Qantas is going to announce a restructuring of its loss making and shrinking international division on August 24 that will cut deeply into existing routes, involve an Asian initiative, and will depend strongly on joint ventures with other airlines.
Some of the broad details, and other clues as to its nature, were given by Qantas CEO Alan Joyce in an address to the National Press Club in Canberra this afternoon.
Joyce said that hard decisions would be revealed when the restructuring was announced on the same day that it reports its full year results for the year to June 30, for which revised guidance of an underlying profit before tax of over half a billion dollars was filed with the ASX earlier today.
“Qantas international absorbs more capital than any other part of our business,” he said. Joyce said the situation was insupportable and, comparing it the situation in which Ansett collapsed in 2001, said that without major changes, it threatened the survival of the entire Qantas enterprise.
“Qantas international sells at Australian costs into an international market with international and lower cost bases,” he said.
He said that these were as much as 24 per cent lower than the Qantas costs for long haul flying.
Referring to ‘building a Qantas international for our times” Joyce said it would involve the leveraging of multiple joint ventures or joint business agreements with a set of strong alliance partners to a much greater extent than Qantas does today, and he referred to the example of the joint services agreement with British Airways, which has operated for 15 years.
At the same time, Qantas would, to summarise his words, cut off some under performing routes.
He also said Qantas was looking at what it would do in Asia, and was evaluating a range of options. (Qantas has previously confirmed that it is working on the setting up of a full service but low cost base airline based in Asia, and that it would reveal more about that by December.)
In what could be an important clue supporting a decision to set up an off-shore full service Qantas operation, Joyce said the rising importance of Asia to Australian business travellers saw its customers increasingly flying to and within Asia, rather than going to Europe via Asia.
“We will cast a ruthless eye over the non-performing parts of our international business. We will take the hard decisions” he said.
Joyce said that restructuring Qantas international was essential to growing Australian jobs in a business that could generate sustainable profits.
He criticised the Australian and International Pilots Association and the Australian Licensed Aircraft Engineers Association for having ‘fallen out of touch with reality’ and making job security demands with amounted to a ‘veto on change’ that would prevent management taking the actions needed to save Qantas.
“Qantas International will have to change. It will become …. more efficient and integrated into global networks but remain Australian in name and nature,” he said.
The Q and A session at the luncheon was disappointing, in that no one raised the issue of the subsidisation of Jetstar through the transfer of assets to Jetstar and the paying of some substantial Jetstar costs by the full service Qantas operations.
Commentary The disclosures made by Joyce mean that the incomplete enterprise bargaining negotiations with the pilots and licensed engineers are now being conducted without the unions knowing what material changes to the Qantas business are going to be introduced early in the lifetime of the agreements.
They also mean that investors know that major changes are being made to the Qantas business, but not their details.
Update: Pilot reaction
Given general media reluctance to publish the labor argument in this story, this is part of the response the pilot union has made to Joyce’s speech.
Although full details of the plan will not be announced until 24 August, Acting AIPA President Richard Woodward said Mr Joyce’s speech was a clear softening-up exercise for what promises to be a move that will anger the Australian public.“Make no mistake – what we heard today was an announcement by the CEO of Qantas that he plans to tear off a big chunk of the ‘Spirit of Australia’ and dump it somewhere in Asia,” Captain Woodward said.
“By deliberately talking down the international brand, Mr Joyce is hoping to justify a move that is completely unjustifiable in the eyes of the travelling public.
“Australians have taken pride in their national airline for 90 years and they are unlikely to relish the prospect of seeing it stripped down and based in Southeast Asia.”
Captain Woodward said Mr Joyce’s continued attacks on pilots were disappointing.
“It’s very difficult to watch the CEO of Qantas announce plans to send a national icon offshore while simultaneously taking pot shots at Qantas pilots who love and respect the brand more than anyone,” he said.
“Our industrial claim is a simple one: we want experienced Qantas pilots to operate Qantas flights. We are willing to negotiate on just about any aspect of pay and conditions to make this happen.
“Pilots, like most Australians, are desperate to see Qantas succeed as an Australian business. We want to work with management to make the business function even better into the future.
“The safety culture and trustworthiness of Qantas pilots is a key asset of the brand. Mr Joyce should recognise that and work with us to achieve a favourable outcome. All we want is an assurance that if a ticket is sold on a Qantas flight there will be a Qantas pilot in the cockpit.
