Qantas is making a dismal spectacle of itself at the IATA conference at Singapore.
In this morning’s reports by invited and hosted media the group’s CEO, Alan Joyce, says he is not going to spend any more money on “the premium international operation until they (start) to return their cost of capital” (SMH) and will “reconsider new aircraft orders” (The Australian.)
In these reports he also signals a new communications strategy from Qantas to rubbish its own core brand, by describing Jetstar and the frequent flyer program as subsidising the full service operation.
This is a reversal of the realities of massive subsidies or transfers of assets from Qantas to Jetstar, which if these inputs were truthfully detailed, would show a very different situation in terms of the relative performances of the punitive Jetstar experience and the premium Qantas divisions.
There are also inconsistencies in what Joyce is reported to have said. While he claims to be reconsidering new orders and is not injecting new funds into the international Qantas division, he is still taking all of the undelivered A380 order, which if true means they are suddenly ‘free’.
These statements seem to belong to the same genre as those claiming the pilot union agreement for a 2.5 percent pay rise per annum over three years equals an unsustainable 26 percent cost impost. The only thing unsustainable about this is the arithmetic. The only way to get anywhere near 26 percent is to count recurring costs that are already present as a continuing cost of doing business, and have nothing to do with base pay.
This claim by management is about as credible as its submission to the Senate inquiry into pilot training and airline safety, in which Joyce failed to acknowledge that the reason why a Jetstar A320 nearly crashed at Melbourne Airport in 2007 was the result of improper changes to the approved flight manual procedure for flying a ‘go around’ and that he was the then CEO of that airline and responsible for the unsafe and deeply flawed decisions taken by the carrier.
The burning questions this morning are why Joyce would slam his own premium brand and verbal its pilots and engineers at the leading international forum for airline managements only hours after the Qantas share price out-plunged the general retreat on the ASX?
Why does he rubbish the premium product which has been his responsibility for two years? Why does he describe its engineering and pilot unions as ‘rogue’ when their actions to date are lawful and fully within the prescriptions of Fair Work Australia, and are a consequence of an inability of management to secure a timely resolution of expiring industrial agreements.
One of the obvious reasons why the Qantas premium product is in trouble is that it isn’t competitively premium, which is his responsibility, and has a route structure which is variously inefficient or impracticable for many of the travellers that have crossed over to Emirates and Singapore Airlines, which is also his responsibility.
The latest act of management genius is a low frequency, range challenged flight to Dalls Fort Worth in a jet that can’t do the distance reliably, adds extra stops along the route for some passengers, and occasionally deprives them of their checked luggage as well as offering them a cabin amenity inferior to that on Qantas A380s.
Qantas may get soft media in Australia, and a soft ride from those who are indulged with free entry to the Chairman’s Lounges. But Joyce is in a room in Singapore where has competitors can see right through him, and must wonder how much longer the airline will continue to provide them with easy pickings.
21 Comments
A cutting analysis, and very, very true. I sold my QAN stock this morning. I’ll continue to travel with them when suitable, but can’t see it’s not exactly looking good without a significant rethink of their real place in the market from management.
Joyce should use his time at the conference to get some tips from JB on how to run a forward looking company.
From this weekend’s Weekend Australian
“Qantas chairman Clifford denies rift with Joyce ”
Corporate shake ups usually start with a denial of what is likely to occur…..
or in other words,
Denial is not just a river in Egypt…..
WTF! Game on Alan. Let’s talk about the brand, where it was, is, and just who has damaged it.
Of all the elements a board and a CEO must manage and protect, surely building and protecting the brand of a company must be their number one priority.
Clifford came out swinging on the weekend saying the focus of the board and CEO must be, and is, on the share price and return of capital. But it is the brand that drives the share price, not the other way around. Everything else flows from that.
If you followed that logic Jetstar never would have been started and Virgin wouldn’t be spending a fortune relaunching and building the brand. If Virgin can do that, why cant Qantas?
Let’s look at the facts. This is marketing and business studies 101.
Qantas from the inception of the very first brand surveys decades ago consistently and without exception, year in year out, always lead the pack as the NUMBER ONE BRAND in Australia. This was not just in terms of brand recognition but also in relation to the more significant drivers of financial success in the market place; trust and emotional attachment for the brand.
The Qantas brand was pure 100%, 24 carrot, rolled gold.
This was Qantas’s number one asset. It still should be. Bigger than all the aircraft and other tangibles combined. Every airline has plant and equipment, but only Qantas had that number one position, the ultimate in brand power.
