Forecasting and Marketing Management: Seeking Financial Altitude in a Cloudy Sky

LEAD STORY-DATELINE: The Australian Financial Review, May 17, 2002.

Qantas has a lot riding on remaing dominant and profitable in the Australian domestic market for air travel and frieght, as well as remaining profitable on its overseas routes-praticularly the "Kangaroo" route to and from the United Kingdom. It has reported expansion plans involving $A13 billion that it intends to spend over a ten-year period on a range of upgrades to planes and lounge facilities, as well as on new aircraft.

The marketing environment for airlines is volatile at the best of times, and from money-man Warren Buffet's (Berkshire Hathaway) viewpoint, nobody ever made money from investing in an airline over the long term. However, Qantas CEO Geoff Dixon aims to prove this wrong. How can this be done in such a volatile market? How can Qantas continue to generate revenue and earnings equal to or greater than those in 2000, 2001, and as forecast for 2002?

The domestic market is relatively stable since the final demise of Ansett Airlines in April 2002. The new competitor, Virgin Blue, is a single-class operator and as anxious as Qantas to keep the public flying with realistically low pricing, but also wants to ensure profitability and ultimately, survival. However Virgin Blue is not backward in making its views heard by the Australian Competition and Consumer Commission (ACCC) when it belives that its larger competitor has overstepped the (legal) mark, and possibly engaged in unfair practices (under the Trade Practices Act) that might hurt its market position and financial position.

The international market is far more volatile, particularly since the terrorist activities of September 11, 2001. Qantas and its part-owner British Airways (BA) have maintained a strong alliance in the face of turnmoil in the aviation industry generally. While BA has become cash strapped, Qantas has remained cash positive and profitable. How has this been done? Qantas's strategy is to remain flexible-not only by ensuring that its fleet can operate as a single-class carrier or be quickly converted to a mix of business and economy class, but also by cutting costs. More importantly it plans to ensure that its non-airline businesses stay profitable. These businessess accounted for 30% of the company's profits in the six months to December 2001, and include Qantas Flight Catering Ltd, Qantas Holidays, Qantas Defence Systems, Australian Air Express, Qantas Business Travel and also includes its frequent flyer programs and co-branded credit card operations.
It can be seen from the Qantas company structure that it has remained an integrated airline, while many of its international rivals have sold off such operations when seeking capital to either build their airline business, or to stay profitable, or simply to remain airborne.

IN THIS SECTION, THE QUESTIONS CONCERNS STRATEGY DEVELOPMENT AND DEMAND FORECASTING IN VOLATILE MARKETING ENVIRONMENTS:

1. Provide a definition of market demand.
2. How are market demand, market potential and sales forecasting related to each other?
3. The fertility rate in Australia is declining and Immigration levels are not yet set at levels that might lead to population growth (at the time of writing). Might this influence the revenue and earnings that Qantas could achieve in the future?
4. How might Qantas employ such a tool as the Ansoff product/market expansion grid in developing its growth strategies.