Porter’s Five Forces Analysis for Qantas Airways

This paper evaluates the strategic plan of Qantas Airways using Porter’s Five Forces Analysis. It examines the competitive rivalry, threat of entry by new businesses, buyer power, supplier bargaining power and the threat of substitutes. The paper also explores how these forces impact on the profitability of the airline industry and what that means for Qantas Airways Limited.

Running head: Porter’s Five Forces Analysis for Qantas Airways 1
Porter’s Five Forces Analysis for Qantas Airways
Name
Institution

Porter’s Five Forces Analysis for Qantas Airways 2
Porter’s Five Forces Analysis for Qantas Airways
Introduction
This paper will conduct an evaluation of the aims and objective of a strategic plan for the
Qantas Airways. It will do so by considering the vision and mission of the company.
Subsequently, a description and evaluation of the factors that impact on the strategic planning of
the company is provided. The paper presents an evaluation of how factors such as competitive
rivalry, threat of entry by new businesses, buyer power, supplier bargaining power and the threat
of substitutes are likely to affect the strategic decisions of the company. An evaluation of how
these forces impact on the profitability of the airline industry and what that means for the Qantas
Airways Limited is also explored in the paper.
Business Strategic Plan
A strategic plan is a paper that marches the goals of the business both mid-term and long
term with the needs of the market. It is quite similar to the traditional business plan but the
marked distinction is that it defines the goals and outlines how they shall be used to take
advantage of the available opportunities in the market (Hoffelder et al, 2017). A strategic
business plan for Qantas Airways has enabled it to obtain a significant share of the airline market
in Australia. Qantas Airways is now the largest domestic and international carrier in the country.
Founded in 1979, the vision of the airline is to be the operator of a world standard premium
airline and the carrier with the lowest fares (Qantas Airways Limited 2017). The air carrier’s
mission is to implement the best safety practices, to deliver globally effective fleet operating
within optimum flight routes, provision of excellent customer service and operational efficiency
in all their engagements. The airline has been able through its strategic plan to cut a niche in the

Porter’s Five Forces Analysis for Qantas Airways 3
domestic market place thereby introducing launching Jetstar to take advantage of the domestic
air travel demand in the country.
Porter’s Five Forces Model Analysis
The Porter’s Five Forces Analysis is a theory used to determine the competitive position
of the business in the market. It operates premised on the idea that there are five aspects of the
market or business environment that determine the profitability and market position of a business
(Dobbs 2014). The factors or forces that the theory builds on include; competition from rivals,
buyer’s power of bargain, threat of substitutes and threats of entry by new businesses. An
analysis of these factors is necessary in helping the business in developing strategic business
plans to strengthen their market position and enhance profitability. The theory is also used to
point the business owner or manager to the weaknesses and strengths of the business. According
to Porter (2018) the Porter’s Five Forces Analysis theory can be applied in the determination of
whether or not a product or service intended for launch into the market will be profitable or not.
The model provides a way forward on dealing with each of the factors or forces in order to
enhance profitability. The diagram below summarizes the forces and how they are interrelated.

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Diagram showing the Porter’s Five Forces Model
Diagram adopted from Dobbs (2014)
Competitive Rivalry
This segment analyses the market conditions in the airline industry with regard to the
number of competitors that are faced by Qantas Airways and what this means for the company.
In the domestic market, as at 2017, there were 4 domestic carriers operating domestic flights in
the country. They include Virgin Australia, Rex, Tiger Airways and Jetstar which is now a
subsidiary of Qantas, leaving only 3 competitors in the market. According to Qantas launches
low-cost JetStar (2014), of the 3 remaining companies the only one that poses a great deal of
competition to Qantas is Virgin Australia. As such it is reasonable to assume that Qantas does

