Flight Centre free essay sample

Profit growth has on average exceeded stated goals from 1997-2003, averaging on 33 %. Transaction value, an indicator of the activity level, has grown notably less than profits (207 % vs. 289 % over six years), indicating profitable growth. This contrasts with the general squeeze on profitability and growth for the industry. International operations have not performed well. Transaction value has grown more than 50 % from 2001-2003, while profits have declined 65 %. Customer performance Flight Centre is market leader in the Australian retail market with 20 % market share in 2001. In the corporate market they have similar market share. This position indicates strong customer satisfaction and ability to deliver on their promises. Internal current performance and long-term development Return on assets has declined from 19 % to 14 % in six years. The decreasing efficiency is mainly attributed to international operations. High employee satisfaction scores, both domestically and internationally, indicates a highly motivated work force. Turnover rate of 25 % is pointing in a different direction. Training and internal recruitment provides good environment for learning, innovation and growth. Social There is a strong focus on network building in all parts of the organization. Top management’s involvement indicates high level of commitment to social network building. Gap analysis The following gaps are identified between the business strategy and the macro-environment, industry environment, organizational performance and capabilities. -Growth target is not consistent with environment growth and industry profitability outlook. -Technological trend is not consistent with relying heavily on branch network. -Investing in corporate travel brands while the corporate market is in sharp decline. -Acquisition strategy is not consistent with low cost generic strategy. Strategy of growing internationally is not aligned with actual performance. -Gap between stated strategy of being number 1 in the world and their actual position globally. -Retention – building strong culture with 25 % retention indicates a hiring policy that is out of synch with company goals. -Performance in global operations is not as good as in local. This may be due to high need for initial investments to integrate acquired businesses into the unique culture and business operations, but may also be a sign of inability to successfully transfer the Australian business model internationally. Key suppliers are becoming key competitors – competing head to head with equal products is a high risk operation. Overall positioning In the Australian market, Flight Centre is well positioned in the industry being market leader and the lowest cost provider of airline tickets. Internationally, the company is not currently performing, and have not reached stated goal of being number one globally. Key issues International operations The company has a stated vision on being the number one discount airline ticket provider in the world. One third of transaction value is currently attributed to international operations, while only 7 % of the profits are generated internationally and international profits have decreased 65 % from 2001 to 2003. This can partly be attributed to instability in macro-environment, however, inefficiency and inability to transfer the successful Australian business model internationally is likely to contribute largely to the declining results. If the company is targeting a world leading position, it has to turn around this trend and build profitable operations internationally that contribute on an equal or better level than the Australian operations. Competition and forward integration Increasingly squeeze on margins on airline tickets, both from forward integration and strong competition from online providers, is potentially detrimental for Flight Centre, whose strategy and main marketing tool is to be the lowest cost provider of airline tickets. If the company is to continue its profitable growth, it needs to address the declining profit potential from relying heavily on airline tickets to the lowest cost as their main product and source of income. Distribution channels As the industry as a whole relies increasingly on online delivery of services, the extensive branch network, which has historically been one of Flight Centre’s most valuable resources, will eventually loose its value. Flight Centre has not yet recognized the potential cost saving of operations from utilizing the technological advances in internet transactions, and continuously relies heavily on the branch network. This may prove to be a costly move for the company. Recommendations Shift to online distribution channel In order to meet the competition from new online as well as the forward integration initiatives from the airlines, Flight Centre should invest to build and market a sophisticated online channel for distribution of their products. To do this, the company needs to build and/or buy new capabilities in eCommerce and online marketing. The existing ticketing centre will be leveraged by the new channel, and will together with the lowered cost of distribution enable the company to compete on price with new entrants in the industry. The retail outlet concentration needs to be lowered as more tickets will be distributed through the online channel. This will have a negative impact on the workforce, which has to be managed carefully. Given a 25 % annual staff turnover, this should not be an immediate problem, as re-locations and transfers within the organization should be able to support this process. An online channel for corporate customers will also meet their needs of lowered travel related costs and limit the need for services requiring human interaction. Online channels may also be customized to meet individual corporate customer’s needs. Product diversification Competing on price while key suppliers are targeting to cut the middle-man eeds to be met with a new strategy as providing lower cost than the airlines themselves, will squeeze margins even more and limit profit potential. To differentiate from this new competitive force in the market, Flight Centre should expand their product line to include more travel related services as hotels, adventure tours, holiday packages and possibly travel insurance. Their recent acquisitions into these product specters give them access to supplier agreements which can be leveraged under the Flight Centre brand and higher margins might be charged for the newer products to account for lower margin on airline tickets. The online channel can quite easily support other products than flights and online marketing techniques can be utilized to offer customers customized offers based on their previous purchases etc. International expansion To address the issues the Flight Centre is experiencing in their international operations, it is important to invest in transferring key capabilities in efficient operation and performance driven culture to their international operations. The Australian success is largely built on these capabilities and transferring this internationally will be a key success factor for future profitable growth internationally. Transfer of key personnel in startup phases and strong focus on learning and international network building should be part of this initiative. Given the more favorable economic growth outlook in Asia than America/Europe, Flight Centre should move its focus to the Asian region when moving into new markets. In countries where IT-infrastructure is not fully developed, the branch network model will be most appropriate. In more developed countries, future growth should be targeted through the online distribution channel given the technological trends and the low cost and low risk nature of this strategy. Conclusion – refined strategy The company’s refined strategy should indicate a realistic growth target of e. g. annual 10 % profit growth. Furthermore the products and services offered will be expanded to a full travel service provider, including air travel related services as hotel rooms, adventures, rental cars and insurance. Global market presence is still achievable. The Asian market seems to offer the higher growth rates in the foreseeable future, and should be the focus for the next 3-5 years. Lowest cost airline tickets should still be part of generic strategy, but as the product specter expands, the company should target a leader strategy, offering low cost airline tickets with value added services as possibly bundled products as a differentiation strategy. The position in the industry should be to be the market leader in the countries where it operates.