tip off

Qantas’ playing field isn’t level — it has poor managers running it

Qantas should have a much stronger balance sheet than it has, writes Crikey’s aviation expert writes. So why is the airline in crisis? Most of the cuts are self-inflicted.

Insiders in the Qantas bunker are suggesting that group CEO Alan Joyce decided to go “over the top” into a hail of bullets on impulse last Tuesday week, ignoring what might be seen to have been wiser counsel.

But Joyce had to jump. His lobbying campaign against the Virgin menace in the domestic market in Canberra had not achieved much in the dying days of the Rudd interregnum, and in the early days of the Abbott government Joyce was getting dire intelligence from within the company as to how badly “everything” was going.

Joyce needed to heed the requirements of continuous disclosure to the ASX in relation to anything that would be of material importance to investors within the financial year. Word about how bad things really were with his already failed 65% line-in-the-sand defence of the domestic market was threatening to leak out “everywhere” (currently Qantas brands, including Jetstar, hold a less than 64% share).

The risk became acute after Virgin Australia CEO John Borghetti announced a “clever” 5:14 potentially $350 million capital raising program at 38 cents per share.

It needs to be kept clear that this capex move has almost nothing to do with international flying in its own right. Virgin Australia does very little overseas flying. Its big three foreign airline stakeholders — Air NZ, Etihad and Singapore Airlines — all do about as much international flying between Australia and the world as their various traffic treaties allow anyhow, including under Open Skies arrangements like those between Australia and Singapore, where the limitation is more about not committing self-harm than anything else.

But $350 million is compellingly useful for domestic purposes, and for settling a few competitive scores with Qantas, in a situation where in recent months the bigger Australian carrier had next to no chance of succeeding in an equity-for-cash offer because of its depressed share price.

The Virgin forces knew very well that in the past Qantas had always been able to go to the capital raising market and come away oversubscribed for anything it asked without there being the slightest problem with the restrictions on foreign-domiciled shareholders written into the Qantas Sale Act of 1992.

But not any more. After five years of arguably appalling mismanagement, Qantas can’t access such shares for cash issues. Especially not at a share price stubbornly below $1.50, and yesterday trading as low as $1 and closing not much higher.

Qantas had created the perfect opportunity for Singapore Airlines, Etihad and Air NZ to deliver Virgin Australia the relief it needed in the domestic capacity war it was fighting with the Qantas group and at some damage to its own finances.

Deputy PM and Transport Minister Warren Truss sweet-talked Qantas yesterday as to how good and strong the company was, but gave it no lolly.

As Truss pointed out, without foreign capital there would have been no Virgin, and perhaps more importantly for a country politician, no REX Regional Express. REX is the Singapore-controlled regional airline that stops Qantaslink treating the bush like its own fiefdom and screwing it as hard as it used to, back in the days when it expected rural Australia to pay whatever it asked.

Early yesterday there was a board of directors telephone meeting at Qantas to approve a profit downgrade announcement that would satisfy the requirements of continuous disclosure, as Joyce mentioned in a sotto voce aside.

Joyce justified this on the preliminary results of the November traffic figures and yields numbers crunching, which is a little odd, in that Qantas normally doesn’t release the previous month’s data until much later in the following month.

There is much more Joyce needs to justify. He has not put in writing any requests for action by the government to save Qantas from the consequences of his quite shockingly bad management of the airline, in which more than $1 billion worth of resources appears to have been squandered on loss-making adventures in Asia, and of course $200 million worth of collateral from his stranding tens of thousands of customers in October 2011 to resolve an industrial impasse of managements own making.

One of the prices Qantas faces from any of the notions now being floated from a cash bailout to a partial renationalisation or a rewriting of the Qantas Sale Act is a demand from the lobbied politicians for an accounting for the “missing money”.

Qantas should have a much stronger balance sheet than it has. Where has the money gone?  If there is to be government assistance for Qantas of any direct financial benefit, it will come with government oversight of and intervention in its affairs, to stop management wasting it on failing or underperforming offshore excursions. Such a surrender by Qantas is as unlikely as the prospects of real monetary assistance from government.

Qantas is in for a hammering, whether or not it changes its entire management, whether or not the Qantas Sale Act is amended, and whether or not it persuades Emirates, or a Dubai sovereign fund, to buy as much as 35% of the company.

This isn’t about a level playing field, as Qantas claims. It is about the quality of its management, and the deep levels of harm it has inflicted on the carrier.