Porter’s Five Forces Analysis for Qantas Airways 5
not face any stiff competition in the domestic market and is therefore in a favorable position. As
regards the international market, Qantas faces stiff competition from 8 international service
providers. The presence of Chinese carriers (Air China (CA) and China Southern Airlines (CZ)
which have become popular in Australia and Asia are especially a serious source of competition.
However, the level of differentiation of Qantas Airways products and services places it a cut
above its competitors. This explains why it made a profit of $ 1.4 million in the financial year
2016/2017 (Qantas Airways Limited 2017).
Threat of Substitution
This part looks at the alternatives to existing alternatives to Qantas Airways which
customers could substitute its product and services for. In Australia, airlines operate alongside
other transportation options such as rail and road both of which are popular means of domestic
travel in Australia (Sarina & Lansbury 2013). This means that Qantas Airlines has to convince
customers and potential customers to choose air travel over rail and road. To counter this, Qantas
took a timely and strategic business decision to bring on board Jestar which now provides cost
effective domestic flights; this has given Qantas a favorable position in the market and enhanced
its profitability. Apart from the domestic market, over 90% of visitors coming in to Australia
prefer to come by air (Airlines Industry Profile: Australia 2017). This creates a favorable market
environment for Qantas internationally.
Bargaining power of buyers
This force use is applied in estimating the power and influence wielded by the buyers
(customers) over the pricing of the products and services. To begin with, air travel is not a
necessity so buyers typically can always scout for another airline that offers a better price

Porter’s Five Forces Analysis for Qantas Airways 6
(Boucousis, Boo & Frawley 2018). Additionally the consumer market in Australia is
characterized by high employment rates and rising disposable incomes which give the buyers
power to select from other alternatives such as premium flying services. It also means that buyers
can afford the cost of switching from one airline to another. The import of this analysis is that
the buyers are strong enough to dictate terms to the airline service providers like Qantas.
Power of Suppliers
This segment takes a look at the power of the suppliers to influence market conditions.
The number of suppliers, their sizes and the uniqueness of services they offer are some of the
factors to this. The ability of the business organization to switch from one supplier to another
also determines the supplier power. The airline industry is one of the most sensitive to supply
forces. Fuel suppliers for instance have immense bargaining power in the market since fuel costs
account for close to 50% of flight costs (Zhang et al, 2018). Any slight adjustment in fuel prices
impacts the prices of flights which in turn hurts profitability. The labor market is the second
largest determinant of the cost of flight operations. The spate of industrial actions in the airline
industry witnessed in 2016/17 globally have had serious effect demonstrating that labor supplier
have high bargaining power in the industry. Supplier power in the airline industry is therefore
strong.
Threat of new entrants
With regards to new entry, there is almost no threat posed to Qantas Airways. This owes
to the fact that the aviation industry is tightly regulated in by the Australian Transport Safety
Bureau and Civil Aviation Safety Authority and it’s not easy for new businesses to enter the
market (Grimm & Milloy 2013). The cost of launching an airline is also huge in terms of buying

Porter’s Five Forces Analysis for Qantas Airways 7
and leasing aircrafts, airport hangars and fuel, labor and maintenance costs. These make it
difficult for any new entrants to come in to compete with Qantas Airways.
Usefulness and Limitations
The Porter’s Five Forces model can help Qantas Airway to strengthen its position in the
aviation market. To deal with competitive rivalry and the threat of substitution, it should come
up with strategic plans to differentiate its products and services. The limitation is that product
differentiation is expensive and leads to increased costs and higher prices. Strategies to deal with
new entrants must be centered on economies of scale which reduce the fixed cost per unit, and
innovation of new products to attract new customers (Dobbs 2014). To reduce supplier
bargaining power, Qantas should develop relations with designated suppliers whose businesses
then become solely reliant upon the company like the model Wal-Mart and Nike are using. The
limitation herein is the fact that the number of suppliers in the aviation industry is very limited.
For instance the only trusted leasing companies for aircrafts are only three; Boeing, Airbus and
Bombardier.
Conclusion
As covered in the paper using the Porter’s Five Forces Model, the market position of
Qantas Airways is strong. Its profitability is promising as demonstrated by its pretax profits in
the fiscal year 2016/17 which was $ 1.4 million. There is limited competition only form Virgin
Australia, threats of new entrants is almost non-existent and the threat of substitutes is also
limited. The only challenges that Qantas has to deal with are the bargaining power of the buyer
and the suppliers. Judging from its current market position, Qantas Airways stands to increase its
profitability even further by implementing the strategic plans discussed in the preceding section.

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References
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