Qantas’ Economic Profits, Essay Example

Qantas reported bumper profits in the first half of the 2017-18 financial year. Discuss the sources of its economic benefit (2.5 marks) and the strategies it has used to achieve such success 

The financial year demonstrates Qantas to have made a remarkable turnaround in the Australian airline industry with record profits of almost 1 billion AUD. According to Fernyhough (2018), the company’s bumper profits are due to the decision of the management of not investing in additional capital. Thus, several strategies provided the firm with the ability to create such a remarkable profit within the first half of the current financial year. The primary source of this economic profit is attributed to the dramatic decline in fuel prices. The reduction in oil prices have resulted in low costs of airline operations and hence contributing to Qantas economic excellence. Also, the lower prices of jet fuel encouraged Qantas to heighten its capacity through increment of flight hours and enhancing the firm’s revenue. Being the biggest cost in operation of an aviation company, reduced jet-fuel prices resulted in stronger revenues for Qantas.

There are several strategies that the airline company put in place for this miraculous turnaround. Firstly, Fernyhough (2018) point out that Qantas increased its level of productivity through an increment of seats in Jetstar planes, more intensive use of aircraft, and quicker turnaround times. Improvement of its productivity in these three areas elevated Qantas’ revenue. Secondly, the company’s management made a stunning decision of not repeating what it did between 2001 and 2013. This period soared capital expenditure of Qantas to over 2 billion AUD due to the entry of Virgin Company into the market. Virgin bolstered its investment, and as a result, Qantas had to act the same way. However, since then Qantas’ capital expenditure has dropped by an annual figure of 700 million AUD and hence improving its revenue in the industry.

Moreover, Qantas adopted the simplicity strategy that focused on modifying the business operations by first restructuring the fleet due to high costs that existed before. The heavy costs were associated with inefficient staff training, seat coverage, and ineffective allocation of seats. Hence, the firm restructured its layout from 22 configurations to 6. It helped Qantas to attain the required simplicity, reduced the expenses, as well as retained the quality. The firm took time to figure out the best way to resolve the issues by first defining the problem. Qantas went ahead to invest in human capital through constant training of staff as one way of showing the commitment and productivity of the company’s management. By focusing on the corporate culture of Qantas, the better engagement of the management created more efficient services and enhancing overall experience of customers while tackling other challenges in the company.