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Red Q, Un-Dead Q, where does Qantas go now?

 

Updated after Qantas says Asia based premium carrier still alive

Are claims by Qantas CEO Alan Joyce that it has not dropped its Red Q Asia based carrier credible?

It appears to be like the parrot in the Monty Python sketch, not dead, just not talking.

This might be a timely moment in which to reflect on what the planned Asia based, minority owned super de luxe narrow body premium airline was supposed to do, and before the end of this financial year.

For a start, CEO Alan Joyce said it would save Qantas international from going broke, by being so profitable that it would allow Qantas to resume investing in and expanding the long haul services it has already started to cut back, including halving through services to London from early next year.

Those claims were full of absurdities that were repeated parrot fashion by a range of analysts who now have about as much credibility as a Qantas ‘death threat’ and an abandoned but costly NSW police inquiry into what smells like a grubby media stunt.

Let’s start with the notion that Qantas would be allowed to become the minority equity yet controlling party in a airline given flag carrier privileges and obligations in Malaysia or Singapore.

Then continue on to the notion that it would win market share from such incumbents as Singapore Airlines or Malaysia Airlines, the latter now said to be close to announcing a new partnership with Qantas that has been mentioned by Joyce since May 2010, just as Virgin Australia did a deal in principle with Singapore Airlines.

Travelling up the incredulity scale, we then get to a place where a Malaysia or Singapore board say ‘there you go Alan, here’s enough money from our profits to save Qantas.’

Joyce said on multiple occasions that the airline, which had variously been ascribed such names as Red Q or One Asia, or Red One, and so forth, making it sound like a spy thriller, a sushi franchise or a dating agency, would use Airbus A320s with bigger sleeper seats than those in Qantas A380s.

It was also variously going to open new routes to Europe (which an A320 can’t reach non-stop from just about anywhere east of  Jordan) new routes to Australia (where it can’t fly to the eastern capitals non stop from Singapore or Kuala Lumpur), or new routes within Asia.

This was like a quiz show, only the last mentioned option being technically true, while choosing either of the other answers  meant you got thrown out of the studio.

While there are routes in Asia where sleeper seats are sold by the established carriers on shorter routes, such as Cathay Pacific subsidiary Dragonair in its intra-China A330s, or by Singapore Airlines, Korean Airlines and Thai International, predominantly on services that are landing somewhere else in Asia before flying across the  Pacific to North America,  it should be obvious installing such seats in an A320 was going to be ludicrous.

The bottom line is that Joyce chose to pin the very survival of Qantas long haul on an Asian venture that now isn’t dead, just resting.

So, what does he do now?

The rumor most emphasized as of today is that there will be an enhanced relationship with Malaysia Airlines, which has a premium product and service standards throughout its cabins, whether costly or cheap, that command considerable loyalty and respect in Asia. It  has however been in a lot of trouble holding its own against other Asia competitors, including when it comes to making money for its shareholders.

Qantas doesn’t currently fly to Kuala Lumpur, and without prejudice to a beautiful land, hospitable people, and a modern economy with a lot of potential and vision, it doesn’t come remotely close to Singapore or Hong Kong as a power house centre for economic activity generating a strong demand for higher yielding air fares.

If Joyce sees a Malaysia solution to the needs that were going to be met by ‘Dead‘ Q the board, the investors and business travellers in general need to ask for a very detailed business case which can be used to measure its effectiveness.

Similarly, if as he said several times this year, there would be no more capital investment in Qantas long haul until its starts to pay for itself, what is Joyce going to do to comprehensively fix the problems, other than maybe flog it to a syndicate headed by, let’s guess here, Geoff Dixon or other shrewd main chancers?

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  • 1
    TomTom
    Posted November 28, 2011 at 1:59 pm | Permalink

    What sense does it make to take cash from a highly profitable subsidiary in order to invest in a huge loser subsidiary? Nobody would do that – you would re-invest the money into the growth of the highly profitable subsidiary. So who was/is Joyce fooling with that rationale for what he claims he is going to do? And how much investment does it take before it would be spinning off enough for us to even debate where all those profits should go?

    Have you noticed that Joyce changes his pronouncements about what the Qantas Group strategy is at least several times per week? Aren’t there laws regarding such dissembling, prevarication and purposeful misguidance by the CEO of a publicly traded company?

