Jun 11, 2012

Qantas CEO about to get ‘annihilation’ message

Sometime today at the IATA annual jamboree in Beijing, somewhere on the side lines, or in the side rooms, Qantas group CEO Alan Joyce will get the same message some of his colleagues ha

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Sometime today at the IATA annual jamboree in Beijing, somewhere on the side lines, or in the side rooms, Qantas group CEO Alan Joyce will get the same message some of his colleagues have already received from a large airline based in Hong Kong.

Which is that if against the administrative odds, its gets permission for Jetstar Hong Kong to begin operations next year, that airline group will set up an operation in Australia, as Australian law allows, and Hong Kong would insist upon exercising, that will destroy Qantas and Jetstar.

It doesn’t take much. Half a dozen A330-300s and maybe a dozen single aisle jets offering fares cheaper than Qantas can ever afford to match for a few years are all it would take, and since Jetstar Hong Kong will by definition be international in network, the retaliatory investment in Australia should also have a structure similar to Virgin Australia, allowing it to fly, let’s guess, to Los Angeles, or anywhere else that it might usefully instruct Qantas in the realities of starting turf wars it can’t ever finish.

However, the way things are going for Qantas, or for whoever bands together to buy the more valuable body parts, there may not be much left to destroy at the current rate at which this board, and management, have hacked their way through Qantas customer loyalty, staff engagement, and the value of the shares.

IATA in Beijing is where Joyce’s empty rhetoric and damaging posturing about an Asia based, Qantas controlled, yet minority owned carrier often given the working title Red Q, meets rooms full of people who were supposed to be its victim.

Red Q was to put larger than A380 sleeper seats in A320s, take market share off the established Asia brands, and divert enough of its profits past the majority Asia based board members to recapitalise the Qantas long haul operations that Joyce has already helped diminish to the point where Qantas really doesn’t have nearly as much to offer as it had even recently if it comes to cross border rationalisation of international services based in the Asia-Pacific hemisphere.

Joyce’s problems include saying foolish things that the Australian media tends to sanitise and forgive, but which the managements of certain Asian carriers and the relevant sovereign authorities note down and do not forgive.

Beijing is where Joyce can explain himself to those he insulted by making statements in the Australian media about how Qantas was coming to get them, and by about now, if his early posturing is used as guidance.

What a pity he can’t also arrange to be in a room full of customers who didn’t make business meetings, weddings, or other family engagements both happy and sad, because he woke up one morning and decided to ground the airline without warning in order to end protected industrial action that resulted from a failure by Qantas management to negotiate renewed enterprise agreements in a timely manner.

The only time that Joyce will get a rapturous reception in public by the aviation powers of the Asia hemisphere is when they ‘have’ Qantas in the biblical sense and according to whatever metaphors readers might wish to insert.

Behind the polite and formal face of an IATA meeting Joyce faces the reality of his ruinous tenure as Qantas group CEO.

Australians face the diminution of an iconic brand that fell into the wrong hands, and investors have been set up for a range of possible break ups or deals that can never be priced high enough to recover lost dividends and the debasement of share values.

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28 thoughts on “Qantas CEO about to get ‘annihilation’ message

  1. Archer1

    I can’t help but think of Sol Trujillo’s time at Telstra the more this Qantas fiasco unravels.

  2. patrick kilby

    I note a couple of things, first QANTAS is not Robison Crusoe in this matter IAG, Lufthansa, AA, SQ, MAS, AF/KLM, Air Canada et al are all struggling with real losses (a global fiasco methinks).

    The second that came up to day is the EU’s hard line stance on QF access to Europe, due to ownership restrictions, which is very limted: no access through Shanghai and only three flights to Paris etc. is less of a problem now as Europe is in recession but with 787s and a growing Europe in a coule of years (hopefully) will put it at a real disadvantage.

    SQs latest capacity dump into London, while not really on this topic is interesting (as to whether it is a smart or a dumb move)

  3. Banjo

    As ruinous as Joyce’s tenure is day by day, he is only the front man for Clifford & the ideology he has imposed on Qantas’s fortunes.
    How did Clifford get the gig after Jackson ? Did Dixon go & find him, who & what did he represent ?
    For years to come,Clifford & Joyce ( and dixon ) will figure rather large, in many a management thesis & analysis in tertiary schools of Management from around the world.

