The commentary Qantas CEO Alan Joyce gave yesterday concerning the restructuring of its international services means August 24, when all is revealed, will be a flag lowering day, a bloody day, with the loss of experienced pilot jobs and a retreat from poorly performing routes after what he promised would be a review made with ‘ruthless but honest’ eyes.
If ‘honesty’ is at play in these decisions, much more detail is required.
Just how much has the claimed poor performance of an airline Australians expect to service their links to the world been a consequence of gifting jets and other benefits from the full service brands to the Jetstar brands?
How much of it has been poor fleet and route decisions, which have seen Australians choosing faster and easier trips on other carriers, even if, as sometimes happens, they pay Emirates, Singapore Airlines or other competitors slightly more for their services?
Surely it has cost hundreds of millions of dollars more than the $200 million Joyce predicts Qantas international will lose in the year to June 30, a situation so bad he says it threatens the very existence of Qantas as a group.
It is rare for Qantas to reveal the performance of its passenger carrying brands in isolation from each other.
Investors are told how much the so called ‘loyalty’ program makes from selling frequent flyer points to people selling petrol, groceries and or running card programs, but as a matter of policy, the actual figures for Qantas domestic, Qantaslink, Qantas international, and the Jetstar franchises, are mix mastered into a blend as commercial-in-confidence.
But not yesterday. At a National Press Club luncheon at which reporters asked the most obsequious and feeble questions Joyce has probably faced in his career, he said the overseas full service operation would lose $200 million on a $5 billion investment.
While the cross subsidisation of Jetstar by Qantas is a zero sum game for investors, it is also the dark matter that distorts the visible Qantas universe.
When investors, and government, and employees, are told that Jetstar is the highly profitable growth engine of Qantas group operations, they are kept in ignorance as to how well Jetstar and the full service brands would perform if billions of dollars worth of Airbuses, much of their fuel, and some of the maintenance, training and other costs of Jetstar were reported on a divisional basis, rather than blended into a mystery pudding.
These figures are also important because without them, the slaughter that is coming to Qantas long haul cannot be truly assessed by the investment community as a brilliant strategy, or as a potential disaster for the Qantas brand and its future.
Whatever the fiscal truth about Jetstar, and there is no denying its success in winning low fare customers (but discouraging higher yielding passengers) it is not a $10 million dollar seed capital venture like Virgin Blue, which took and kept more than 30 per cent of the domestic market.
Instead, Jetstar has been a massively costly exercise for Qantas. A very successful exercise, but one lacking in transparency in terms of the relative performances of all the Qantas divisions if their costs and assets are fully accounted for.
How real is the $200 million loss for Qantas international? Not only is that under a cloud, but so are management decisions that would easily account for that $200 million in botched fleet decisions, uncompetitive product, and appalling network and schedule strategies.
It is almost as if Qantas international has been robbed of assets and set up to fail.
Qantas is considering a number of international options. Its impending embrace of more joint business ventures with other carriers is widely admired in other markets where it has been used to deliver benefits to investors and consumers alike. It is precisely what Virgin Australia is doing with its ventures with Singapore Airlines, Etihad, Delta Airlines and Air New Zealand.
However going on recent decisions, those deals only get regulatory approval in Australia and abroad if there is a guarantee by the parties to maintain existing capacity, rather than reduce their combined operations.
The other card Qantas has showed is the off-shoring of activities in which a controlled or financed subsidiary based in Singapore, or Kuala Lumpur, or perhaps Shanghai, takes over some of the flying Qantas does to and from Australia at lower wages and conditions, as well as participating in traffic originating in the region hosting the enterprise.
This comes with risks on a scale comparable to those Qantas is seeking to retire by quitting some of its loss making Australian based long haul flying.
Two things may happen to Australian forays into strongly defended Asian markets. They may get eaten alive by the established national competitors, whether breweries, or factories, or distributors, or airlines, or eaten alive by them as supposedly equal partners in a common venture.
Qantas has already revealed its hand in relation to flying costs at Jetstar, proposing a labor sharing arrangement in which pilots from its Asia based and New Zealand franchises could also be shifted into Australia for duty tours, for the terms and conditions under which they are employed in their home countries.
The emphasis Qantas is placing on solving its international underperformance is good. But are the answers rigged?
This report first appeared in today’s Crickey Daily Mail bulletin
14 Comments
Hi there,
Was watching a video from a real business leader about the importance of a strong base in the country of your origin. In this case it’s Nissan and Carlos Ghosn – worth a watch – if you cant watch it all – watch from minute 35 about the importance of Nissan working in Japan regardless of global pressures and expansion.
http://www.reuters.com/video/2011/06/23/nissan-to-accelerate-growth-in-brazil-sa?videoId=216220647&videoChannel=5
Are you listening Qantas?
One can only hope this gets in the hands of Xenephon because what Joyce and Dixon are doing is robbery and whiteanting of an Australian built company, It is horrendous what they are doing and they dark arts they are employing in their sleight of hand moves.
Please get this out there
I agree with mostly all of this – excluding the product uncompetitiveness. The QF A388 product, even in Y is as good as any other full service carrier I’ve flown with.