After sitting at number one for decades Qantas is no longer even in the top ten. But worse than that here’s a report from Readers Digest annual Most Trusted Brands survey way back in 2008.
” … the iconic flying kangaroo, Qantas, dropped 47 spots in consumer confidence.”
You read right. In 2008 Qantas dropped 47 spots.
That massive drop in the brand if quantified in dollar terms is so much more than the net worth Jetstar has added to the Qantas group.
Continuation from previous post:
So what happened. How did the best, most loved, number one brand in Australia for decades crash and burn. So quickly. So badly.
There are two main reasons for this. And they have names, the first being Dixon, the other Joyce. The destruction of the brand has zippo to do with the current biffo with the unions.
1/ When Dixon took over as CEO the Qantas brand was still riding high and proud at number one. It was untouchable. He was seen by many as marketing and PR genius. Yet the destruction of the Qantas brand can be traced back through these exact same brand surveys to having commenced during his tenure. It is no coincidence that this rapid decline coincides EXACTLY with the rise of Jetstar under the Qantas umbrella.
BA when they held seats on the board warned Dixon an in house low cost carrier would cannibalize the parent brand. Dixon thought he knew better.
We all know the story. As soon as Jetstar was launched Qantas pissed off many local communities with the haste it pulled out of so many key domestic and international markets and forced people who were used to, and wanted full service, onto Jetstar with an appalling lack of service.
Everyone knows Jetstar is Qantas. Each and every time people feel ripped off or mishandled by Jetstar, which is often, the knife is dug deeper and twisted further into what is left of the Qantas brand.
Just ask any of the tens of thousands of passengers forced to fly Jetstar (because Qantas has pulled out) to destinations like the Gold Coast, Sunshine Coast, Tasmania, Hamilton Island, Bali or Japan. They don’t blame Jetstar, they blame Qantas.
2/ From the day Jetstar was conceived fleet renewal and investment in the mainline product ceased almost completely. While Jetstar got an entirely new fleet of fuel efficient A320/A330 aircraft “full fare” passengers on “full service” Qantas were stuck with clapped out, gas gusling, dirty and unreliable aircraft. The new Dallas debacle is a perfect example.
As you point out Ben, when Qantas could have, should have been renewing its mainline fleet, such as buying 777 as did all of its main competitors, there was no money or motivation as all the focus and cash were thrown at Jetstar.
Clifford and Joyce had already earmarked the first 787s for Jetstar, meaning Qantas mainline will not be seeing any new aircraft for many years. Just who has been subsidising who?This only serves to compound the destruction of the brand.
Joyce is now the biggest most vocal detractor of Qantas brand, constantly screaming hysterically that long haul is in serious trouble.
What would the books look like if Qantas had, as it should have as the premium brand, a fleet of all new and super efficient aircraft while the budget arm Jetstar was stuck with the old aircraft from the current mainline fleet.
A/ Jetstar would no longer be making money
B/ Qantas mainline would likely be making money
C/ Qantas would have a product people expect of a full service carrier and it would be growing its market share.
No one at Qantas either remembers nor understands these important lessons from history.
The only player who appears to do so is John Borgettii. You can see he ‘gets it’ by his determination to invest substantially in a full service product, to grow markets such as this morning’s tie up with Singapore Airlines, the business and the Virgin brand.
He knows where Qantas is vulnerable and it is insightful too that he is branding Virgin Australia as the Australian airline and he is vocal about returning jobs to Australia service his aircraft here.
Well said SoB if only the mainstream media would actually invest some time in being journalists rather than merely being a conduit for media releases, we might actually be able to read the full picture.
Qantas also handed Virgin the biggest free kick by overlooking John Borghetti and importing Alan Joyce to take Dixon’s place. I’ll bet Virgin couldnt believe their luck when it happened and welcomed JB with open arms, along with all the knowledge that Borghetti had.And half the time i cant understand Joyce when he is being interviewed.
cui bono?
This is like a replay of Telstra under the previous MD – we knew who got the bone and who got boned, there.
Ben,
what I would like to know is where is ASIC in all of this!?
Your assertion “This is a reversal of the realities of massive subsidies or transfers of assets from Qantas to Jetstar, which if these inputs were truthfully detailed, would show a very different situation in terms of the relative performances of the punitive Jetstar experience and the premium Qantas divisions.” seems pretty spot on and one of the primary duties of a company director is to CORRECTLY inform the market about the viability of shareholders investments. If there is prima face evidence that the QANTAS directors are misleading shareholders, which is a logical conclusion of your assertions, then they should be being investigated.