  4. Archer1

    The lack of quality journalism plays a huge part in the easy ride most companies get these days. Journalists take the lazy path these days and rehash PR departments handouts as news instead of doing the hard yards and investigating stories for their real meaning. Honourable exception such as Fairfax’s Kate McClymonton the Thomson affair.

  5. Ben Sandilands

    The issue that persists in my opinion is not the very serious challenges the airline shares with other carriers, including its prominent competitors, but the competency of its managements in dealing with them, and the contempt evident for investors, passengers and employees.

    That isn’t to diminish the structural or cost issues. I’d rather they were faced at Qantas with engaged and informed staff, respected and loyal travellers, deference to financial reporting expectations, and a disavowal of shallow, manipulative media strategies.

  6. Jackson Harding

    And one can only assume that this big Hong Kong based carrier is one of Qantas’ partners in OneWorld, so much for solidarity in airline alliances, but the Leprechaun started it.

    And I can’t help thinking that OneWolrd is now part of Qantas’ problems, rather than one of it’s strengths, given it more or less ties it to London as it’s European destination of choice. A good move in the 70’s and 80’s when a trip to Europe for Australians meant a trip to the UK, with perhaps a side trip to the continent. Not any more, a trip to Europe means a trip to Europe and any major city could be the destination of choice. EK has over 40 of them.

    A far better strategy would be to leave OneWorld and set up a new alliance, say with EK and perhaps MU (who would have to leave SkyTeam) to cover the Pacific, Asia and the Middle East. All that is needed is a decent European partner.

  7. Aidan Stanger

    Considering the lack of success of Tiger Australia, I find it hard to believe a Hong Kong owned airline doing the same thing would cause that much damage to Qantas.

  8. J.W.

    Has there been any murmurings from HNA Group on Jetstar Hong Kong? I can’t imagine their overjoyed at the prospect of another competitor arriving after their struggles to get into the HK market…

  9. The Doc

    Patrick Kilby:

    I would hardly call SQ’s 4th daily flight to LHR a capacity dump. It’s an addition of 278 seats, whereas QF withdrew 2x 744 seats per day.

    HNA Group formed HK Airlines in a JV with a HK businessman who owns 55% of HK Airlines. So even they decided the safest way to get the airline up in HK would be to get a majority local owner. QF and MU didn’t think they needed to!

  10. PeterP.Syd

    More and more it is evident that the real “hand” behind the destruction of Qantas’s brand has been Leigh Clifford. Never has Qantas had such an incompetent Chairman.

    Presumably appointed because he knew something about digging holes in the ground, he has delivered in kind by digging a huge hole in the ground for burying the Qantas brand.

    Let’s look at the roles. The CEO is there to fashion a strategy to achieve the Policies and Objectives determined by the Board, who represent the Shareholders. The Chairman is there to aggregate or drive a consensus (preferred) or majority view of the Board, and ensure at all times that the CEO is delivering on the Board’s objectives.
    Joyce is Clifford’s “man”. He chose him over Borghetti. He has defended him, sustained him, and if we are to believe a smidgin of what we read, he has very much counselled and encouraged Joyce in all his failed management executions.

    We can blame Joyce for a whole series of botched initiatives, for failed leadership, for misplaced focus, poor strategy, and most importantly abject incompetence in delivering on successful strategies that leverage Qantas’ still not inconsiderable strengths and remaining brand loyalties.

    But it is the Chairman that has stood by and supported these management failures and convinced the Board to continue to back his man. Do we already forget it was only last October the Board awarded Joyce an additional $2M (deferred) compensation for achieving KPI’s?

    Joyce was entirely the wrong choice to bring about positive change in a legacy carrier needing to adapt to a changed industry structure. His track record was starting Jetstar as a LLC. We don’t have anything to guide us on what he knew about change management in a legacy carrier. His mathematical and spreadsheet skills were clearly not the ones needed for the task as Qantas CEO, and his leadership skills were not in evidence at Jetstar either.

    For Qantas to have any chance of recovery, it needs two things to happen quickly:

    1) Institutional investors need to find a new Chairman candidate with demonstrated competence in the Air Transport industry, preferably having dealt with change from legacy management to niche targeting. (Hard to find good ones). Then call an EGM promptly and secure the new Chairman, and probably a warm-over of the Board (less critical but still important).

