External Environment Analysis of Qantas Airlines

This report purposes to conduct an analysis of external environment of selected Australian organization i.e. Qantas Airlines. It focuses on finding out different external factors and their impact on the company’s operations and performance. To assess these factors, two of the major strategic frameworks are used i.e. PESTLE analysis and Porter’s Five Forces Model.

Running Head: BUSINESS ENVIRONMENT 1
BUSINESS ENVIRONMENT

BUSINESS ENVIRONMENT 2
Executive Summary
This report purposes to conduct an analysis of external environment of selected Australian
organization i.e. Qantas Airlines. It focuses on finding out different external factors and their
impact on the company’s operations and performance. To assess these factors, two of the major
strategic frameworks are used i.e. PESTLE analysis and Porter’s Five Forces Model. By using
PESTLE analysis, six external aspects are identified i.e. political, economic, sociocultural,
technology, environment, and legal. These are the external factors which have significant impact
on the operations and activities of Qantas Airlines. Moreover, five forces of Porter are used to
analyze the extent of competition, bargaining power of supplier, bargaining power of buyer,
threat of substitutes and threat of new entrants.

BUSINESS ENVIRONMENT 3
Table of Contents
1.................................................................................................................................................Introduction
.................................................................................................................................................................... 4
2. PESTLE Analysis....................................................................................................................................4
2.1 Political Factors..................................................................................................................................4
2.2 Economic Factors...............................................................................................................................5
2.3 Social Factors.....................................................................................................................................5
2.4 Technological Factors........................................................................................................................5
2.5 Legal Factors......................................................................................................................................6
2.6 Environmental Factors.......................................................................................................................6
3. Porter’s Five Forces Analysis................................................................................................................6
3.1 Competitive Rivalry (High)...........................................................................................................6
3.2 Bargaining Power of Suppliers (High)..........................................................................................6
3.3 Bargaining Power of Buyers.........................................................................................................7
3.4 Threats of New Entrants (Low)....................................................................................................7
3.5 Threats of Substitutes..................................................................................................................7
4. Conclusion...........................................................................................................................................7
References...................................................................................................................................................9

BUSINESS ENVIRONMENT 4
1. Introduction
The external environment is composed of outside influences and factors which effect the
business operations of a company. One cannot deny the effects of these external forces on
business activities so it is very important for the companies to have knowledge about the
potential factors. The major objective of this report is to analyze the external environment of
chosen organization i.e. Qantas Airways. Qantas Airlines is an Australian flag carrier and it is the
largest airline of Australia by fleet size, international destinations and international flights. The
organization has started its operations in the year 1920 in Australia. After Avinaca and KLM,
this is the 3rd oldest airline in the global airline industry (Qantas Airlines, 2018). Having been
established in 1920, it started its international flights in the year 1935. The major subsidiaries of
this airline are such as Jetstar Airways, QantasLink, Qantas Holidays, Express Ground Handling,
Q Catering, Snap Fresh, Qantas Freight and Qantas Ground Services.
In this report, two frameworks i.e. PESTLE analysis and Porter’s Five Forces analysis are used
in order to evaluate the external environment of Qantas Airlines. The factors of both tools
determine the external factors and their impact on the performance of Qantas Airlines.
2. PESTLE Analysis
PESTLE analysis is a strategic tool that is used to analyze different external factors which can
affect the business operations of a company. It may include evaluating the country related
factors. The PESTLE analysis of Qantas is conducted below:
2.1 Political Factors
Political aspects play a significant part in performance of any airline company. Mainly, these
factors indicate the effect of government and its decisions over the performance of company. In
respect of Qantas, it can be stated that this company has confronted various issues due to
government initiatives across many regions (Head & Crowley, 2015). For instance, it got
impacted by the instability in the politics in Middle East location. Moreover, Political issues in
Bangkok have impacted the company’s operations due to which it is unable to generate enough
revenues from this region. In Australia, Qantas has enough support from Australian government