  • 2
    Graeme Hill
    Posted November 28, 2011 at 2:25 pm | Permalink

    As a simple reader I have to comment on Joyce’s statement that Qantas long-haul won’t receive any investment until it makes some money. The problem is there has been f-all investment in long-haul. I flew from Sydney to Hawaii in June on a 767 with no IFE apart from the old central TV’s in the aisle. They were great in 1991 when I used to fly from Middle East to London but not in 2011. Yes, the A380 from LA was lovely but if you are not flying on one of those routes, tough. As a paying punter who PREFERS flying full-service airlines [note to Joyce : not everyone is to travel in Jetstar's cattle trucks] why should I give Qantas my custom when I can go with someone else who will have modern aircraft with modern IFE giving me my own little TV? The competitors airlines have all shot ahead in quality whilst Qantas is left standing. I know the 787 debacle has caused problems but it looks obvious now that Qantas long haul has been left to wither away.

  • 3
    Briquebatte Snerd
    Posted November 28, 2011 at 2:32 pm | Permalink

    It’s got to be obvious to all and sundry now that the great plan is thus:

    * Run hitherto profitable routes into the ground, creating a cause for:
    * Outsourcing everything to somewhere in Asia, making Qantas into a paper airline.
    * Sell off anything valuable remaining to private equity companies
    * Running away with large bonuses

    There really isn’t any explanation for the sheer recklessness of the behaviour of the Qantas senior management team.

  • 4
    patrick kilby
    Posted November 28, 2011 at 6:12 pm | Permalink

    Not sure he really means no more investment in long-hall, as he has three more A380s to pay for in the next year or so (nos 12,13 and 14), plus around 20 787-9s from 2014 or 2015 for long hall as well, and then after that another 6 A380s. I suspect long-hall will be looked after.

  • 5
    Kate
    Posted November 28, 2011 at 8:08 pm | Permalink

    Meanwhile the QF share price rose by 3% after Alan Joyce’s (non)-announcement today. To follow the Monty Python theme, Alan Joyce is NOT the Messiah “he’s just a very naughty boy”.

    The rise in share price suggests the institutional shareholders seem to find the headless chook saga in Asia encouraging, irrespective of the emerging chaos. Or is it the QF Board Members buying up shares again to add to the smoke and mirrors?

    OMG – urgent thought-the IS’s manage my finances i.e. NAB, superannuation etc. If they are willing to place their faith in pipedream fantasy airlines with names like Far Q, with aircraft that will run out of fuel before they reach their Asia to Europe destination (hey Alan Joyce said it, not me), with sleeper beds for 5 hour flights, with the Asia base TBA and so on, then what risks are they taking inside their own business- WITH MY MONEY????

    Patrick Kilby,
    With respect, it seems inconsistent that the order of 787′s and A380′s is a sign of future prosperity for LH. Why close down routes (esp. LHR and months out from the Olympics), with a view to opening them up a few years later with shiny new jets? Meanwhile loyal pax have taken their business elsewhere?
    Maybe follow the QF/JQ trend and just hand all the new metal to J*, AGAIN.

  • 6
    Allan Bagley
    Posted November 28, 2011 at 8:52 pm | Permalink

    It seems to me that Qantas management under both Dixon and Joyce have made every possible effort to suppress the share price, all the while making pretty good profits by industry standards, and accumulating $3.7b in cash. You could be excused for thinking that management and the board may be motivated by the possibility of becoming very wealthy by facilitating a leveraged buyout rather than looking after the interests of shareholders.

  • 7
    Kapo
    Posted November 29, 2011 at 5:27 am | Permalink

    I feel due to the limited information on this Premium Asian airline (RedQ) there is a lot of blurring of the lines and jumping to conclusions in the press in general. Some issues are being blown out of proportion. For a start no one said that the Premium Carrier was going to save QF. What was said it was part of a number of measures that will be pursued in order to turnaround QF international, not in isolation which is the impression being given on this site.

    This is what QF announced about the Premium Asian carrier (16/08/2011)

    *would fly in Asia
    *commence 11 A320′s
    *will not cost any jobs in Australia.
    *KL or Singapore hub

    Don’t take my word for it, it’s all here

    http://www.media-server.com/m/p/gk9974q5/r/1

    The speculation has gone this way, the A320 cant reach East coast Australia.
    It is a Pan-Asian carrier, Australia is not part of Asia, though most of us are happy to be in the neighborhood and have shot sharing future prosperity.

    No-one flying Premium wants to fly on a narrowbody instead of widebody. I don’t fly premium classes, as I do not have the money (or good fortune of other people paying for my flights), but I would imagine the premium is being paid for what’s inside the aircraft not the type of aircraft.