    2) The new Chairman then needs to find a new CEO capable of leading and inspiring, with ability to attract a fresh team of the best of the best to focus on achievable fleet renewal, on niche targeting to regain load factors, yields, profitability, and most importantly of all, on employee pride and satisfaction. Leadership, vision, diplomacy, humility, competence are rare in combination, but vital in a new Qantas CEO.

    Qantas has some very capable people and very robust processes. Engineers, Tech Crew, support staff, and yes, even Cabin staff, who, properly rejuvenated with pride and purpose, are still capable of delivering a proud profitable Brand for an INTEGRATED international airline and a domestic carrier that regains respect.

    Telstra is a classic example. Sol Trujillo delivered some significant change. His best initiative was to short circuit Telstra’s then dithering over 3G and get NextG built and delivered in record time with outstanding technical results. It “saved” Telstra’s declining brand and delivered billions of $$. But his wins were squandered through anti-competitive behaviour that angered customers and cost loyalty. David Thodey, a very different personality, has purposefully rebuilt Telstra with vision and execution to maybe still not the most loved brand, but a respected brand that is delivering value and winning many new happy customers.

    Qantas can and must do the same.

    The problem is, are there any Institutions still left holding QAN shares who can initiate this change? Surely there is some share bloc out there with the foresight and willingness to call this Chairman to account before QAN is hacked to pieces and fed to predators.

    The only thing I can do is write person-to-person, to an appropriate Independent Director of QAN (take your pick), and impress how personally, my at times fastidious defence of QAN has over the past two years declined to resigned dread for the inevitable death of the QAN brand, and most probably the “Spirit of Australia” as we knew it. Without Chairman/CEO change, all that will be left is a dismembered spirit, devoid of competitive aircraft, with dis-spirited staff and memories of once loyal customers.

  11. michael r james

    PeterP.Syd at 3:47 pm

    It is a bias of mine but I have always had the impression that the management of these big miners get awarded (by the industry & finance types) exaggerated undeserved kudos for their “cleverness” and skills etc. It’s mostly a commodity game and, regardless of management, they usually make buckets of money when the world economy is roaring and equally lose buckets of money when it is not.

    Some of their “strategic” decisions look pretty dumb–and of course they have one over-riding “philosophy”: keep growing by M&A. The BHP-B attempt to buy Rio was obviously destined to fail (as it should have) and BHP-B lost half a billion in the attempt ($500M on a failed bid! the finance types lurve these companies) and it reputedly harassed Rio into an outrageously expensive $40 billion purchase of Alcan at exactly the wrong point in the cycle–the end of 2007. Incidentally Clifford was still CEO, though I suppose the Chairman and board have to take a lot of responsibility for that.

    So the incestuous clique of board members and small pool of movers and shakers in Australian industry & finance delude themselves as to a lot of these people’s real ability (and how responsible they were for any success), and they appoint a guy whose 35 year career has been in mining and with one company, to run the utterly different viciously competitive business of an airline. Oh, and Eddington was on the board of Rio.

  12. Mary

    Not sure what planet Ben Sandilands is in but customer loyalty=price of ticket. The airline has recently been pushed to the brink with union secretarys such as Steve Purvinas and Tony Sheldon. Steve Purvinas seems to have a vendetta against Qantas, and Tony Sheldon had left conditions for the baggage handlers deteriorate until many had left the union and he had to act albeit inappropriately. These people have their own axe to grind but the outcome of their actions have a lot to answer for.

  13. ChrisCunard

    Ben given that QF and CX are both in the same alliance, why on earth don’t they work together?!

  14. TN Kangaroo (Blue Tail)

    Alan Joyce response from Beijing…… ”We have a core strategy, we’re not changing it … and the last thing people want … is people over-reacting to the situation and making wrong decisions.”

    Like grounding the airline…….?

  15. Ben Sandilands

    In my opinion alliance memberships can be seen as divided by those who regard them as a refuge from competitive pressures and generally smoked whatever the alliance spin doctors were smoking, and those who saw them as competitive opportunities to exploit the weaknesses of other associates.

    Both QF and CX are in the latter camp, and after CX made QF look average when it took over its flights to Rome via a Hong Kong connection some years ago, that emnity has been as strong as ever.

  16. Ben Sandilands

    PS Reading between the lines of the reports out of Beijing this morning this post is on target.