36
  • 1
    Suzanne Blake
    Posted Friday, 6 December 2013 at 1:25 pm | Permalink

    Qantas for the last two decades needed to take a leaf out of the service levels of a few Asian airlines. They were unable to change staff service levels, and this has killed them.

    The staff hide in the galleys, except when serving meals, especially on International flights.

    They are in there chatting, reading papers and serving customers who walk up and ask for a drink.

    There are few exceptions.

    So do you blame management, staff or both. I say the latter

  • 2
    rumtytum
    Posted Friday, 6 December 2013 at 2:10 pm | Permalink

    The biggest mistake Qantas management has made is to treat customers as a static, uncomplaining factor in the business plan, while paying fawning attention to executives and shareholders. Under this mindset it’s assumed that business won’t be affected by long delays in telephone responses, the long delays at check-in counters and grumpy, overtired cabin crew, all a result of reducing staff numbers. It’s assumed, too, that customers won’t mind the gouging on credit card fees and the handing over to passengers of tasks previously the responsibility of staff. In short, customers have for years been treated like cattle whose views of the airline need not be taken into account. I’m one of the once-loyal cattle who’ve finally switched allegiance to airlines that at least pretend to care about me. Fuck Qantas.

  • 3
    Gary Gaunt
    Posted Friday, 6 December 2013 at 2:16 pm | Permalink

    To be fair and its hard to be fair to Joyce, he was handed a poisoned chalice by Strong/Dixon et al who had already cut the guts out of and sold the furniture of a once well run airline.
    The last straw were the across the board “profit based” executive bonuses, which produced results like Bangkok QF1, screwing staff and pilots and engineers, outsourcing work that has to be redone and so it goes.

    Don’t know where they are going to find the 1,000 people to add to the many thousand others they have already chopped.

    Of course the Board supports Joyce, also a reason to change both and the several layers of management underneath.

    When a surgeon is removing a cancer he takes as wide a margin as he can without actually killing the patient to make sure he gets it all.

  • 4
    zut alors
    Posted Friday, 6 December 2013 at 3:02 pm | Permalink

    Agree 100% with the last two sentences of Gary Gaunt’s.

    I haven’t heard one logical argument for keeping any of them. Come back, John Borghetti, all is forgiven.

  • 5
    Rais
    Posted Friday, 6 December 2013 at 3:27 pm | Permalink

    Don’t know what you’ve got against Joyce Ben. He did a good job at Ansett didn’t he?

  • 6
    JRAPQQ
    Posted Friday, 6 December 2013 at 4:28 pm | Permalink

    There was a time when Qantas staff would have given their life for the airline, but now if Qantas was on fire a huge number of the very same people would go into debt to buy fuel to help it burn. How did it come to this? Qantas has transformed from being a company servicing individuals into a company that takes money from transporting a body (customer/passenger) attached to money (your e-ticket). The rot started with James Strong, and has not stopped. A flight on Qantas can be equal to the best in the world, but Qantas is just as good at being the worst. Qantas has never been as Qantastic (a term from Qantas Marketing some years ago) as it thinks it is simply because the service levels vary too much. I’m not sure John Borghetti would have been the best solution, but he would not be in combat with both his staff and his customers. S&P have today downgraded Qantas to Junk Bond status. Qantas will, sadly, go off with Pan Am - which was also badly managed at the end. It will be interesting to know if Mr Joyce still get his performance bonus?

  • 7
    rhonaj
    Posted Friday, 6 December 2013 at 6:48 pm | Permalink

    Only some geriatrics have a fondness for QANTAS

  • 8
    Grant Carroll
    Posted Friday, 6 December 2013 at 7:03 pm | Permalink

    Dear Ben,

    You write great articles, I like Crikey and you do offer constructive, interesting criticism however, I must say, you seem completely bogged down with the Qantas lock out thing, Ben this happened approx. two years ago, right or wrong, surely it’s time to move on ?

    Ben, everyone’s entitled to an opinion, but aren’t you the Crikey moderator , do you really think “money is missing” ( as you put it) if you do, then why don’t you just call the police and get the whole board locked up !
    Do you know of any Australian management teams that have not made any business mistakes? If you do, kindly let me know as I will follow the company with a view to investing in them.

    It would be crazy to remove (sack or other ) the CEO and board at the moment.
    Let’s be sensible, give the so called “amazing management team” a little more time and a small amount of credit, at least they know how much they are losing!

