28/02/2014 - 12:35

Changing markets test loyalty

28/02/2014 - 12:35


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Qantas is the latest in a growing number of business icons to be confronted by rapidly changing market conditions.

International airlines invested $300 million in Virgin last year, prompting complaints from Qantas about an uneven playing field.



Qantas is the latest in a growing number of business icons to be confronted by rapidly changing market conditions. 

The announcement last week that Qantas would cut its staff numbers by 5,000 and slash spending added to a period of intense pain in Australian industry.

It came soon after Toyota’s decision to close its automotive manufacturing operations in this country and Alcoa’s closure of one of its big aluminium refineries in Victoria.

There are many factors driving change in these industries, including labour costs, productivity, the high exchange rate, government regulation and red tape – the list goes on.

But one factor that usually doesn’t get raised in discussion is the impact of consumer choice.

Tied closely to that is the competitive power of large businesses.

Take the airline industry.

Qantas is considered an icon and has long dominated Australia’s domestic and international aviation markets.

Its iconic status is reflected in the legislation that mandates majority Australian ownership – something the current management is keen to change.

Yet despite all of this, Australians are voting with their feet.

Qantas has been struggling to maintain its goal of two-thirds market share in the domestic market, and its position in the international market has become very fragile.

It jumped into bed last year with Emirates, in the process scrapping most of its long-haul international routes.

The restructuring continued this week when Qantas announced it would stop flying the Perth to Singapore route because it was commercially unviable.

This raised concern in the hotel and tourism industry, which is worried there will not be an Australian airline servicing this route.

Yet it is clear that the market has already spoken – air travellers are choosing to travel with other airlines.

The Gulf carriers – Etihad Airways, Emirates and Qatar Airways – are capturing market share around the globe, helped by the very deep pockets of their owners in the Middle East.

They and other airlines are investing heavily in the Australian market.

Qantas pointed out last week that its competitors collectively have increased capacity to Australia by 46 per cent since 2009, more than double the world average.

Qantas has also had to deal with a powerful competitor in Virgin Australia, which has the backing of three international airlines – Etihad, Singapore Airlines and Air New Zealand.

They invested $300 million in Virgin last year, prompting complaints about an uneven playing field.

There are parallels in the automotive sector.

Australian consumers have taken their business elsewhere, with low tariffs and keen competition from global manufacturers leading to the purchase of more imported vehicles.

The consequence is the planned closure of local manufacturing operations by Holden, Ford and Toyota.

These follow a succession of other manufacturers, including British Leyland, Mitsubishi, Chrysler, and Nissan that have halted local operations over the years.

The changes in the aviation and automobile markets have dramatically weakened once-powerful businesses.

It will be fascinating to see if this kind of change might extend to other sectors, like retail for instance.

Coles and Woolworths are often demonised as the big gorillas in the retail market, using their financial muscle to make life hard for their competitors.

Well of course they do, and it’s a strategy that their customers are lapping up.

Shoppers love their fuel discounts, yet the Australian Competition and Consumer Commission has cracked down on Coles and Woolworths for fear they are abusing their market power.

That power is bring attacked in a small way by the entry of new competitors such as German retailer ALDI, which is already on the east coast and plans to build a 70 store network in Western Australia.


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