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    Forecasting: Seeking Financial Altitude in a Cloudy Sky

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

    Qantas has a lot riding on remaining dominant and profitable in the Australian
    domestic market for air travel and freight, as well as remaining profitable
    on its overseas routes-particularly 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 believes 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 turmoil 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 businesses accounted for 30 percent 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, we consider questions concerning strategy development and
    demand forecasting in volatile marketing environments:

    Provide a definition of market demand.

    How are market demand, market potential and sales forecasting related to each other?

    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?

    How might Qantas employ such a tool as the Ansoff product/market expansion
    grid in developing its growth strategies? (Click here for more details about the grid.)

    © BrainMass Inc. brainmass.com May 24, 2023, 1:45 pm ad1c9bdddf

    Solution Preview

    The relationship between the total quantity of a good demanded and its price. Total volume purchased in a specific geographic area by a specific customer group in a specified time period under a specified marketing program. Demand for a good by all buyers, including the private sector and the government. The total quantities of a good or service people are willing and able to buy at alternative prices in a given time period; the sum of individual demands.
    Market potential refers to the maximum achievable combined sales volume for all sellers of a specific product during a specific time period, in a specific market. The maximum achievable combined sales volume for all sellers of a specific product during a specific time period, in a specific market. The total amount of a product that customers will purchase within a specified period of time at a specific level of industry-wide marketing activity
    Procedure for developing interrelationship is
    · Use Porter's Five Forces to understand the attractiveness of an industry
    · Gather and interpret data from various sources to conduct an industry/competitive analysis
    · Describe how political, economic, social, and technical issues in the macro-environment impact marketing planning
    · Explain the difference between market potential and market demand
    · Describe the factors affecting new product forecasting accuracy
    When the business and the market have been analyzed, the probable sales volume of the business can be forecast. This forecast should be a simple projection of the business involved; it should not be an attempt to forecast or project the total state of the market. The variables that influence the market are too vast and complex for a small businessman to do anything about. It will have to be assumed that what has happened to establish the condition of the market as it is, will continue to have the same general effect, at least for the period just ahead.

    This is a dangerous assumption - markets and the economy are dynamic, not static - but from the practical point of view, there is little choice. In any case, it is usually over longer periods of time that changing market factors make themselves felt.
    Sales Forecast vs. Sales Potential

    A distinction is necessary here between making a sales forecast and estimating sales potential. A sales forecast is based on past sales performance and a reckoning of known and anticipated market conditions.
    From these, the expected sales level is determined.
    Sales potential, on the other hand, is a measure of the capacity of the business to reach a certain volume of sales. It is based on knowledge of the total market and the extent of competitive influence, and it involves the use of strategy through sales effort. Past sales performance may bear little or no resemblance ...