    Mr Joyce did say all options are on the table, so maybe a “business options” re- alignment has taken place and he means everything is for sale at the right price!

    Qantas’s current financial/business woes, are not unique to Qantas , in the business world, small business’ operators experience similar ( smaller) financial struggles and problems every day.
    Events over the last few days could be a positive sign and a turning point for the Qantas team, who knows what the future holds.

    It will be interesting to see how Qantas management responds, with cash reserves dwindling, ti’s the time to see if Mr Joyce, the board and executives really do “thrive on competition” (as they put it), or is it all just talk?

  • 9
    macca
    Posted Friday, 6 December 2013 at 7:11 pm | Permalink

    Suzzane Blake:
    I fly Qantas international lots, in cattle class & this is not my experience (in fact, quite to the contrary).

  • 10
    Suzanne Blake
    Posted Friday, 6 December 2013 at 7:43 pm | Permalink

    Hi Macca

    So you I, and I have NEVER seen anything different, same in Business, as well when I get upgraded!!

    Why travel Qantas when you can fly for a LOT less with better service? no brainer

  • 11
    David Husband
    Posted Friday, 6 December 2013 at 8:44 pm | Permalink

    I am confused. For a long time we have been told that Qantas International is the one losing money. Now it seems to be that Virgin (assisted by its overseas partners) is gaining on the Domestic front to the disadvantage of Qantas, who now want some sort of help. The best help that Qantas could get at present is the immediate departure of Alan Joyce and the Board, to be replaced by people who actually know how to run an airline properly.

  • 12
    Hamis Hill
    Posted Friday, 6 December 2013 at 9:04 pm | Permalink

    Arguably “politicised” management?
    The conservatives reap what they sow on the low wages front,’How can tou have low wages with a $!.75 TRILLION national mortgage debt to service< care of Howard's "Wealth Management Services".
    Where are the adults?
    Joyce followed the conservative line, arguing that wages were too high and wage demands were excessive.
    But in aggregate those wage denads were for the servicing of housing debt which Howard encouraged with his wealth in housing mantra and his middle calss welfare whic only compounded the problem.
    Ask Ford and Holden why they are shutting up shop, and they, like Joyce, will tell you that they cannot continue to pay wages that are sucked up by mortgage debt and never "return" to purchase their goods and services.
    Middle class snobs with their house pride fetish are blind to this problem, but it is real and it will not go away,
    Superior conservative economic management?
    You have got to be joking!

  • 13
    David Hand
    Posted Friday, 6 December 2013 at 9:34 pm | Permalink

    You allude to “appalling management” without a single example of appalling management actions to back up this unsubstantiated claim.

    Where has the money gone”? It’s gone to bloated fat and happy staff on 1960’s circa EBA’s that give then pay and conditions none, absolutely none of their competitors are saddled with.

    Why are the flight crews over 50, demotivated, tired and apathetic? It’s because they’ve been there too long. Get on a virgin flight and experience the younger, enthusiastic flight crew happy to have a job in aviation for considerably less pay.

    Why Jetstar? Why Jetconnect - the kiwi version of Qantas? Why the separation of the domestic business grom the international business? Why has Qantas handed over routes like Bali to Jetstar? It’s Joyce’s smart management actions to get round the ruinous pay and conditions enjoyed by the fat and happy Qantas staff from the 70’s.

    Why did he ground the fleet two years ago? It’s to force that joke of an industrial relations edifice, the Fair Work Commission, an oxymoron if ever there was one, to rein in the rampant militant engineers who were persecuting the airline in pursuit of a continuation of their fat and happy 1970’s style lifestyles.

    I’m platinum on Qantas and Virgin.

  • 14
    gapot
    Posted Saturday, 7 December 2013 at 9:31 am | Permalink

    If QANTAS is so important to the Australian national identity then split it up into domestic and international, let the domestic fail as a public company and save international as a government airline. The competition is government owned or government guaranteed as is the case with Air New Zealand.

  • 15
    Suzanne Blake
    Posted Saturday, 7 December 2013 at 9:33 am | Permalink

    @gapot

    and Singapore, Gulf, Emirates, Eithad, most Chinese ones, and a bunch of others

  • 16
    JimDocker
    Posted Saturday, 7 December 2013 at 11:38 am | Permalink

    To the people defending the lock out/grounding and suggesting that Ben S get over it as it was 2 years ago.

