Embattled Qantas group CEO Alan Joyce’s key initiates at Qantas are under acute stress as their consequences for the company’s performance become painfully apparent after its dismal first half profits briefings yesterday.
That pressure has been added to by clearest of signals from the Prime Minister Tony Abbott yesterday that it would not get a government backed debt guarantee and that he would seek to force the Opposition and a hostile Senate to reform if not repeal the foreign investment restrictions of the Qantas Sale Act.
Joyce’s Jetstarisation policies for Qantas are under siege. Joyce was forced internally to face up to the fact that the Jetstar franchises in Asia are seriously underperforming, or in the case of a botched effort to launch Jetstar Hong Kong, not only much delayed but highly unlikely to succeed.
Having lost the company’s unsecured debt investment grade ratings by embarking last December on a campaign to lobby government for help immediately before having to issue a very late profit downgrade, Joyce has now had the coalition doors slammed on him when it comes to preferential access to taxpayer backed loans.
The direction from Qantas to its puppet Jetstar Asia franchise in Singapore to stop its expansion reflects one of the outcomes of a policy struggle that has been going on in the airline’s ‘everything on the table’ review.
However there is also pressure on the continuation of the Sydney-Dallas Fort Worth route flown by Qantas, which suffers from severe operational constraints because of the limitations of the Boeing 747-400ER used on the route, and the costly, late and questionable plan to split Qantas into independent domestic and international divisions is either suspended or in doubt.
Qantas was asked last night for clarification as to the status of division. Sources are adamant that it is in ‘trouble’ at the very least. Qantas has invested considerable effort internally to split the full service brand in two. It was trumpeted by Joyce as a brilliant piece of strategy more than a year ago. Not a word was said about it at yesterday’s briefings or in the ASX filings.
The axing (under the guise of ‘deferral’) of three of the Boeing 787-8 Dreamliners that were to be delivered to Jetstar echoes the struggle that occurred in Qantas prior to the former Jetstar CEO Bruce Buchanan departing for a career in cosmetics. At that time Qantas management was told that there was no way Jetstar international could use the 15 early model Dreamliners that it had decided to punt to Jetstar. One of those orders was later cancelled, but the removal of three more of the 787 deliveries in yesterday’s announcement is telling.
Qantas still sits on bargain price options for up to 50 Dreamliners including the stretched and much more capable 787-9 model for which its profitable rival Air New Zealand is the launch customer.
Nothing was said yesterday as to the fate of those options, the exercise of which at least in part is considered by most analysts as of critical importance to the modernisation of the Qantas fleet. However nothing needed to be said in the sense that the options which apply to delivery slots from 2016 do not need to be triggered with part payments until later this year.
Among the other fleet changes announced yesterday is the deferral of orders for eight A380s. These A380s are the latest and much improved 575 tonne version of the giant Airbus, and ironically, it is also the only jet Qantas had on order which could have reliably flown both ways non-stop between Sydney and Dallas Fort Worth with a commercial payload.
As pointed out here and by Adele Ferguson in the Fairfax Media yesterday, the Qantas disclosure that the Jetstar brand in total lost $16 million in the half year, compared to a profit of $128 million in the corresponding previous half, means something is really seriously wrong in Jetstar.
Jetstar domestic was however ‘still’ profitable, as compared to still born, when it comes to the extravagant hype lavished on Jetstar Hong Kong, which now has a fleet of seven expensively idle A320s after Joyce publicly boasted that it would be a Qantas controlled investment, which is contrary to Hong Kong’s Basic Law.
The problem of Joyce making a fool of himself in public, and sometimes with quite serious consequences for trust in Qantas decision making is illustrated at the top of the page.
That photo was taken on 6 January 2010 when Joyce directed his media team to announce that Jetstar was forming the world’s first strategic alliance between low cost carriers in association with AirAsia. The photo includes Alan Joyce, Tony Fernandes (left) the founder of AirAsia and Bruce Buchanan, the former Jetstar CEO pre taking up cosmetics.
Nothing has ever been heard of the alliance since. It was a load of cobblers. Fernandes couldn’t stop laughing. AirAsia continued to eat Jetstar alive at every turn, Buchanan eventually went away, and Jetstar continued to suck the money and attention out of Qantas and its incredibly vigilant and informed board of directors.
Joyce spent a lot of time pleading for a ‘fair go for Qantas’ on the media last night. For that to begin to happen Joyce has to go.