Qantas: Taking Off in Tomorrow's Market

Qantas: Taking Off in Tomorrow's Market

QANTAS, AUSTRALIA'S INTERNATIONAL AIRLINE, WAS experiencing a demand bonanza. Its market area in the Pacific Basin contained some of the fastest­ growing economies 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

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at 10­14 per cent per year through 1998. By the year 2000 the area will have

a 40 per cent ­share of all international air passenger traffic. Such explosive growth presents a huge opportunity for Qantas and the other airlines serving the Pacific Basin. However, it also presents some serious headaches. To take advantage of the growing demand, Qantas must first forecast it accurately and prepare to meet it. Air­travel 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 specific 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 air­travel demand is no easy task. A host of factors aft'eet 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 country­hy­country 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 uuiekly 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. Ever­increasing numbers of tourists from around the world arc 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 trav­

elling more. For example, almost 12 million Japanese took holidays abroad

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in 1996, a 10 per cent increase over the previous year. Pampered business travellers bolstered the profitability of airlines in the region, but most new travellers are non­business people. By the turn of the century fewer than one in five passengers worldwide will be flying for business reasons — and many of

those will be sitting in the economy section. Forecasting demand in the face of such drastic shifts can be difficult. There was also talk about southern Asia's

boom going to bust. China's regaining Hong Kong had gone smoothly, but there were warning signals that the economies of some of the newly indus­ trialized countries in the region were over heating. What if the bubble bursts?

To make things even more complicated, Qantas must forecast more than just demand. The airline must also anticipate the many factors that can affect its ability to meet that demand. For example, what airport facilities will be available and how will this affect Qantas? Will there be enough .skilled labour to staff and maintain its aircraft? In the Pacific Basin, as demand has skyrocketed, the support system has not. A shortage of runways and airport terminal space already limits the number of flights Qantas can schedule. As a result, Qantas may decide to buy fewer but larger planes. Fewer planes would require fewer crews, and larger planes could hold more passengers at one time, which might make flights more profitable.

Competition in the region is hotting up too. Efficient non­Asian carriers, such as American Airlines, British Airways, United and Virgin, are attacking the region's markets and slashing fares in the process. Meanwhile, new local competitors, such as Taiwan's EVA Airways and Malaysia's Air Asia, are cutting into the market. Singapore Airlines and Cathay Pacific are two of the world's most profitable airlines and are fighting to hold on to their strong positions in the market. Singapore Airlines already has 62 aircraft including

42 Boeing 747 jumbos. It plans to buy at least 50 more jets ­ all 747s or large wide­body Airbuses, Qantas bases many important decisions on its forecasts. Perhaps the most important decision involves aircraft purchases. To meet burgeoning demand, Qantas knows that it will need more planes. But how many more planes? At about A>S'200 million for each new Boeing 747­400, ordering even a few too many planes can be very costly. On the other hand, if Qantas buys too few

planes, it has few short­run solutions. It usually takes about two years to get delivery of a new plane. If Qantas overestimates demand by even a few percentage points, it will have costly overcapacity. If it underestimates demand, it could miss out on profit opportunities and disappoint customers who prefer to fly Qantas, resulting in long­term losses of sales and goodwill. Airlines have got these numbers badly wrong in the past, resulting in thou­

sands 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, by offering not just cheaper fares but also extra service. In Europe, where the battle for the business traveller is well developed, Lufthansa has completed a huge study to find out what its business traveller wants. More leg and elbow room said most travellers, but others want separate check­ins and passport controls. Fine, but all these

options cost money, so what is the best set of benefits to offer and are the needs to be standardized across the region? There are even more unknowns about the needs of the hugely growing non­business market. What do these new flyers want and what is the best way to look after them economically?

Ultimately, tor Qantas, the forecasting problem is more than a matter of temporary gains or losses of customer satisfaction and sales ­ it's a matter of survival. Thus Qantas has a lot flying on the accuracy of its forecasts. 1

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