The Jetset Travelworld Group (JTG) has in the past three years quadrupled its footprint and capitalization through what were primarily three transactions. We examine the strategies employed by JTG, the theory, and the logic behind the decisions made.
In order to determine the Corporate Strategy of JTG we examine the history of the organisation. From where it came to what it has become. In so doing we look at the strategy or strategies employed that either singularly or in aggregate could be broadly framed as being “The Corporate Strategy of Jetset”.
The corporate-level strategy refers to the overall strategy for a diversified company encompassing the whole strategic scope of the enterprise. It determines the strategic activities and the aligning of these to the organisations environment, its resources capabilities and the values and expectations of its various shareholders. The corporate-level strategy is the highest level strategy and is concerned with the mix of businesses the company should compete in, and the ways in which strategies of individual units should be coordinated and how integrated they should be with one another. This includes deciding in which service or product markets to compete and in which geographic regions to operate in it also includes the resource allocation process for multi-business firms and also market definition including the responsibility for diversification, or the addition of new products or services (Hanson et al. 2008).
JET began as a small one-man travel agency in Sunshine, Victoria in 1963. JET had become Australia’s largest provider of international holiday travel programs by the 1980’s and expanded into markets in New Zealand, Asia, Europe and North America. Jestset Travelworld Ltd listed on the Australian Stock Exchange on 13 September 200 with an ASX code of JTG. (Investsmart, 2011; Jetset Travelworld Group, 2010). With the acquisition of National World Travel in May 2001 the Jetset Travelworld Group (JTG) was formed, a merger with Qantas Holidays Limited and Qantas Business Travel Pty Limited followed in July 2008 (Investsmart, 2011). The latest merger of JTG was with Stella Travel Service Holdings Pty Ltd in September 2010 (Jetset Travelworld Group, 2010).
JTG is an integrated business that covers all segments of the travel market which operates several wholesale travel businesses (holiday packaging), franchise-based and affiliate retail agency networks, air ticket consolidation, airline representation and travel management services (Jetset Travelworld Group, 2010). Specifically the company’s agencies provide airline, car, hotel, tour, cruise and special event bookings, they also have an in-house travel insurance product, Travellers Assistance, along with several alliances including with a travel provider, television network and a global travel organisation. The company operates across consumer, trade and online travel channels (investsmart, 2011).
JTG currently has operations in Australia, New Zealand, the United States of America, Fiji, Asia, the United Kingdom and South Africa and provide products and services in these locations through an extensive list of brands. These brands represent a long history of merger and acquisition. (Jetset Travelworld Group, 2010). JTG serves customers consisting of the general public, airlines, wholesalers, businesses, cruise companies and tour operators. Government departments, large corporate and small to medium enterprises are catered to by Qantas Business Travel. Other travel agencies and other leisure and tourism related businesses which provide the same services are the major competitors which pose the greatest threat to the Jestset Travelworld Group (Investsmart, 2011).
JTG has adopted a corporate level strategy with the objective being growth (Jestet Travelworld Group, 2010), this has been achieved via both concentration and diversification. The concentration corporate growth strategy has been deployed by the company to pursue horizontal integration through geographic expansion; increasing the range of products and/or services is also part of a horizontal integration strategy (Andrews University, 2011). The corporate growth strategy of diversification has also been utilised by the company in a concentric manner, meaning all business units are related in which market they compete in (Andrews University, 2011). It further appears that this is a related constrained diversification strategy in that less than 70 per cent of revenue is derived from a dominant business (Hanson et al. 2008). This appears to be a logical strategy as it allows for the merging of the marketing, operations and management functions to achieve a synergistic fit and further allows all business units to share product, technological and distribution linkages (Hanson et al. 2008). Bowen and Wiersema (2005) posit that synergies among the business units within a company’s portfolio contribute to the benefits from diversification where as dissimilarity of these business units can impose limits on the organisation and escalate the dispersion of business interests ultimately having a negative impact on firm performance.
JTG have also used a domestic and international growth-entry strategy by way of external acquisitions (e.g. QANTAS holiday group and QANTAS business travel) and mergers (e.g. Stella Travel Services) and by forming strategic alliances and partnerships through franchising both in Australia and internationally (Andrews University, 2011).