    No jobs will be cut in Australia because of this venture. The QF services that will be cut will cost the roles in Qantas International, because they’re losing money. The choices on this matter were cut the QF services and do nothing, or cut the QF services and do something. I am happy it’s the latter. On this issue some spurious unions comments also put JQ Japan in the mix as a catalyst for job losses.

    Recently, Tony Fernandes musing about a premium carrier instantly became a rival to RedQ in the press, TF didn’t say that.

    On the otherhand, it is very true SQ, MH or CX aren’t going to let anyone just walk in on their patch, but what about if the other 51% investor is SQ,MH or CX?

    Tie-up with MH is not a rumour, it is one of the measures outlined on 16th August by QF. Specifically new Europe routes, codesharing with MH through KL, as a consequence new Australian routes with QF metal may be introduced . It also would have the potential to feed a KL based RedQ.

    Unprofitable routes to LHR have been cut, I don’t see the great sacrilege. The possibility to channel your continental European traffic through KL, and not use LHR as a primary hub for Europe will come as a mighty relief to many travelers. The Olympics is a furphy, it’s a 2 week event held during peak travel season to London, this event can’t turn around an unprofitable route. Unprofitable flying is removed and the slots are leased, the economics don’t seem too difficult.

    Then there are the other measures to help with the turnaround

    Switching from Buenos Aires to Santiago as a South American gateway opening up the Oneworld partner LAN’s extensive Latin American network. It’s a shorter route with better connectivity especially for the biggest market Brazil.

    The closer tie up with AA that was recently ratified by Anti-trust authorities on both sides of the Pacific will also play it’s part.

    It was presented as a 5 year plan that initially will stabilise QF international, then make it stronger. It’s only been a little over 3 months since the announcement.

    I’m all for people being skeptical, actually I encourage it, but a lot of things being said are just plain wrong.

    The elephants (not) in the room was the 787, absolutely no mention. We have learned with the recent 787 puff pieces that the -8s will replace A330s on Jetstar routes. We have no idea how this wildcard up the sleeve will be played.

    Ben, the names thing is getting a little tiring. I realise that we have to refer to it as something other than “proposed Qantas Group Pan-Asian Premium carrier”, so why don’t you run a competition on the blog for a provisional name to use until the airline is launched, or just disappears.

  • 8
    Ben Sandilands
    Posted November 29, 2011 at 5:48 am | Permalink

    Kapo,

    You need to go back to the original speech given to the National Press Club in June which is where the project was first referred to, and also trawl through the many interviews given by the CEO in support of the project, in which many of the more extraordinary claims were made. There are also transcripts of these interviews available under program sub heads.

    Once you have taken the time to digest the material you will better understand ‘tiring’.

    I also referenced Tony Fernandes’ comments in the Malaysia media. Do a bit of hard work. Go back and look them up.

  • 9
    Posted November 29, 2011 at 10:39 am | Permalink

    Re Malaysia: surely the advantage of this hookup isn’t so much for Europe (Malaysian are OK, but short of Qantas/Singapore/Emirates quality) as for Asia… so if QF starts two flights a day to KL, then it can serve pretty much everywhere in Asia via codeshares with MH, with the long-haul part of the route on QF?

    Also, is Qantas taking over the slots at Sydney that BA is vacating as part of the kangaroo-cutback plan? If so, they’re probably more valuable to it than its underutilised slots at LHR…

  • 10
    Ben Sandilands
    Posted November 29, 2011 at 10:49 am | Permalink

    Slots are impartially managed at Sydney by an independent body. They are allocated and redistributed according to demand, and there are legislated rules protecting or ring fencing a quota for rural services.

    It is quite a complicated but seems to me fair system, and definitely suits the need of the airport owners to maximise traffic up to the artificial or political cap on hourly movements.

    My reading of this is that if ANY airline downsizes its total slot requirement it might not necessarily get them back when it changes its mind.

    The Sydney situation is very different to that of most large strategic airports, where slots are an asset and can be bought or sold to augment original allocations, although I think that the nitty gritty is very complex and conditional at JFK, LAX, NAR, LHR and LGW for example.