    In the last 2 years since the grounding, I have booked and paid for over 40 flights, domestic and international. All with Virgin and their affiliates. I will personally not fly on an airline that treated it’s passengers with the disdain that Joyce and his management did.

  • 17
    David Hand
    Posted Saturday, 7 December 2013 at 11:54 am | Permalink

    Hey Jim,
    I appreciate the pain you suffered when your Qantas flight was grounded by Qantas. You were actually affected by it like I was, weren’t you?

    But didn’t you ever experience delays and cancellations in the 6 months leading up to that event as engineers called strikes under protected FWA regulations? Only to call off the strike after Qantas had cancelled flights but before it cost them lost wages? All while Gillard was knitting in the Lodge and doing nothing?

    Here’s a question for you. Why would a chief executive ground his entire air fleet, costing an enormous loss in customer loyalty, an equally enormous boost for the competition, destruction of tens of millions of dollars in shareholder wealth and almost irreparable damage to the brand? Just to express disdain for passengers like you and me?

  • 18
    Enuffsaid
    Posted Saturday, 7 December 2013 at 12:54 pm | Permalink

    David Hand, your comments regarding the ‘supposed’ pay, conditions and subsequent lifestyle of airline, and specifically Qantas employees, indicates your ignorance of the industry.

  • 19
    Suzanne Blake
    Posted Saturday, 7 December 2013 at 1:16 pm | Permalink

    @ Enuffsaid

    The ex staff, get amazing benefits and travel perks, including flying at 10% of published fare, first upgrades and last minute specials on vacant seats.

  • 20
    Posted Saturday, 7 December 2013 at 1:19 pm | Permalink

    I’m with JimDocker. I refuse to fly with Qantas since it locked out its workers, grounded its fleet and stranded thousands of passengers. Joyce did this to pursue an ideological war against Qantas’ unions.

    Where has the money gone?’: to failed attempts to set up airlines in Asia, which Sandilands criticised heavily at the time.

  • 21
    JimDocker
    Posted Saturday, 7 December 2013 at 1:24 pm | Permalink

    David. Here’s an answer for you.

    A chief executive would ground his entire fleet because he is an ideologue that does not care for his passengers. He timed the grounding to damage PM Gillard who was hosting CHOGM in Perth at the time.

  • 22
    Suzanne Blake
    Posted Saturday, 7 December 2013 at 1:27 pm | Permalink

    @ JimDocker

    Doubt Joyce is a lefty, like the ABC, and GLEC so the last thing he would do is do that to Gillard

  • 23
    David Hand
    Posted Saturday, 7 December 2013 at 2:22 pm | Permalink

    Ah well Jim, thanks for your view from the grassy knoll. As I understand what you are saying, Joyce has completely stuffed Qantas as a business to get rid of the Labor government.

    hahahahahahahahaha!

  • 24
    David Hand
    Posted Saturday, 7 December 2013 at 4:07 pm | Permalink

    Hey Jim,
    You haven’t confirmed that you were personally affected by the grounding, that it’s not just an act of solidarity with the bruvvers from the TWU et al.

    But I know why you really bought those 40 flights on Virgin. It’s got nothing to do with the grounding. It’s because you prefer the young enthusiastic cabin crew, the newer planes, and the generally more pleasant experience on an airline where “the romance is back”

    I’m on to you mate.

  • 25
    Enuffsaid
    Posted Saturday, 7 December 2013 at 5:04 pm | Permalink

    Suzanne, your statement regarding benefits is totally inaccurate.

  • 26
    Suzanne Blake
    Posted Saturday, 7 December 2013 at 5:06 pm | Permalink

    @Enuffsaid

    I dont believe it is, I know crew who has been with QF for over 25 years, and one over 35 years, and I know it to be true.

    I know another who has retired after 42 years.

  • 27
    Aidan Stanger
    Posted Saturday, 7 December 2013 at 10:13 pm | Permalink

    @ David Hand

    The romance will never be back. Whatever airline you fly, they’re just buses with wings, and last time I flew with Virgin the seats were rather cramped.

    And does any passenger really deal enough with cabin crew for their enthusiasm to make a difference in the choice of airline?

  • 28
    Enuffsaid
    Posted Saturday, 7 December 2013 at 10:40 pm | Permalink

    Suzanne, then they are not telling you the truth. Anyway, this is way off thread.

    Enuff Said!