Zarathrusta,
I share the quite widely held investment community view that ASIC is willfully slow to act on its responsibilities and has no intention of taking action in this or similar cases. We can reasonably guess that if it all goes seriously sideways ASIC may (eventually) offer the view that as this is a question of how the board shifts assets around inside an entity in which the shareholders own the entire group, it has no reason to act.
If however Qantas were, hypothetically, to try and sell off components of its business, say Qantas international, or Jetstar, then these matters became important in ways that not even ASIC could ignore, well, for more than five or six months anyhow.
Message to JB: I will jump ship if you make me a deal for my QC Life! A deal?
As each day passes the era of Alan Joyce (and the entire Qantas board for that matter) in control of our national carrier becomes more and more disastrous for what was, and what still could be, a great Australian company.
Interesting to note than Alan’s sagacious comments regarding the state of the airline industry are not supported by other airline CEOs (notably BA’s Willie Walsh and Cathay’s John Slosar). One gets the feeling he must be considered a fool by his international peers. Certainly the share market seems to have reacted as such.
Alan’s statements that he is not going to put any more money into Qantas international, apart from further trashing the brand name and thereby exacerbating Qantas’ woes, makes about as much sense as saying “I’m not going to spend any money getting my car fixed until it starts working better”.
Alan’s number one job is to protect the share value of the airline. His strategies have done anything but that.
@flyboy125
Actually, AJ is saying “I’m not going to spend any more money on my car until it starts working better, the engine starts running on stale cat urine instead of premium unleaded and I can replace the current set of high quality Australian made wheels and tyres with some bin lids I found on ebay.com.sg”
You have to ask the question, when is AJ going to take responsibility for the decisions that him & his management team have so sadly made with regard to the International Division? The only blame coming out of his mouth is unions & rising fuel costs. Qantas has always successfully managed to hedge it’s fuel costs in the past, so I have to ask is he now telling ‘porkies’ about increasing fuel costs or again has he showed his complete incompetence as a CEO. As for the unions AJ seems to be unaware that all current conditions of Australian based employees have been negotiated & agreed by QF & relevent parties & registered as lawful agreements with what was the Industrial Relations Commission, now Fair Work Australia.
We all need to remember that AJ came from Jetstar, where every move he made was dictated by G.Dixon. He did what he was told & now that his instructor is gone he looks like a man drowing.
Let me see if i have this right :
A purported “2 brand strategy” ; have one’s own premium carrier provide the expertise and financial backing to develop and support a low cost carrier. Then have this low cost carrier compete with the premium big brother on routes on which Big Brother had essentially operated on without any real formidable competition. Now go develop that same low cost carrier overseas in a foreign country where cheaper operating costs exist, and pick an air fare fight with them on their turf, such that they will respond by developing their own low cost carriers (which they can do much better than QF because they are locals and have that local knowledge and know how) so that our low cost carriers now bleed the premium Big Brother carrier of both routes and passengers. All this in the interests of moving the bus travelers, whom you have to remind “that the removal of parts from the aircraft interior is theft and a prosecutable offense”.
Yep sounds like solid management to me …. not !!
After reading whats been written and as I too watch the share price drop (waiting for it to hit bottom and wade in) I can only assume a number of theories.
JS has been up and running for enough time to wipe its own ****, that this then is a ploy to throw it from the nest and have it fly on its own. Driving the price down would thus justify the excuse for doing so. This would then enable QF to distance itself from the discount perception it has unwittingly obtained for itself and JS would be profitable under its own steam.
QF can only then return itself from the mess it got itself into (consciously or not?) But needs to drop desperate attempts like Dallas to drive its price down as AJ is doing that bit nicely on his own? and concentrate on its own backyard and traditional routes. That’s where the money is here and flying to Europe, LA, China and India.
Yes it is about brand at the end of the day as coca cola isn’t coca cola unless the ribbon is on the can. But if you make CC taste like cats p** then it doesn’t matter what brands on the side.
That’s what the management have done to Q they made it taste off.
For some unknown reason they still struggle with the belief that they will be successful just because they are “QANTAS”
Time they spent some serious sessions in the room of mirrors having a long hard look at themselves. Leave their collective ego’s at the door and get their hands dirty. Negotiate the pilot/tech/handler issues and start returning the flying kangaroo back to its rightful position as the nations number one choice.
But do it in a time frame that allows me to take the ride as it battles back to profitability.