tip off

Qantas junked? It’s too late to save the flying kangaroo

Australia’s airline has been junked by two credit ratings agency. So what can Alan Joyce and the Qantas board do about it? It’s probably too late to save the flying kangaroo now.

How does a company in as much trouble as Qantas rid itself of group CEO Alan Joyce and a board chaired by Leigh Clifford in order to reverse or remove a set of ruinously bad strategic mistakes?

The question came back into the spotlight when Moody’s belatedly followed S&P in downgrading the airline’s debt risk to junk status.

Qantas is already working to a sometime in February deadline to complete a structural and strategic review in which all options are on the table, naturally raising speculation of full or partial spin-offs of the loyalty program, the Jetstar low-fare franchise, and if Anthony Albanese is serious in his comments as the minister on whose watch Qantas abandoned key routes to Emirates, the loss of QantasLink on rural routes.

Part of the problem had been the behaviour of Joyce in making a serious of emotional and entitled but vague and shifting demands on government for relief from the competitive pressure being brought on Qantas by Virgin Australia and its corporate structure, in which three international carriers — Air New Zealand, Etihad and Singapore Airlines — are now substantial equity holders.

Joyce was silent and invisible when the Moody’s announcement came out. He appears to have been kept out of the spotlight in recent weeks since he managed to annoy or frustrate the government by his demands for imprecise relief from the Virgin menace.

Threats appear to be at the heart of the Qantas campaign for “relief”. This could extend to cancelling its extremely low-priced options for the Boeing 787-9 version of the Dreamliner, a much better jet it seems than the initial -8 version that Qantas flick-passed to Jetstar.

Or it could cancel its remaining orders for another eight Airbus A380s, except that cancellation would be very costly, and the current more capable version of the jet is by far the best airliner to use on the Sydney-Dallas Fort Worth route, which it very inefficiently serves today with an ageing 747-400ER that can’t carry a high payload non-stop in either direction.

But threats or high-profile stunts like shutting down the airline in October 2011 to browbeat Fair Work Australia, or alleged death threats that caused the New South Wales Police to set up a special taskforce — which was shut down at Qantas’ request before police could discover the source of such threats — aren’t going to cut it this time.

QantasLink is not the rural monopoly it was. As for Qantas International, there seems to be an inverse relationship between the successful growth of Australia’s inbound tourism industry and the retreat of Qantas as an international carrier this century.

… Qantas means less for the future of Australia with every passing day.”

Indeed, part of the boost comes from Qantas telling its customers that it is perfectly OK to fly Emirates for its superior connections to all sorts of markets it withdrew from with the enthusiastic endorsement of the Gillard/Rudd government, dumping Brisbane, Adelaide and Perth as unworthy of its services on flights to London and Frankfurt.

Labor’s capacity to say anything useful about Qantas has been massively compromised by past indifference and inconsistency in its policy pronouncements and settings concerning air transport in this country.

The real challenge may prove not to be how to save Qantas, but how competitors like Virgin Australia, or possibly new domestic entrants, who might buy Qantas some assets, could grow fast enough to replace it.

Qantas, under its current management and board, cannot be saved. It is a management and board without answers, which has done extraordinary damage to a stock that was once a trusted and reliable performer in many funds in the five years since Joyce and Clifford set up a confrontational rather than collegiate approach to managing the painful changes all large airlines faced in recent times and circumstances.

Joyce has made Qantas an object of ridicule in Asia by bragging about how he was going to set up a premium low-cost, single-aisle carrier based in Kuala Lumpur, Singapore, anywhere, using puppet Asian managements to ensure the profits cross-subsidised the full-service international Qantas brand. They were some of the most cringe-worthy statements ever made by a major Australian company with Asia ambitions, none of which proved of any substance.

Following reports on Crikey blog Plane TalkingAsia and Australian mainstream media is following the saga of delivered but idle A320s purchased for Jetstar franchises in Hong Kong or Japan that in the case of the former hasn’t been granted a licence, and in the latter hasn’t yet secured approval for an expansion of an existing operation that has already spent much of its seed money and taken recourse to a further cash injection.

These jets, which Qantas insists are “operational spares”, attract monthly lease charges of close to $400,000 a month each, number between seven and 11 and are parked, at not inconsiderable daily fees including some share of fixed costs, at various airports including Toulouse and Tokyo Narita. That amounts to at least $3 million in vanity losses for a Jetstar franchise that seemed to believe its own hype, and is devastating the Qantas bottom line.

Unravelling these errors, and finding net relief in sell-offs of assets over which Qantas doesn’t in some cases have immediate or effective control, is a tall order. For a management and board that denies any culpability for this disaster, this is an even taller, if not impossible, order.

Brace for some previously unthinkable “solutions” or “remedies” from Qantas.  But don’t worry too much — Qantas means less for the future of Australia with every passing day.