By implementing a corporate level strategy focussing on diversification within related markets JTG has historically balanced the economic gains from diversification against the bureaucratic costs of operating a multi-business firm to gain a competitive advantage through a mix of business units competing in a number of product and geographical markets ultimately achieving growth and increased profits (Hanson et al. 2008). This assumption is based on the demonstrated success of a business moving from a single shop front in 1963 to be listed on the Australian Stock Exchange. It has through the execution of what we are broadly terming the “JTG Corporate Strategy” grown exponentially in the last few years.
3.0 Logic of JTG Business Combination – What is it?
Logic is deemed to be the benefits resulting in competitive advantage that exists, presumes to exist, or anticipated to result from strategies pursued by the JTG Board. According to Hanson, Hitt, Ireland and Hoskisson “competitive advantage is achieved by a firm when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate” (2011, p 5). The predominate strategy for JTG as stated in the Chairman’s Report of the 2010 Annual Report is being one of growth, “positioning the Company to compete more effectively and explore growth opportunities in the Australian, New Zealand and international travel markets” (Jetset Travelworld Group 2010, p 4).
The combination of businesses being defined are those entities reporting to the board of JTG. Referred to as segments in the 2010 Annual Report, these three businesses are Retail, Wholesale and Business travel, while a fourth segment online, is being developed” (Jetset Travelworld Group 2010, p 12). These businesses compete for resources and their contributions are reported to shareholders at the Annual General Meeting. In aggregate, these businesses form the JTG corporate group.
It is recognised that within these three businesses sit a number of brands that reflect in part the history of the group and a recognition of goodwill attached to same. As such these brands and their value to businesses are subject to review. The CEO’s 2010 report stated that “In the marketing area, they had performed an in-depth analysis of our retail brands with a view to a major refresh and relaunch” (Jetset Travelworld Group 2010, p 5).
To better understand and therefore describe the logic underpinning the JTG business combination we examine further the Qantas Holidays Limited acquisition, UniGlobe alliance and the recent Stella Group merger. The reason we study these last three transactions is that the Qantas Holidays Ltd acquisition served to double the size of JTG, the UniGlobe alliance provided JTG enhanced global access, and the recent Stella Group merger has, like Qantas Holidays Limited., has again grown the business by a factor of one and further reinforced its global footprint.
The Qantas Holiday Limited ‘reverse-acquisition’ (Jetset Travelworld Group, Annual Report 2010, p30) resulted in Qantas Limited gaining a 58% controlling interest in JTG. JTG gained both the Qantas Holidays Limited and Qantas Business Travel (QTB) operations and in so doing, a strategic alliance with the former parent, Qantas Limited.
This related diversification (Hanson et al 2010, p 164) added a wholesale holiday packaging and Business Travel business to JTG. The JTG Retail business with its core-competency as an effective retail travel distributer provided a valuable market for what was Qantas Holidays, now known as JTG Wholesale. JTG Retail likewise benefited from the additional in-house capability. The benefits of this backward integration was demonstrated by the resilience of the two businesses under what were difficult trading conditions in the 2010 financial year (Annual Report 2010, p45).
The transaction further brought to JTG a wealth of corporate expertise. Of the seven JTG directors three were Qantas Limited executives, Gareth Evans (CFO of Qantas Limited), Lesley Grant (Qantas Group Executive Customer and Marketing), and Brett Johnson (Manager Qantas Legal Department). The JTG Company Secretary, Stephen Heesh, was further appointed to the role after 22 years as Assistant Company Secretary at Qantas Airways Limited.
In this single transaction JTG had more than doubled its capability, strengthened its management and through the issue of shares to Qantas Limited as payment further strengthened its balance sheet.
In June 2010 the Business Travel General Manager, David Hughes, announced an alliance with UniGlobe. “UniGlobe Travel International is the world's largest single brand travel franchise organization (UniGlobe 2010). JTG Business Travel business (formerly QTB) was granted a master franchise giving it both a global capability to comprehensively satisfy the requirements of its corporate and government customers. It further provides its new found UniGlobe partners with an Australian associate.
The logic of this corporate level cooperative strategy is clearly to add substance to a business unit that, while generating high turn-over was yet to make a satisfactory contribution to group profitability. In 2010 Business Travel made a loss. It is noted in the Annual Report that between 2009 and 2010 Business Travel absorbed a significant asset write-down with a similar figure appearing in Corporate/Unallocated asset numbers as a debit (2010, pp. 45-46). It would appear that the business has received significant management attention. Management would be hoping that the UniGlobe alliance along with announced success in government tendering (Jetset Travel Group Annual Report 2010, p 5) will bring this back to profit. The significant volume generated by the business undoubtedly however provides the Group with significant market power.
