Case Study -11 Qantas: Taking Off in Tomorrow's Market QANTAS, AUSTRALIA'S INTERNATIONAL AIRLINE, WAS experi ed some of the fastestgrowing economi encing a demand bonanza, Its market area in the Pacific Basin con! in the world - including Australia, China, Japan and the newly industrializing countries of Hong Kong, Malaysia, Singapore, South Korea, Taiwan and Thailand, The area's growth in air travel far exceeded world averages. Industry forecasts suggest that Pacific Basin air travel would grow at 10-14 per cent per year through 1998. By the year 2000 the area will havea 40 per cent “share of all intemational air passenger traffic. Such explosive growth presents a huge g the Pacific Basin. However, it also opportunity for Qantas and the other airlines sei presents some serious headaches. To take advantage of the growing demand, Qantas must first forecast it accurately and prepare to meet it, Air-travel demand has many dimensions. Qantas must forecast how many and what kinds of people will he travelling, where they will want to go and when, It must project total demand as well as demand in each specifie market it intends to serve, And Qantas must estimate what share of this total demand it can capture under alternative marketing strategies and in various competitive circumstances. Moreover, it must forecast demand not just for next year, but also for the next two years, five years and even further into the future. Forecasting air-travel demand is no easy task. A host of factors after how often people will travel and where they will go. To make accurate demand forecasts, Qantas must first anticipate changes in the factors that influence demand: worldwide and country-hy-country economic conditions, demographic characteristics, population growth, political developments, technological advances, competitive activity and many other factors. Qantas has little control over many of these factors, Demand can shift quietly and dramatically. For example, relative economic growth and political stability in Japan, Australia and die other Pacific Basin countries have caused a virtual explosion of demand for air travel there. Ever- increasing numbers of tourists from around the world are visiting these areas, In Australia, for instance, foreign tourism more than doubled between 1984 and 1988, and could triple between 1988 and the year 2000. Also, people from the Pacific Basin countries are themselves travelling more. For example, almost 12 million Japanese took holidays abroad . in 1996, a 10 per cent increase over the previous year. Pampered business travellers bolstered 7 a he profitability of airlines in the region, but most new travellers are non-business people. By the t inf turn of the century fewer than one in five passengers worldwide will be flying for business reasons — and ma ill be sitting i and many of those will be sitting in the economy section, Forecasting demand in"4 howe ficult, There was also talk about southern A the face of such drastic shifts ean be di ne going to bust, China's regaining Hong Kong had one smoothly, hut there were warning 8 that the economies of some of the newly industrialized countries in the region were overheating. What if the bubble bursts? To make things even more complicated, Qantas must airline must also anticipate the many facter ¢ will be available and how s that can affect forceast more than just demand. The what airport facilitie is ability to meet that demand. For example, be cnough. skilled labour to staff and maintain ts aircraft? will this affect Qantas? Will there « skyrocketed, the support system has not, A shortage of ts the number of flights Qantas can schedule lanes would require In the Pacific Basin, as demand ha al space already limi decide to buy fewer but larger planes. Fewer pl irs at one time, which might make runways and airport term ‘As a result, Qantas may fewer crews, and larger planes could hold more passenge {lights more profitable. Competition in the region is hotting up too. Efficient non-Asian carriers, such as Ame} Airlines, British Ai markets and slashing inways, United and Virgin, are attacking the region's fares in the process. Meanwhile, new local competitors, such as Taiwan's EVA Airways and are cutting into the market. Singapore Airlines are fighting to hold on to their including 42 Boeing 747 jumbos. It Malaysia's Air Asia, and Cathay Pacific are two ofthe world’s most profitable airlines and strong positions in the Singapore Airlines already has 62 aircraft i market. «all 747s or large wide-body Airbuses, Qantas bases many important buy at least 50 more jets recasts, Perhaps the most important deci n involves decisions on its for reratt purct ‘To meet burgeoning demand, Qantas knows that it will need more planes. But how many more planes? At about A>S'200 million for cach new Boeing 747-400, ordering even a few too many Gite aos bey ely Othe ones aS buys too few planes, it has few short- run solutions. It usually takes about 1a few percentage points, it will have costly overcapacity. If it t two years to get delivery of a new plane. If Qantas overestimates demand by even underestimates demand, it could miss out on profit opportunities and disappoint customers who s, resulting in long-term losses of sales and goodwi prefer to fly Qanta: |. Airlines have got these numbers badly wrong in the past, resulting in thousands of redundant jets parked in the deserts of the United States, Besides rapid growth, Qantas needs to know about the changing nature of demand in the region. ‘The declining proportion ot business passengers means airlines are fighting harder for them, In Europe, where the battle for the by offering not just cheaper fares but also extra servic business traveller is well developed, Lufthansa has completed a huge study to find out what its bu savelle: siness traveller wants. More leg and elbow room said most travellers, but others want = : 5 . 5 :parate check-ins and passport controls, Fine, but all these options cost money, so what is theto offer and are the needs to be standardized across the region’ There are ess market. What do set of beneli bes event more unknowns about the needs of the hugely growing non-busin and what is the best way to look after them economically? Ulin mporary gains or losses of these new flyers want tor Qantas, the forecasting problem is more than a matter of ter customer satisfaction and sales - it's a matter of survival. ‘Thus, Qantas has a Jot flying on the accuracy of its forecasts. Questions: 1. Is it realistic for Qantas to conduct a single forecast for passenger traffic in the region, oF con several separate forecasts? Ifso, what separate forecasts should should it base its projections be conducted? 2, Does the past steady growth of the economies in the region mean it is reasonable to project similar levels of growth for the next dec: rudy likely to apply in south-cast Asia? What is likely 10 ade? 3. Are Lufthansa's findings from its st make customer research in southern Asia more complicated than in Europe? 4.What techniques should Qantas use to forecast overall demand over! the next ten years? How dit estimate what customers! tastes are likely to be over the next decade? shoul