Flight Centre

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This paper targets to assess Flight Centre’s strategic situation in 2003, focusing on discovering key issues in pursuing future profitable growth. Furthermore, strategic solutions to their issues will be considered and a refined strategy proposed based on the analysis. Flight Centre’s strategic situation

Industry definition
Flight Centre describes itself as a global discount flight specialist. Taking into consideration the relative size of the Australian and international operations as well as the availability of information on global environment and competitive factors, for this analysis, it is more appropriate to consider the Flight Centre’s industry environment as “The Australian international and domestic airline ticket provider industry”. Flight Centre’s major source of income is generated from provision of airline tickets in Australia and the operations are mainly focused on providing airline tickets. Environmental analysis

The macro-environment affecting the growth of the industry as a whole is summarized in Table 1. Political/LegalEconomicSocio-culturalTechnologicalDemographic -Terrorism, wars and disease outbreak (-)

-Governments stimulating economic growth by monetary policies (+)-Increasing disposable income for households(+) -Decreasing unemployment (+)
-Favorable currency market for AUD (+)
-Expected slowdown of growth of Australian economy (-)-Increasingly fashionable to travel (+) -Increasing fear of travel internationally (-)-Technology leading to more efficient way of providing services (+) -Technology leading to forward integration opportunities for suppliers (-)-Ageing population with increasing wealth (+)

Table 1 Environment analysis

The macro-environment indicates moderate growth for the industry. The unstable global political environment and the resulting fear of international travel seem to be outweighed by the long term global and local economic growth. Industry analysis

An analysis of Porter’s five forces that determines the future profitability and attractiveness of the industry is given in Table 2.

Threat of new entrantsBuyer powerSupplier powerSubstitutesIndustry rivalry -International competitors entering through online channels -Low capital requirements for new stores-Large number of individual buyers in retail market -Corporate buyers cutting travel expenditures

-Low switching costs-Few suppliers relative to industry
-High threat of forward integration
-Decreasing demand and profitability for airline carriers.
-Low differentiation of inputs-Few/No substitutes for long distance travel -Technological communications in corporate market
-Substitutes offer less cost, but much lesser value.-Three major players covering 40 % of the market -Margin decrease from 1980s-1990s
-Rationalization trend
-High number of outlets per capita
Table 2 Porter's five forces

Overall the industry profitability seem to be low to medium due to the high threat of new entrants, especially through online channels and the related threat of forward integration from the major suppliers. High degree of competition within the industry has lowered margins substantially, and new online entrants as well as airlines cutting the “middle man” predict a continued pressure on margins. Strategy

Flight centre has a stated policy of 20 % annual profit growth. This is evidenced by an aggressive growth policy through acquisitions as well as organic growth; domestically and internationally. The company targets to provide airline tickets for domestic and international travel to the global retail and corporate market. Their generic strategy is stated as being lowest cost. They target to be the number one discount flight specialist in the world.

Being a low cost provider has had great appeal in the retail market, as leisure travel has increased in popularity. The...
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