From the get go Jetstar was handed money , routes, aircraft , infrastructure and anything else they needed…it’s very easy Mr Joyce to run a LCC when your parent company picks up the bills.
Joyce and his band of LCC geniuses have no idea ( nor do they care ) how to run a airline which offers a premium product. Actors doing ‘ star jumps ‘ and over priced kiosk food doesn’t cut in the premium market. But they know this…. or do they ?
If the secondary school….. I mean primary school eisteddfod performance at the Domestic Terminal to launch the Sydney to Perth product was anything to go by, it’s all over folks.
As the saying goes ‘ couldn’t organize a p*ss up in a brewery’, .. maybe they could if someone else would shout.
Mr Joyce you’ve surrounded yourself with a bunch of bunnys who don’t know, that they don’t know anything about the Aviation industry……. your all out of your depth………
I’m willing to consider that there may be some level of assets which under accounting rules could feasibly be assigned to either QF or JQ, but even with Joyce’s possible bias to his baby, I find it really hard to believe that Joyce and the rest of QF senior management is stupid enough to believe that they can move around a massive bunch of assets to show JQ is profitable via cross-subsidization. I find this continuous claim that senior management is fronting a massive conspiracy a bit tiresome. If nothing else it could be considered fraud on a large scale given the continuous and public claims from QF as to the relative performance of its divisions if it is true. Can anyone provide reputable public information that this is occurring, and not hearsay from people who are on the other side of the negotiating table to QF management?
Also, my sympathy to the pilots et al at QF who are vigorously defending their position, but given the very global nature of international airlines in a globalised economy, just how long do they think they are going to have a job at QF based in Australia if their pay levels and Australian basing costs are substantially higher than pretty much all of QF’s competition? Australian and similar airlines are already at a massive disadvantage to those who are able to enjoy national pride over profit.
Ben, ok some of the trade union bogans might buy this argument but anyone with half a brain realises that Alan Joyce and Geoff Dixon cannot be fully blamed, nor can conspiracy theories about cross subsidation of maintenance for JQ aircraft.
I was a former AN employee when it folded and I still remember the unions carrying on with their conspiracy theories about Air New Zealand stealing AN resources and flying them home to Auckland. Anything to deflect from the rorts and uncompetitive workplace practices installed by the union heavies. Who will ever forget the only ever flight engineer on the worldwide 767 fleet? LOL
Ben, here is a question you may choose to highlight? Should baggage handlers employed by Qantas receive 100k a year incomes? Now I don’t wish to offend anyone or downgrade this important role within an Airline, however, I bet SQ, CX, EK, EY or QR don’t pay this equivalent amount. Put simply, QF will never truly compete on network terms with these carriers with such an extensive cost base, an you can bet if this is the go for baggage handlers, similar stats could be found elsewhere across the business.
Further, a fleet of 777E’s or 777L’s may have helped QF with some of those long and thin routes to Europe, however, they certainly wouldn’t have helped the cost base having another fleet type similar in size to the A330 models.
It is unfortunate that you never choose to write negative articles about Virgin or Air NZ or SQ. YOUR clear anti-QF bias in almost every article lowers your credibility with each passing day.
Ben, i could’nt agree more. You have to wonder if Allan got to hand pick those journos at question time. Absolutely pathetic questions, as soon as they said which outlets they represented i knew it was time to switch off.
Great piece Ben, it’s good to see someone call him out on his un ‘commercial-in-confidence ‘ announcement about the International business.
What Melbourne based equity fund has made a big run on QANTAS shares in the last few months ?
With all this subterfuge, is Bud Fox & Gordon Gekko at play…
As for your comment aje55963….. I stopped reading after ‘ former AN employee ‘.
@aje55963 “I was a former AN employee when it folded and I still remember….”
Ah yes… another fine Australian Airline that Alan Joyce had a hand in destroying!
@TomM “….pay levels and Australian basing costs are substantially higher than pretty much all of QF’s competition?”
Maybe it costs a little bit more to be based in Australia, but the only thing Qantas has going for it is it’s brand …..’the spirit of Australia’. People have always been willing to pay the small premium to fly on their national carrier because they believe they are getting Australian Pilots & Crew and flying on the world’s safest aircraft that are maintained in Australia. Throw that away and Qantas has nothing to offer over it’s ruthless Asian competitors. They will be crushed.
aje55963
I think you will find that Virgin engineers are paid about $30-40K more per year
@Kenneth Noisewater: that may help for the Australians who are willing to pay the bit extra for QF, but it doesn’t help when the vast majority of the world’s population (including probably the majority of Australians) are happy to fly Emirates, Singapore etc at similar ticket prices who have vastly lower cost bases, and that’s before considering the LCC such as Air Asia. I’m very happy to concede that QF’s management has not always been its best friend, but I don’t think that gives the unions the right to ask for big increases in total wage packages and guaranteed job clauses.
TomM – they have not asked for big wage increases in fact they have not asked for one at all. They took pay freezes over SARS – What did management do?
Also they have not asked for their job to be guaranteed but have asked for Qantas employed pilots to fly planes that are Qantas or pretending to be Qantas – eg. Jetconnect
Get the facts not the pr media release.