  17. Frank Knight

    Kate McLymont on the Craig Thomson affair! Good Grief! Investigative journalism!

    She may have focus. She may be a toiler. Her focus looks more like blinkers to me.

    Never once has she commented on, or used Fairfax’s resources to back up Peter Wicks’s series of articles on the tangled web of deception woven by Kathy Jackson, which if shown to be accurate – and now that an administrator has been appointed for her branch I would bet that this will not be long in coming, will vindicate Craig Thomson’s claims in parliament of having been done over by her.

    See Peter’s on-going series of articles in Independent Australia. Of course Kate is only the most notable ignorer of the inconvenient truth that KJ represents. The WHOLE of the MSM, including, shamefully, Crikey have all ignored his fact-driven work. Why? Perhaps there are conspiracies of silence throughout the MSM, not just News Ltd.

  18. Allan Moyes

    Two interesting article in WA Today about the possible “future” of QF. Dated 11/6/12.



    BTW Ben, you seem to have some naysayers on airliners.net re your comments on QF.

    That site can have some interesting things to say and is a great source for airline photography, but the posters do over-obsess at times, particularly whenever there is an accident, spending page after page of speculation long before the “black box” is recovered. There were at least 7 parts to the AF tragedy over the Sth Atlantic thread for example.

    Personally, I think your reporting is much more intelligent and incisive than much of the ill-informed writing on that website. I also imagine that with your years of experience in the aviation field, you have your finger considerably more on the pulse than many armchair posters like myself, or bloggers at that site.

    For my part, your page is generally the first I open in the morning. Your articles, combined with contributors’ comments, have taught me a lot, for which many thanks.

  19. michael r james

    Re the attempt to blame Qantas International for all its woes, here is an extract from today’s Chanticleer in the AFR (alas paywalled so here is the bit I am willing to type):

    What’s really ailing Qantas
    Tony Boyd, Tuesday 12 June, 2012.

    Joyce would prefer the outside world to focus on the company’s ailing international division, which is slated to lose $450 million this financial year, rather than the domestic business. But it has not escaped the more insightful analysts that the profit downgrade last week included a rapid deterioration in the company’s domestic yields over the past couple of months
    As recently as May, Qantas said its yield in the six months to June would increase by 1.5 per cent to 2.5 per cent. Last week it lowered this growth rate to 0.5 per cent to 1 per cent, which implies a decline in yield in May and June of 1 to 2 per cent. Every 1 percentage point decline in group yield at Qantas lowers earnings before interest and tax by between $90 million and $130 million, with the decline split equally between domestic and international.
    The Emperor is beginning to stand naked. Can Joyce and Clifford really survive this?

  20. michael r james

    Oops, I should have made clearer that the Emperor comment in my last post, below the dotted line, was mine not Tony Boyd’s.

  21. DB2820 Postman

    Couple of comments re all the comments above.

    Re Ben’s so-called Cathay scenario in Australia (the threats).

    If what Ben says was put to me and I was Qantas I would respond accordingly. “You (Cathay) do not stand in the way of us establishing a new airline in Hong Kong and we (Qantas) will not stand in the way of you establishing a domestic and international airline Australia”.

    And then let the games begin.

    The potential losses for Cathay in Oz would be massive, to say the least. The potential losses of Qantas with Jetstar would be miniscule if at all.

    Cathay is the typical 500 pound gorilla. As I have said on this blog before, the Asian carriers do not like real competition in their backyard. They tip the playing field in their home markets heavilly in their direction and I have witnessed first hand that they like “orderly marketing”. I assure you that the matters they agree among themselves would have you in jail if you were in Australia or USA, UK or Europe.

    They will pull every trick in the book to see Jetstar Hong Kong strangled at birth if they can get away with it; and of course this may include “threats and promises”.

    The key for Jetstar Hong Kong will be the quality of the relationships that their Chinese partner has within the mainland Chinese government. In spite of Cathay’s posturing, the Chjinese government relationships will be paramount.

    Bear in mind also, whilst mainland China owns a sizeable proportion of Cathay Pacific and Dragonair, they do not particularly like it. They do not like its origins. They are indeed pragmatic (that is why Hong Kong was not taken over by mainland China post the 1949 defeat of the Nationalists) but they also remember that it was a British colonial airline and Britain was their recent history arch-villain (and rightly so) due to the shameful days of the opium wars. Swire, unlike Jardine Matheson, was allegedly not directly involved in the opium trade, but the Chinese still see it as directly taking advantage of the situation created by that trade. They do not see it as a proper Chinese airline.