  • 11
    ltfisher
    Posted November 29, 2011 at 12:33 pm | Permalink

    It is fast becoming very difficult for anyone to believe a word that Alan Joyce says. The ‘Red Q’ issue is a classic example. Joyce is too much like the career diplomat at a boring cocktail reception: whilst apparently talking to you he in fact talking at you and looking past you to see if he can see someone he thinks is more important elsewhere in the room. In the case of Qantas Joyce fails to see that the answer to the long haul problems of Qantas is to win back those Australians who were loyal to Qantas but these days go where they think they get a better deal. Frankly Joyce is not the man for that job. His communication skills, especially public speaking, are so poor that he is a turn off to a new potential customer, let alone to the disaffected. He should take his bonus and go back to helping an airline in the Emeralds Isle. Qantas needs a talented and discernibly Australian CEO, and similar front-of-house staff, to start rebuilding its credibility: people who do call Australia home.

  • 12
    Banjo
    Posted November 29, 2011 at 2:35 pm | Permalink

    The chances of a joyce lead management succeeding in Asia, are nil. Over a decade of commercial & operational incompetence at home will only be all the more glaring & obvious on an away stage.

    The whole nonsense of off shoring Qantas’s International arm, is built on the deceit that the segment lost $200 million. If indeed Qf International actually lost any money at all, it would in large part due to the systemic & profound cross subsidisation of Jetstar. If Jetstar cancel a flight from Honolulu – Sydney or domestically, Brisbane – Townsville, Qantas are required to pick up the slack but Jetstar keep the revenue. Blatant and misleading.

    The real drive all along has been to marginalise Qf mainline & by pass the Australian work force on their award conditions. At any cost, including grounding the world wide fleet. Emirates, Cathay & Singapore are already the winners & are probably still gobsmacked by the lunacy of halving the Qantas flights into London in the months immediately preceding the Olympics.

    Over more that a decade, Qantas management have steadily turned the whole show into the Jetstar Group. As obvious as it may be, it is always worth remembering that joyce is not the head of Qantas, he is the head of the qantas GROUP.

    Australia is a very long way down the road of no longer having a flag carrying airline & with competent fleet choices & a productive relationship between management & work force, this was completely avoidable.

  • 13
    Peking D
    Posted November 29, 2011 at 6:20 pm | Permalink

    I struggle with the cost/benefit of a start-up airline in an entirely new market. My thinking is that QF will potentially look to put equity into another Asian carrier and this obvious choice is MAS given that they have not been performing well of late and that the Malaysian Sovereign Wealth fund Kazanah has been looking to divest their equity stake.

    This will allow Qantas to 1) shore up it’s regional aspirations without the costs of a start-up, 2) opening up routes that QF does not currently service and 3) reduce the number of MAS flights into Australia and allow QF to take over a portion of these routes.

    Is this far fetched?

  • 14
    patrick kilby
    Posted November 29, 2011 at 8:32 pm | Permalink

    I am not sure the quote “Qantas needs a talented and discernibly Australian CEO” helps at all. There is an Australian CEO who was born in Ireland just like we have an Australian Prime Minister who was born in Wales or a Finance Minister who was born in Malaysia. I am not sure what the point being made is… isn’t an Australian an Australian despite their heritage otherwise most of us would all have some questions to answer.

  • 15
    Peteyboy
    Posted November 30, 2011 at 2:10 am | Permalink

    @Banjo: you’re statement about JQ getting a freebie from QF when it disrupts passengers is incorrect. They pay an industry standard charge to whoever picks up the passengers, via a thing called an FIM. The whole ‘QF International doesn’t really lose money’ is now a tiresome conspiracy theory up there with Elvis and aliens. The examples people provide are either ‘blatant and misleading’ like Banjo’s, trivial (like the fact Jetstar crew position in Qantas planes) or based on classic armchar observations like ‘I flew on XYZ from BKK to LHR last year and the plane was full’. A more balanced observer simply looks at the industry load factors, the average fares, Qantas’s market share and it’s higher costs per seat kilometer, and realises what’s obvious: the business is a financial stinker at the moment. While there are good arguments that international provides cross-benefits to the QF group, the raw economics of the business as a standalone are pretty poor.

    Ben asks “So, what does he do now?”. The owners have made it very clear they’re not going to throw cash at it, so I’d suggest an orderly shutdown, or an offer to the government and/or unions to buy it out and see if they can run it. It’s not unprecedented by the way: Air Canada did this a few years ago (and has lurched along every since).

  • 16
    Kapo
    Posted November 30, 2011 at 5:01 am | Permalink

    Totally agree with you Peteyboy, a lot of infrequent travelers do travel during peak periods, therefore it’s not unusual to find full cabins. We also do not all pay the same price for a seat in the same cabin.

