BUMGT6973 Project Management - Individual Business Case Assignment Help

Project Background

In Australia, Qantas is synonymous with flying with ‘Spirit of Australia' (Qantas, 2019). However, Qantas is facing two major problems- First, the Australian domestic aviation market is not growing as fast as the global market: ASK (Available Seat Kilometres) decreased by 2.3% in 2017. Second, the aviation market is dominated by low-cost airlines which is reducing the profitability of all the airlines (Australian Aviation, 2017).

The reduced profitability impacts the returns and value creation for the shareholders. However, the management of Qantas has an opportunity to increase the shareholder value by restructuring the organisation in form of separating the aviation and loyalty program business as aviation business is usually unprofitable which is dragging down the loyalty program as well (Whitley, 2017).

Measurable Objectives

Whitley (2017) argued that half of the $8.7 billion valuation of Qantas can be attributed to the loyalty program. Therefore, the objectives of this project can be stated below:

• To increase the shareholder value of the airline business by 20% by 2023 (assumed)
• To increase the shareholder value of the loyalty program by 100% by 2023 (assumed)
• To achieve higher operating profits for the loyalty program (the current estimate for 2022 is $600 million (Whitley, 2017)).

Current Situation

Currently, the loyalty program is the only division in Qantas which is increasingly become profitable since 2012, whereas aviation business is struggling to even post constant profits. In addition to weak domestic demand and focus on low-cost travel, the aviation business is seasonal and cyclical (Whitley, 2017). 

As part of this loyalty program, Qantas sell air miles to supermarkets and credit card operators, who in turn offer loyalty points to their customers. These loyalty points are redeemable after 24 months, however, if a member is inactive for 18 months, the points lapses. To avoid the same, customers tend to use the card on a frequent basis, which benefits the airlines as the cost of redeeming the points in much lower than the amount for which the points are sold. This allows the company to generate revenue in advance, and currently approximately one-third of all credit-cards in Australia are co-branded by Qantas and the points are collected by half of the households in Australia (Whitley, 2017). 

Problem/Opportunity Statement

By segregating the loyalty program from aviation business, Qantas may have an opportunity to bring in more revenue from other airlines as Qantas is a founding member of Oneworld Airline Alliance and has strategic alliances with many global airlines, whose loyalty points can also be offered through the standalone loyalty program business. 

Critical Assumptions and Constraints

• The first constraint which needs to be looked at is that Qantas is the flag carrier in Australia and any restructuring project will require government approval.
• Second, assuming government approval is obtained, then the management will have to authorise the project. 
• Third, the management will have to take approvals from the Australian Stock Exchange, Australian Securities and Investment Commission, and the Australian Competition and Consumer Commission.
• Fourth, the management will have to look at ensuring the sustainability of the aviation business. This is the core business (till now) but is not regularly profitable. 
• Fifth, the management will have to look at establishing an information system, so that the consumer can be better understood and more loyalty partners can be attracted.