    Re Qantas domestic:

    I have heard from high level sources within Qantas that the domestic yields and loads declined substantially in the past two months. They are mystified why there was such a sudden change of such magnitude. It literally I undersatnd went over a precipice.

    Perhaps it has been because every man and his dog talking down the Australian econmomy for political reasons? There certainly has been a loss of confidence with both business and consumers. Business traffic is allegedly down. Leisure traffic to holiday destinations within Australia (in what is traditionally the off-season) is also decidedly down.

  22. Zarathrusta

    There really should be some kind of criminal negligance charge available against company board members.

    Aidan: Tiger is aiming for the bottom of the market. This carrier would be aiming well at Qantas and offer competative seating, pricing and bookings that mean something. If I wanted to destroy Qantas, I’d go in with fares priced like virgin specials but allowing buisinesseses full flexibility to change traveller’s identity and reschedule.

    They’d only have to aim to make a small loss each year to destroy Qantas.

  23. eric

    I have on many occiasions on these forums said that I have very little love of Qantas and as far as Im concerned they are reaping what they have sowed over the past 30 years of price gouging,bad service and a “we are the best ” Sydney centric culture all the while going backwards.

    If Qantas go under or are sold will it make a great difference to the travelling public = NO as the vast majority gave up on them years ago finding better prices and airlines..

  24. kiwikurt

    “Not sure what planet Ben Sandilands is in but customer loyalty=price of ticket.”

    Mary is most likely a troll. But eric has also opined along a similar line…

    “If Qantas go under or are sold will it make a great difference to the travelling public = NO as the vast majority gave up on them years ago finding better prices and airlines.”

    I regularly pay twice the amount for an equivalent ticket with airlines other than Qantas. Their fares are often fairly competitive on routes applicable to me, but their service is not. I’ll admit that even most frequent flyers may not look at things the same way a pilot does but it’s not just about ticket prices.

    The other major is network, which Qantas seems to be dismantling. I understand the modern realities but as a passenger I don’t like code shares. Where possible I try and complete as much of my trip with one operator.

  25. DB2820 Postman

    Some of the comments re Cathay setting up in Australia are naive in the extreme.

    It would require massive capital expenditure to set up anything that looked like real competition. Do you think that they would really do this simply to see-off Jetstar in Hong Kong.

    Come on, be real.

    First of all it would take some considerable time to set it up but most of all they would be guaranteed of making massive losses as would both Qantas and Virgin. Bit like nuclear war. Mutual destruction.

    Jetstar in such a scenario may in fact get stromger as it has a low cost base (much lower than Qantas or Virgin or any likely new-comer) and it would rapidly be deployed on the mainline routes to compete head-on with any new-comer. It would cannibalise everyone.

    Do not thnk that Borghetti at Virgin would be too keen on Cathay coming into its market. They may be the first casualty.

    It could be that the last ones standing are Jetstar and Tiger. Now wouldn’t that be a great outcome for Australia? (not).

  26. Frank Campbell

    Qantas has always been an unpleasant experience, even for an airline. Air Arrogance.

    Joyce makes it all nastier. The political skills of Sol Trujillo.

    High time he was dropped into the Irish bog he crawled out of….

  27. Catherine Rossiter

    There can be no doubt that the ‘shutdown’ last year has shaken people’s confidence in Qantas. We have always been strong supporters of Qantas, but Alan Joyce’s approach has severely damaged that.
    It’s interesting that, on a recent flight from Frankfurt to Sydney, we noticed that while the business class and premium economy sections were both full, the economy section was far from full. Maybe Qantas should market itself more strongly to the slightly cashed-up segment of society. Not everyone wants to travel like a sardine in a no-frills airline. Many of us would be prepared to pay a bit more for some extra leg-room and a bit more comfort.
    In conversation with a number of Americans while we were away recently, most of them said that Australia is on their bucket list, but they were put off by the length of the journey to get here. If Qantas had longer seat pitch and more comfortable seats, there would be a huge marketing opportunity for Americans wanting to be assured that they could fly the Pacific in relative comfort.

  28. stephen dolan

    Very happy I switched to AA’s FF program.

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