  • 29
    condel
    Posted Sunday, 8 December 2013 at 1:02 pm | Permalink

    Virgin is such a lame name for an airline. Atleast Qantas sounds less flimsy.

  • 30
    JohnB
    Posted Sunday, 8 December 2013 at 2:05 pm | Permalink

    During the past year or two, I have booked and flown with five international airlines. Not Qantas. Why? Not service, not price. Because of the destruction of passenger loyalty that Qantas wrought on itself voluntarily. The lame-brain idealogues who decided to ground the entire fleet did this themselves. Nobody forced them into it.

    Qantas is reaping what it sowed.

    Besides which, and in common with other carriers, Cattle Class seats are shrinking whereas my girth stubbornly is not. So, it is Business Class or Death for me and I cannot afford Q’s Business Class.

    There is much more than the rot at the top of Qantas, but nobody has yet mentioned a single positive about the experience that our national carrier provides.

    So, come on, folk! What, if anything, is good about Q? What’s worth saving?

  • 31
    Suzanne Blake
    Posted Sunday, 8 December 2013 at 2:16 pm | Permalink

    @ JohnB

    I would be a shame to lose an Australian owned air carrier, same as car and heavy manufacturing and oil refining.

    I believe some of the above are National Security issues and must be retained. For the same reasons the GrainCorp takeover should have been blocked.

  • 32
    Suzanne Blake
    Posted Sunday, 8 December 2013 at 2:23 pm | Permalink

    @JohnB

    On Qantas service, I could not agree more with what you say.

    Shocking service and the highest fares. I have used up all my QFF points in the last 72 hours, in case they halt redemptions, scale them back or worse.

    I cant think of one thing anymore that I would miss if they went.

    One of the problems is their Chairmans Lounge, they automatically allow politicians on all sides in, and this skews their objectivity. My local backbench MP, who lost her marginal seat in September, had the Chairmans Lounge on her Parliamentary declaration. Why, a humble backbencher with no role, not even a Parliamentary Secretary.

    You see all sorts walk out of The Chairmans Lounge, including Union Leaders, past pollies, power brokers, sportspeople, current pollies, Board members etc

  • 33
    David Hand
    Posted Sunday, 8 December 2013 at 5:03 pm | Permalink

    Hey Aiden,
    I was tongue in cheek quoting Branson’s huge poster at Sydney domestic airport.

    But I just don’t believe the people here who say their decision not to fly Qantas is nothing to do with price or service, but a protest against Qantas management. If this were true, which I doubt then we are reduced to industrial action in solidarity with the TWU from passengers.

    I think JohnB is closer to the mark. He states that he’s rebelling against evil management but then confesses that Qantas business class is too expensive compared to competitors - a true and much more believable motivation.

    Qantas will fail because its unions will not wake up to the danger all their jobs are in until it’s too late. Taxpayer money would just perpetuate the union rorts that are Qantas EBAs

  • 34
    Nick the Hippy
    Posted Sunday, 8 December 2013 at 11:57 pm | Permalink

    As soon as Qantas answer my email of complaint I sent them in 2005 I will start flying with them again.

  • 35
    Karen
    Posted Monday, 9 December 2013 at 11:07 am | Permalink

    I won’t be investing in Qantas until Joyce and his consigliere are gone.

    His decisions have been appalling re:
    the Asia foray - not forming strategic allicances at the time, the damaging industrial standoff, inconveniencing of quantas customers, the miserly incabin food service, maintenance issues and and the lack of investment in modern aircraft at the right time. Just terrible.

    And yet, as far as staff are concerned, the best staff are Qantas staff who I consider to be a class act compared to their Virgin counterparts. I find their service better then Virgin - the staff are mature, more experienced and more efficient. The announcements have a ‘classier’ edge too.

  • 36
    JimDocker
    Posted Monday, 9 December 2013 at 1:38 pm | Permalink

    David. Sorry for not confirming your earlier question. I was too busy living life, spending time with family, watching the cricket etc.

    No, I was not affected personally by the Qantas grounding. I had family members that were though.

    Grassy knoll ? Oh, humour !!!!

    No conspiracy theorist here, but Joyce stranded people and timed it for maximum effect. No doubt whatsoever. My stand is a principled one. Qantas will not get my business while they run an agenda like they have with that psychopath in charge.

    Pretty simple really.

    For what it is worth, I have had excellent service on all of my flights with their opposition, so it would take a lot to get me back now.

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