The recently completed merger of JTG and Stella Group represents a yet further doubling in market capitalisation and capability. From a capital perspective the Stella Group merger represented a ‘Qantas Holidays merger mark 2’. An expanded share base represented a doubling of asset with a strong balance sheet being maintained. The transaction resulted in Qantas Limited no longer having a controlling interest and the vendors of the Stella business holding a 50% equity.
The business of Stella Group could be described as a reflection of the JTG business with a complimentary global footprint. As such opportunity for synergies from operational relatedness have been mooted as part of the logic for pursuing the transaction (Jetset Travelworld Group, Notice of General Meeting and Explanatory Memorandum). As in the earlier Qantas transaction JTG are seeking to maximize the transfer of Stella core-competencies to its now global operations. The appointment of two Non-Executive Directors, Managing Director and CFO all formerly of the Stella Group represents a further example of JTG to maximise potential benefits of corporate relatedness. This along with the operational synergies mentioned are anticipated to deliver significant economies of scope.
The logic of the above transactions is a classic example of a company seeking what is, in its industry, a rare capability. JTG is looking to attain economies of scope through both corporate and operational relatedness. It is hoped that stakeholders will be rewarded by what is in summary a corporate journey of related diversification and integration supported by a strong balance sheet. Whether or not JTG attains its objectives and does in fact become greater than ‘the sum of its parts’ is still to be proven.
An acquisition is different to a merger and a takeover, and for the purpose of this report, the acquisition is identified. An acquisition is a strategy through which one firm buys a controlling interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio (Hanson Hitt Ireland & Hokisson 2011). There are many reasons why businesses choose to go by acquisition. Some of these include increasing their market power, increasing the speed of market, increasing diversification, lower risks compared to developing new products and reshaping the firms competitive scope (Hanson Hitt Ireland & Hokisson 2011). During the process of acquiring an acquisition, there can also be a number of negative outcomes and this is discussed further in the report.
There are many issues that arise with a merger between one business and another. (Strauch 1990). Some of these include having too much diversification, business becomes too large, integration difficulties, inadequate evaluation of the target, large debt, inability to achieve synergy (Hanson Hitt Ireland & Hokisson 2011). This usually occurs during the post stages of integration. Some other operational issues that need to be addressed during this stage include constant communications between top managers, training of staff, set priorities immediately, keep the focus on clients and paying careful attention to cultural issues in the organisation (Roberts 2009). The issues with the acquisition between Jetset and Stella a vast and are now discussed in the report
The Australian Competition and Consumer Commission (ACCC) compiled a report that drew attention to particular issues relating to the proposed acquisition between JTG and Stella Group. This report did not give any final decision making views about the acquisition but rather giving of opinions and further measures that should be taken (ACCC 2010).
Some of the issues relating to the acquisition of Jetset Travelworld and Stella Group are now discussed. The first pertains to the retail supply of leisure travel products and services. This is due to Jetset and Stella being the two of three largest retail networks in Australia (ACCC 2010). The matter that will arise due to this is that product and pricing may differ and/or change due to the emergence (ACCC 2010). Jetset and Stella are currently each other’s closest competitors due to their similarities in business models (ACCC 2010). This issue will also lead to an increase in price of products and services being offered by its retailers due to the lack of competitiveness in the market.
The second issue relates to the supply of air ticket consolidation services. Before the acquisition took place, Jetset supplied through the business NTC, whereas Stella supplied through Air Tickets, which both account for a significant proportion of the air ticket consolidation services provided in Australia (ACCC 2010). Furthermore adding to this issue is that another major air ticket consolidator, Consolidated Travel, holds material interest in Jetset and 50% interest in the operator of the only other significant air ticket consolidator, The Orient Express (ACCC 2010). This means that there would be limited options outside the merged firm.
The third issue that may arise due to the acquisition is that of cost. Cost problems arise due to both Jetset and Stella being two complimentary travel groups together (Dery 2000). Some of the costs will rise for areas such as administrative systems, IT systems, advertising materials and personnel (Dery 2000). This will mean that profits will take a little bit longer to achieve during the initial stages of the emergence.