“It’s time passengers, politicians and the public decide whether they want an Australian Qantas or an Asian Qantas. We’re rapidly approaching the crossroads.”
21 Comments
Yep, Australian in name and nature, just not Australian in reality.
Weasel words from a particularly large one.
Well may Woodward condemn Alan Joyce for “deliberately talking down the international brand” but what he doesn’t realise is is that the constant threat of industrial acton by AIPA is equally damaging to that same “international brand”. Many many punters are voting with their feet and travelling with other carriers because of unceratainty as to what the pilots and the ALAEA will be doing. If AIPA really want to see Qantas grow and prosper, they will drop their delusional claims and put their full weight behind the efforts of Alan Joyce to make Qantas the best airline in the world. Like it or not, the negative clap-trap from the disaffected and unengaged does have a negative impact. It’s time for the pilots to move into the real world and the 21st century. One can only hope that Woodward’s aviation skills are better than his rhetoric!
Ken,
Why don’t you fess up and admit you’re a troll?
As SLF I take a customer view of this situation and to be honest, most other customers I talk to – we’re on the side of the pilots.
We all want a well trained, rested, well paid Qantas jock up front – Not a kid who’s overtired, undertrained, and under servitude to an airline.
I thought Woodward’s comments were more than reasonable – Focus on putting a Qantas pilot up front and we can negotiate everything else.
So the Irishman will trash our nationally symbolic airline, turn it into an asian star and then walk away from the ashes.
Well said Mark Parker, my thoughts exactly.
Mark Parker,
Simply because one holds a contrary view, it doesn’t make that person a troll as you so inelegantly describe me. You may be SLF – a perjorative if ever there was one – and are certainly entitled to your views but I suspect that after decades in the industry, I will have forgotten more about commercial aviation than you will ever know. After years of observation and participitation, I have a very good appreciation as to the lie of the land. I thought Alan Joyce’s speech and the sentiments expressed excellent. I can’t say the same of the questions that were put to him: they were as searching as a bag check at the local footie ground. Now, slag off at me again if you wish but it does you not reflect very well on your PoV or position: attack my argument all you like but, please, no more vindictive and gratuitious comments.
Cheers
Ken.
I don’t want to take sides here, as I don’t know the full details of what each side is saying to the other side.
That said, I find it very interesting that Joyce *seems* to be blaming international’s failings on, loosely, the unions.
Does that mean that all of the decisions made by Qantas management in the past, especially those in relation to international, were faultless?
The constant harping by Qantas management about the unions and various natural disasters *seems*, to this interested out-sider, to be a failing by management to recognise their own management failings. Looking back through – even recent – history, there have been natural disasters every year that have taken their toll on airlines. Wouldn’t it would be prudent to expect the unexpected natural disaster, for example, and plan for it?
I don’t doubt that some of the unions’ “requests” could be detrimental to Qantas. But I do doubt that all of the fault lies with the unions.
@Mark Parker
“We all want a well trained, rested, well paid Qantas jock up front – Not a kid who’s overtired, undertrained, and under servitude to an airline. ”
Mark, got any ideas how the airline can do that with a negative rate of return? This is the problem, and I don’t have a full answer : do you? I agree I want Australian pilots up front, and am willing to pay a fare difference to do so. Unfortunately, I don’t think your
typical plasma screen gimme gimme gimme bogan really cares. They’ve enjoyed air fares that have dropped massively in real terms in the last 30 years, and I can’t see them giving that up.
The partial answer as a starting point IMHO, is for QF to demand the government ‘levels’ the field in regard to its grossly subsidised competitors (Emirates, Singapore Airlines, Cathay etc). These guys enjoy low/no tax, free aircraft and governments that regard them as national assets worth investing in. Qantas could also get the government to get the usurous Australian airport owners back under pricing control (they’ve been asleep at the wheel on this issue). There’s also got to be some give from the pilots (which it sounds like their willing to do). As for the engineers: the $150K gig wing-walking aircraft might be up. They’ve had it very good for a long time, and like it or not, their job has become somewhat commoditised.
It would be great to hear some creative ideas from the public on how to ensure the airline is on a financial footing that allows it to prosper, let alone survive. At the moment, all we hear is polarised point-scoring from both sides, or uninformed criticism of the airline management that ignores basic commercial reality.
Qoute: “Joyce said that restructuring Qantas international was essential to growing Australian jobs in a business that could generate sustainable profits.”
Like, create more Avalons?