BUSINESS ENVIRONMENT 5
that assisted the organization to revive its partnership with different carriers like Qatar Airways,
Emirates Airlines etc. all over the world (Forsyth, 2016).
2.2 Economic Factors
The economic factors also have significant effect on the growth and operations of Qantas.
Decline in economic performance of this nation has affected company’s performance
significantly. For example, Australian economy has faced recession that has declined the per
capita income of population severely which has resulted in lower demands for airline services.
The airline has confronted the issue of lower demand and it can be seen by looking at decreasing
revenues over past few years and it has experienced huge losses (Fu, Lijesen & Oum, 2006). In
the future, Qantas will be a growing airline as economy of country has been improved now and
has the GDP of A$1.69 trillion as of 2017.
2.3 Social Factors
There are various social and cultural factors which are impacting the performance of Qantas on a
significant level. Due to growth of economy, number of people is using airline services to fly to
their holiday destinations. The major fact that has affected its operations is that there is higher
acceptance of lower costs of air travelling services among customers. It has adverse impact
because Qantas Airlines is offering its airline services on premium prices (Madhavaram, Hunt, &
Bicen, 2017).
2.4 Technological Factors
Development in technologies has created both opportunities and threats for the airline industry.
Development in communication and information technologies has allowed strong
communication and it has thus provided the customers with an option for frequent travelling such
as Frequent Flyer program of Qantas. Moreover, the company has various benefits due to up
gradation in technologies as people are able to book the tickets using online reservation system.
In this way, advancement in technology has allowed Qantas to improve its airline services and
offering very convenient services to its travellers (Starkie, 2016).
2.5 Legal Factors
This is one of the most significant factors for Qantas Airlines. The government and authorities in
Australia have imposed various laws and regulations for customers and employees such and
health and safety regulations, employment laws and hygiene rules (Sarina & Wright, 2015). The

BUSINESS ENVIRONMENT 6
company is complying with all the rules and regulations which are imposed by government on
aviation industry. The major legal aspect that affects Qantas performance is the carbon tax that
needs to be paid by firm.
2.6 Environmental Factors
In this context, emissions of airplanes have huge effect on environment and natural resources as
they run many kilometers above earth’s surface. Due to this, the company has taken various
initiatives and it has aimed to attain reduction of its pollutant emissions by 50% till the year 2050
(Roy Morgan, 2017). In Australia, airline authorities and regulatory bodies have imposed
different regulations so that they can deal with environmental ineffectiveness on the side of
airlines.
3. Porter’s Five Forces Analysis
Porter’s five forces analysis is a strategic model that is used to analyze the industry specific
factors in external environment which have impact on the performance and growth of company.
In context of Qantas, the analysis is conducted below:
3.1 Competitive Rivalry (High)
In Australia, the airline industry is among most competitive industries with various airlines to the
similar destinations. The company is directly competing with Virgin Airlines in Australian
market and rivalry is so intense. The major reason behind this rivalry is that other airlines like
Virgin is offering services on cheaper prices than Qantas. It has affected the revenues and profits
of this airline company. In order to respond this, Qantas introduced Jetstar so that it can serve a
larger population that is looking for lower fared airlines (Duval, 2016).
3.2 Bargaining Power of Suppliers (High)
The bargaining power of suppliers is very high in Australian airline industry. Aircraft suppliers
have most power as there are two major suppliers of aircrafts i.e. Airbus and Boeing. This is the
reason that Qantas cannot negotiate on the terms and prices of aircrafts. Qantas is totally reliant
on the prices of oil and fuel for its profits that indicates higher bargaining power of suppliers o
these materials (Roy Morgan, 2017). The company is making huge capital investment in the
purchasing fuel and oil from suppliers. In aviation industry, suppliers operate in competitive
scenario with many airlines which provide similar services to their targeted population.