  • 17
    Kapo
    Posted November 30, 2011 at 5:44 am | Permalink

    There’s no doubt that you work very hard, and we’re greatly appreciative of your efforts in maintaining this blog. It’s fantastic that we also have the opportunity to comment in a civil manner, which is impossible on some sites, that in Aviation circles quickly degenerate into infantile Boeing v Airbus slanging matches.

    Thanks for the opportunity to respond re: TF’s comments on his proposed premium carrier, he says nothing about competing with RedQ.

    The story first surfaced 9th November in the Sun, where there is reference only to “aviation sources”.

    http://www.thesundaily.my/news/202557

    Planetalking references this story 10th November, that contains ….”A report said”(sic) which most likely our mate above “aviation sources”.

    http://biz.thestar.com.my/news/story.asp?file=/2011/11/10/business/9873342&sec=business

    …and here Tony talks on the sidelines of the launch of Air Asia’s loyalty programme “BIG” on 14 November, where he was asked about his proposed Premium Carrier.
    Unsurprisingly the questions centred on the motivation behind the idea, how it would affect MAS, and how he wanted to stick it to SQ. Out of all the stories after he actually spoke, the closest references to RedQ are the following stories

    This story on 14th November, it’s “news reports said”(sic) then citing the Sun story above which remember cites our mate “aviation sources”

    http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/1165333/1/.html

    The only other story 15th November, uses the implied ……it was said( sic),,,in relation to ….”News reports emerged last week” (sic), which take your pick any of the stories before he spoke, which leads us back to our mate “aviation sources”.

    http://www.theedgemalaysia.com/in-the-financial-daily/196155-fernandes-acknowledges-super-premium-airline-idea.html

    Moving on, the address @NPC does not contradict anything released to date
    http://www.youtube.com/watch?v=dvmC0jqu3Y8

    or what QF explained on 16 August, which as they stated is Day 1 of the 5 year plan.

    http://www.media-server.com/m/p/g7yn7kx2/r/1 (Press)
    http://www.media-server.com/m/p/gk9974q5/r/1 (Investors) This is the same link that was in my comment above.

    I strongly recommend that the last 3 links be used by people to familiarise exactly what the company has said it will do in a official capacity and find some of the answers to the questions posed in this article.

    No one’s under any illusions it’s going to be easy, but at least something is being done.It is a lot more positive than anything else that has been suggested or contemplated.

    Ben, what is your source for Qantas saying “Airbus A320s with bigger sleeper seats than those in Qantas A380s”?

    I was unable to uncover anything about it other than here at Planetalking.

  • 18
    Ben Sandilands
    Posted November 30, 2011 at 6:18 am | Permalink

    Kapo,

    The comments about the size of the seats in the A320 premium carrier project were made by Alan Joyce in radio and TV interviews following the National Press Club appearance and repeated after the August announcement.

    They have not been retracted or qualified. Similarly Joyce made a series of inconsistent comments as to the route structure of the proposed venture.

    He is in good company in one sense with Tony Fernandes, who I have personally observed, in the company of other reporters, say totally different things to different reporters in consecutive interviews. Tony deserves much respect for his achievements, but in my view tends to set out not to disappoint the preconceptions of whomever is conducting a media interview.

  • 19
    Peteyboy
    Posted November 30, 2011 at 7:29 pm | Permalink

    I’m not sure why Joyce even mentioned the sleeper seats on Red-Q. The whole idea sounds bizarre: it’s a narrowbody, not very large and the routes are presumably intra-Asian of less than 4-5 hrs stage length. Still, the idea is in its infancy, you’d be mad to assume or hold any airline executive to a guesstimate on product or route structure this early. It’s a bit like manufacturer announcements – they show you these mockups of interiors with libraries, showers for all and huge seats. Not one of them ever gets delivered, apart from the odd sale to a sheik somewhere using petrodollars to indulge a narcissistic fantasy.

  • 20
    Mactavish
    Posted December 1, 2011 at 5:33 pm | Permalink

    Patrick – the 787′s are going to Jetstar, not Qantas Long-Haul, further adding to the inefficient long-haul fleet’s problems in competing with Jetstar. Joyce will then continue with the ad-nauseum argument that the Qantas Long-Haul cost base is too high. Maybe if long-haul got the 787′s they would have a better chance, but then, that wouldn’t suit the Joyce argument would it!
    I further note that Singair’s Scoot is going to be using B777′s – if only QF long-haul had them, however, I’ve heard Joyce now justify on two separate occasions how brilliant they are at fleet decisions. Seems QF are the only ones in step.

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