Australian workers are in a no-win situation, thanks to being made to compete in a global economy, and the western governments which blindly support this agenda without regard to their local work-force, and the skills and feed-back into the economy thus generated.
Ken and Peteyboy,
I would suggest not only is it highly desirable to have “a well trained, rested, well paid Qantas jock up front – Not a kid who’s overtired, undertrained, and under servitude to an airline”, its absolutely essential. Anybody care to be operated on by the cheapest surgeon money can buy?
In the overall breakdown of airline costs, having well trained, experienced and accordingly, well remunerated professionals in the Cockpit does not add significant burden to the bottom line. Joyce’s ‘vision’ to employ poorly remunerated (and hence bottom of the barrel standards-wise) pilots (compared to world standards) working under the most onerous conditions will most probably result in a very negative impact to the bottom line – ie hull loss (with associated loss of life and complete destruction of Qantas’ reputation, something Joyce seems hell bent on pursuing).
I watched the entire Press Club presentation by Joyce and cannot agree that his speech and sentiments were “excellent” – quite the opposite really on all but a few points.
His proclamations about the resounding success of Jetstar in Asia (hence giving credence to his poorly concealed intention to go-ahead with the new full service entity) ignores the fact that Jetstar Asia has lost over half a Billion dollars since inception and Jetstar Pacific is an absolute basket case. It would also be very difficult to believe that Jetstar International has had a particularly good year considering events in Japan and NZ. The subsidisation of Jetstar in general is common knowledge (and obviously that has to come off some part of the business’ bottom line).
Has Joyce’s management team demonstrated any capability to ‘pull off’ this new full service carrier in someone else’s backyard? The last two experts he sent to Vietnam ended up under house arrest for the best part of 6 months (and the airline is still a mess). He continually harped on about the demise of Ansett yet most of his executive team were part of the Ansett executive when it failed. Hardly a rock solid pedigree.
A positive note was Qantas’ proactive approach to pursuing the facts regarding the threat posed by the volcanic ash cloud (by engaging specialists and specialist equipment). Its a pity he doesn’t take this approach to the rest of the business (ie deal in fact, not rubbery figures and rubbery logic to engineer a Human Resources outcome).
Finally, I thought his statement about driving to Canberra vice displacing a customer was craven rather than noble. Here was a perfect opportunity for Joyce to take a jumpseat in the cockpit and actually talk to his staff (particulalrly his pilots) and get some feedback from the ‘horse’s mouth’. Instead, at great expense to the company (considering how much this guy is paid per minute) he took the chauffeur driven limousine to avoid contact with his own staff.
Cowardly if you ask me.
Top management continually blaming employees for poor organisational performance, particularly coal-face employees representing the company to customers is really the beginning of the end for the organisation. And it seems clear that this is the desired outcome Qantas top-management, influenced by the previous generation of top-level management (yes they are still around in the dark-remember APA?) desire.
Look at it simply:
- Qantas mainline, (the true mainline not the current management’s definition including subsidiaries) clearly in the past and currently does, heavily subsidise other Qantas entities, dare I say including Jetstar. This is not up for debate. Consequently, the idea of an under-performing mainline operation is questionable in reality.
- The company has inherited resources and a structure put in place by top-level management for short term gain to facilitate a sale (APA) to primarily benefit a small number of privileged people at the top. The flow on effect of this is an inability for mainline to realise the required path for long term survival.
- Internal transfer of business to Jetstar and Jetconnect: why? Have a look at who is involved in leasing aircraft to Jetstar. Have a close look.
Mainline as it stands has served its purpose, that of a springboard to launch other entities which support the business and financial outcomes desired by a small few.
Accordingly, there is no reason for mainline to survive as it does- a transformation process is now required to make even more money for the elite few.
Reality Hurts
The statement that asian pilots (exept Indonesians and Indians) are not as good as Australian trained pilots is not correct. The statistics on pilot error are about the same in our region for all airlines. Singapore Airlines has a very good record with on time running and beats Qantas in all Skytrax indicators. So if the government of Singapore is to be the regulator of Qantas pilots based in Singapore whats the problem.