BUSINESS ENVIRONMENT 7
3.3 Bargaining Power of Buyers
Bargaining power of buyers is higher in aviation industry as they have various alternatives to
choose from such as low cost airline services, premium airline services and others. In Australia,
there are many service providers which provide these services that enhance the purchasing power
of customers. They are free to choose airline services which provide the best value for their
money. As customers’ switching costs is low so that bargaining power of customers is high
(Kaynak & Kucukemiroglu, 2015).
3.4 Threats of New Entrants (Low)
In airline industry, threat of new entrants is lower as there are high entry barriers. The new
players need to make huge capital investment in infrastructure. For new entrants, it is very
difficult to set up airline business. In combination with the low profit margins and price wars, it
is difficult to generate substantial revenues. Another entry barrier is the restricted availability of
landing spaces in Australian airports.
3.5 Threats of Substitutes
Threat of substitutes is moderate in airline industry as there are various services which can
replace the significance of airline services. There are many options in terms of longer distance
journey like trains, cars and boats. These alternatives are cheaper than airlines. Apart from this,
some of the travellers consider that air travelling mode is faster way for longer distances that are
not possible through water or road transport. This is the reason that threat of substitutes is
moderate for Qantas in Australian airline industry (Starkie, 2016).
4. Conclusion
In the limelight of above discussion, it can be concluded that Qantas is operating its business
operations in a favorable external environment. In above analysis, PESTLE analysis indicates
that this company is facing political issues and instability in some of its regions. It has affected
the revenue generation potential of Qantas. Economic growth of country is profitable for the
development of Qantas in Australian airline industry. Technological factors are the major factors
which support the company to provide more convenient services to the travellers. Furthermore,
Porter’s five forces analysis shows that Qantas is facing intense competition from some lower
fare airlines. Due to this, it has launched lower fare airlines in Australia and other destinations.
By analyzing the impact of external factors, Qantas needs to formulate a strategic plan so that it

BUSINESS ENVIRONMENT 8
can ensure the sustainable competitive advantage. Considering the impacts of environmental
factors and competition, this organization should adopt effective marketing and business
strategies so that it can attain competitive advantage against other players in global aviation
industry. It should focus on enhancing its internal resources and capabilities so that it can
overcome the external pressures and threats.

BUSINESS ENVIRONMENT 9
References
Duval, D. T. (2016). The Future of Australian International Aviation: Liberalisation,
Competition, and the Dutch Disease. In Air Transport in the Asia Pacific (pp. 163-176).
Routledge.
Forsyth, P. (2016). Tourism and aviation policy: exploring the links. In Aviation and
Tourism (pp. 103-112). Routledge.
Fu, X., Lijesen, M., & Oum, T. H. (2006). An analysis of airport pricing and regulation in the
presence of competition between full service airlines and low cost carriers. Journal of
Transport Economics and Policy (JTEP), 40(3), 425-447.
Head, B., & Crowley, K. (Eds.). (2015). Policy analysis in Australia. Policy Press.
Kaynak, E., & Kucukemiroglu, O. (2015). Marketing Airlines Internationally: US Travellers’
Attitude Toward Domestic Versus Foreign Carriers. In Proceedings of the 1993 Academy
of Marketing Science (AMS) Annual Conference (pp. 176-180). Springer, Cham.
Madhavaram, S., Hunt, S. D., & Bicen, P. (2017). The FREE (Firm Resources and External
Environment) Framework as an Alternative to SWOT: An Abstract. In Academy of
Marketing Science Annual Conference (pp. 49-49). Springer, Cham.
Qantas Airlines. (2018). Fly with Australia's most popular airline | Qantas AU. Retrieved from
https://www.qantas.com/au/en.html
Roy Morgan. (2017). Qantas is Australia’s leading domestic airline. Retrieved from
http://www.roymorgan.com/findings/7349-airline-satisfaction-august-2017-
201709280515
Sarina, T., & Wright, C. F. (2015). Mutual gains or mutual losses? Organisational fragmentation
and employment relations outcomes at Qantas Group. Journal of Industrial
Relations, 57(5), 686-706.
Starkie, D. (2016). Aviation markets: studies in competition and regulatory reform. Routledge.

BUSINESS ENVIRONMENT 10
Trading Economics. (2018). Australia Inflation rate. Retrieved from
https://tradingeconomics.com/australia/inflation-cpi
Zhang, Y., Wang, K., & Fu, X. (2017). Air transport services in regional Australia: Demand
pattern, frequency choice and airport entry. Transportation Research Part A: Policy and
Practice, 103, 472-489.

BUSINESS ENVIRONMENT 11