effect on the environment.
• Quality of working life: where employees are well being considered in the changing process, which means that the change has to benefit all people part of the business.
• Technology: where employees have to be trained to use new technology
• Globalisation: which brings responsibilities to the wider community and is concerned with not abusing the rights of people in other countries.
• E-commerce: This involves responsibility relating to trust in the community.
Effectiveness of the Change:
Considering Qantas’s somewhat turbulent past, Qantas management has done a great job managing change effectively and fairly. As a direct result of effectively implementing change, Qantas has become one of the most profitable airlines in the global market. With such extensive change, Qantas could have easily encountered problems with maintaining its profitability.
The change has been effective for Qantas because:
• There was pressure to change
• A clear vision was identified and communicated clearly by senior staff
• Resources were made available for change to occur
• Employees were encouraged to change
• Change was reinforced
• Change constantly evaluated and improved
However, as stated in the “Qantas Business Case Study” (Tim Riley Publications 2004)
Over time Qantas needs to continue to make some changes to ensure its survival. Such change includes:
• Accelerating plans to overhaul the company’s business model by establishing eight stand alone business segments.
• Ensuring that staff morale foes not fall and goodwill is managed.
• Reducing fleet complexity and spending finances on a newer fleet
• Expanding its travel, catering and freight divisions
• Seek mutually beneficial partnerships with other quality airlines.
• Segmenting its flying business to align costs and revenues in particular markets.