gapot, the real issue is the approach that management in Qantas are taking. Alan Joyce has continually pushed the point (even in the recent senate inquiry) that technology has effectively replaced the requirement for experience and also, if you read through the man and observe practices pushed by him, minimising training and turning a blind eye to management of fatigue with pilots. Jetstar are fortunate they have a bulk of good operators in the pilot world at this stage however, the path this company is taking, under heavy direction from senior management, will ultimately lead to issues with safety. The latter is not a light, ill-thought statement. Pilots do not need to continually worry about pay, conditions, what management think of them and specifically, they should not feel pressured to extend duty and go to work when they are tired or fatigued. They should not be coerced to compete with each other to save fuel or tie performance measurements such as on-time performance to promotion prospects or income. The potential outcomes can be readily seen. Remember the Garuda 737 runway overrun a few years ago? I encourage all to read the accident report to see the relevance of what is stated here and that particular accident. Some of these issues are becoming apparent in Jetstar and if the grand sub-division of mainline into separate entitles, whether in Asia, Australia or elsewhere with commensurate inheritance of ‘complete power’ to management, the complete Qantas group will be run like a sausage factory- the catch is process type, totalitarian top-down approaches do not work in such a safety critical environment.
Qantas Revenue grew year-on-year until 2008. Alan Joyce took over in 2008.
The CEO goes on about Cost of Capital. Other full service airlines (eg. Lufthansa, Air France) have higher Costs of Capital. They also have higher revenues, higher profits. They also have leadership and innovation.
Alan Joyce was brought in to oversee Jetstar, he somehow landed the Qantas CEO job ahead of more experienced and better qualified candidates. The experiment has failed.
The Board is asleep. The CEO is out of his depth. Customers are voting with their feet. Competitors are slowly and methodically picking up the pieces of this debacle.
Will it take another Ansett before the Board and the Politicians realize 33,000+ jobs are at stake here?!
Flyboy125,
We must have listened to different addresses by Alan Joyce for nowhere did I hear him say that he take “the chauffeur driven limousine” to Canberra. That’s by-the-by but please enlighten us how he would be permitted to ride on the jump-seat of an Australian commercial aircraft? Do CEOs receive an exemption from the relevant CARs? And by talking to pilots, how much could be learn about how to restructure the Company? Like everyone else, the pilots all have opinions as to how to ‘fix’ Qantas but are their opinions supportable and sustainable? Like most, their opinions are tunnell-like and do not have the benefit of the expertise that a CEO and Board would enjoy.
Ken
Now Ken, I would find it very hard to believe that Alan has gone out to the airport, gallantly decided not to fly, joined the lengthy queue over at Budget, pulled out his Frequent Flyer card, hired the Hyundai Getz and driven himself to Canberra.
Quite happy to stand corrected on this however.
Realistically if he was to take the Hume highway option it would be far better that he actually were in a limo as at least he’d still be somewhat productive on the road (although considering the grand plans he’s working on, that’s probably very debatable).
As for flying on the jumpseat, according to a colleague, most middle managers have a red background ASIC (the basic requirement for cockpit access) regardless of whether they are from HR, Marketing etc and these personnel often seek out a jumpseat for work travel if the aircraft is full. Accordingly I would find it incomprehensible that Joyce does not have the same access.
If he doesn’t have a red ASIC, then maybe he should. He might get to know a whole side of his business that he seems to be completely clueless about.
Its amazing how many CEOs of successful businesses and airlines stress the absolute importance of getting out onto the coalface and engaging with their staff in order to get a true appreciation of the state of play. Your glib dismissal of pilot opinions both in the Joyce-jumpseat-scenario and in general (as opposed to the blind faith for the CEO and the board) seems quite supercilious.
Its obvious we are diametrically opposed in our opinions Ken, I respect your right to have your views but I can’t agree with any of them.
Could QF Intl post August 24 look something like this? Here’s my hypothetical:
- Based in KL. Thus allowing a Joint Venture with new Oneworld member MAS. A new Asia regional hub created. QF sponsored MAS into Oneworld so can only think this is a strategic tie up for this reason.
- Does Changi continue to be the hub for Jetstar European 787′s & Jetstar Asia?
- No QF flights to Africa or South America (Codeshares to J’Burg via Perth with SAA, to Santiago & beyond with LAN)
- All London/Frankfurt flights to go via KL.
- London flights via HK: gone. Codeshare with Cathay.
- LHR Via Bangkok: gone. go via KL. (MAS) or go to Bangkok on Jetstar or go to LHR on BA.
- Manilla: gone. go via KL. (MAS)
- India: gone. go via KL. (MAS/Kingfisher)
- Tokyo: maybe gone. go via KL(MAS)/HK(CX)?
- QF SIN flights now to move KL. Jetstar to fly to SIN.