The fourth issue to discuss relates to the shares of JTG and Stella group. Reports have identified that there is no guarantee that shares will trade at or above the current trade prices (Dery 2000). This is evident in the Finance website. Here, it states that that shares are not at normal levels and that there had been a 20.2 % decrease in profits (Finance News Network 2010).
75 – 80% of all mergers and acquisitions fail and this statistic has been steady over the past 30 years (Roberts 2009). Therefore, creating extensive efforts for Peter Lacaze to ensure Jetset Travelworld Groups strategy implementation is effective from the beginning. If not, the business needs to implement the restructuring process. Restructuring is a strategy through which a firm changes its set of businesses or financial structure (Hanson Hitt Ireland & Hokisson 2011). This can be done through downsizing, down-scoping or leveraged buyouts.
Downsizing occurs due to expectation of improved profitability form cost reduction and desire or necessity for more efficient operations (Hanson Hitt Ireland & Hokisson 2011). Down-Scoping is a strategy that can lead to achievements above normal performance for poorly over-diversified firms (Carey 1999). Leveraged buyouts is the strategy between a company or a division of a company with a substantial portion of borrowed funds (Baker Smith 2003).
There are many reasons why businesses choose to diversify and grow, and the acquisition, merger and takeover of other companies are just some of the ways to facilitate this growth. Although there are numerous issues that can arise through acquisition methods as previously mentioned in this report, acquisition and diversification strategies can be extremely beneficial to a company leading to strategic competitiveness within the marketplace and are used to provide above average returns (Hanson, Hitt, Ireland & Hokisson, 2011). Acquisitions do not consistently produce above average returns for the acquiring firms shareholders. Some firms however are able to create value when using an acquisition strategy (Dickerson, Gibson & Tsakalotos, 2002).
Two means of growth for Jetset Travel Group (Jetset) was joining with Stella Travel Services and Qantas Airways Limited (Qantas). As reported in a Qantas media release in February 2008, Qantas Airways Limited and Jetset Travelworld Limited announced a proposed merger which will create a leading vertically integrated travel services business in Australia with significant growth potential. These two particular ventures were considered mergers as opposed to acquisitions as a merger is a strategy in which two firms agree to integrate their operations on a relatively coequal basis as opposed to an acquisition where a firm purchases a controlling, one hundred per cent interest in another (Hanson et al, 2011). In the Qantas transaction there were however assets acquired by each party. According to the media release from Qantas, under the terms of the agreement, Jetset will acquire Qantas Holidays and Qantas Business Travel from Qantas. This acquisition was in exchange for Jetset scrip. This merger and acquisition operation will result in a strategic alignment that will bring together two of the strongest brands in travel, capitalising on each business's individual expertise enabling them, as a group, to build the scale needed to grow into a major industry force according to Qantas Chief Executive Officer, Mr Geoff Dixon. In the same media release, Mr Dixon also said that the transaction would provide significant benefits to the business, their customers and shareholders as the complementary strengths of each of the areas were harnessed in the one integrated grouping.
The proposed merger of Stella Travel with Jetset Travel Group provides opportunity to integrate two complimentary travel businesses to create a significantly stronger and larger travel company. The merger proposal is the next step in the growth of Jetset Travel Group and will position the enlarged Jetset Travel Group to compete more effectively and explore growth opportunities in the Australian, New Zealand and International travel markets benefiting all Jetset Travel Group shareholders.
Acquisitions can be further defined as horizontal or vertical. The acquisition of a company competing in the same industry as the acquiring firm is referred to as a horizontal acquisition. A vertical acquisition such as the Qantas arrangement however, refers to a firm acquiring a supplier or distributor of one or more of its good or services. The firm is then integrated as it controls additional parts of the value chain (Hason et a, 2011).
Studies show that when the target firm’s assets are complementary to the acquired firms assets. An acquisition is more successful. With complementary assets, integrating two firms operations has a higher probability of creating synergy (Hanson et al, 2011).
This report has identified key information about Jetset Travelworld such as the implementation of corporate-level strategy, the logic behind this strategy, the reasons for growth by acquisition and issues arising from this acquisition. The main findings show that Jetset Travelworld's corporate-level strategy was of growth. This growth was evident with the most recent transactions with Qantas Holidays Limited, UniGlobe and Stella Group. Furthermore, the report gives definitions that have helped the reader to better understand key concepts and the focus of the report.
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