16
  • 1
    Tristan Wilson
    Posted Friday, 10 January 2014 at 12:27 pm | Permalink

    It frankly amazes me that Alan Joyce still has a job. The man has done nothing for Qantas except to turn it from one of the best airlines in the industry, to an international laughing stock held together by good pilots and a lot of luck. I was on the last flight into Heathrow back in 2011 before the shut down. In fact, if we hadn’t left Hong Kong when we did, my brother and I would have been stranded there for who knows how long. Our entire holiday would’ve been ruined, just so Joyce could look tough in front of the strikers. As a result, I will not fly Qantas again, at least not until there’s a serious change in management there. Joyce should have been sacked for incompetence years ago.

  • 2
    grubbidok
    Posted Friday, 10 January 2014 at 1:13 pm | Permalink

    Just imagine the QF that could have been if Borghetti had been given the reigns instead of Joyce. Bet shareholders are kicking themselves now.

    My personal prediction though, is that a private equity consortium will offer to ‘save’ QF, and it will be looked upon more favourably than it was 5/6 years ago, and they’ll probably be able to get it for a lot less than the $11b they offered last time.

  • 3
    ianjohnno
    Posted Friday, 10 January 2014 at 2:56 pm | Permalink

    Perhaps a name change is in order. Ozymandias Air?

  • 4
    bushby jane
    Posted Friday, 10 January 2014 at 2:57 pm | Permalink

    Joyce has made a submission to the govt’s Direct Action suggestion box advocating the funding of more fuel efficient aircraft. Doesn’t appear to be a priority presently with the current choices being made which I think was pointed out to him by the Pilot’s mob during the time of the union troubles.

  • 5
    Bill Parker
    Posted Friday, 10 January 2014 at 3:51 pm | Permalink

    I hope that grubbidok’s predictions come to pass. But much moreso that the PEC will insist on removing Joyce.

  • 6
    Dulong Ttil
    Posted Friday, 10 January 2014 at 5:19 pm | Permalink

    Japan has been applying an assertive Monetary Easing Policy, which drives the YEN downwards successfully. The immediate result shows that their Export and Tourism industries have picked up swiftly. Japan is now enjoying healthy export growth and has much more tourists visiting Japan.

    With the sound and robust stimulation by Japan’s Monetary Easing Policy (which in fact mainly injecting more printed notes into the market by their Central Bank), the Nikkei has soared from 10,398 to 16,291 just in 2013. Nikkei marks its best performance in forty years, and also the top performer among Asian markets in 2013. Analysts name this “Nikkei Ends Year on a High in Quiet Asia”. Can we see the power of an aggressive Monetary Easing Policy now?
    Australia can consider this as a viable option to improve our economy outlook and, our export can be improved instantaneously.

    A lower $A can help to improve our Export opportunities, save the Australian farmers and manufacturers and reduce our trade deficit. It can also help to improve our Tourism industry, which has been damaged due to high $A. When tourists increase, it can save Qantas as well.

    Another thought is a linked currency policy for constantly linking AUD:USD at e.g. A$1.00 : US$0.80. The well-known success case is the linked currency between HKD:USD in the past 25 years or more. This link has more detailed discussion: http://en.wikipedia.org/wiki/Linked_exchange_rate .
    Some other success cases of linked currencies in Europe can be found on this link: http://ec.europa.eu/economy_finance/euro/world/other_currencies/index_en.htm

  • 7
    Suzanne Blake
    Posted Friday, 10 January 2014 at 10:16 pm | Permalink

    Glad I emptied by FF account before Christmas

  • 8
    macca
    Posted Friday, 10 January 2014 at 11:10 pm | Permalink

    I what what Geoff Dixon, Singo etc are doing right now? Ready to pounce maybe?

  • 9
    Frequent Fixer
    Posted Saturday, 11 January 2014 at 8:28 am | Permalink

    No measure of private equity or government investment can ever compensate for incompetent management. Destroying an International air service by giving away routes to Emirates and Jetstar means that there is no longer a comprehensive service offering. Using failed former Ansett executives to run anything can never work, like it didn’t work at Ansett. Qantas tracking along the Pan Am path by offloading capital assets to improve cash flow so Joyce can get his bonus. Qantas can succeed, but not with the current goons pushing the current strategy.

  • 10
    Jimmyhaz
    Posted Saturday, 11 January 2014 at 4:17 pm | Permalink

    Just hoping that after Qantas fails, none of the executives are ever put in charge of anything larger than their local lemonade stand.

  • 11
    JohnB
    Posted Saturday, 11 January 2014 at 6:03 pm | Permalink

    I have personally bought and paid for 14 international flights in the past year and a bit. Add corporate flights and we are over 20.

    Not one of them with the Flying Kangaroo, and this will not change until Qantas develops a strategy which has something in it for customers and for its business. That includes, I suppose, the shareholders - if there are still any.

    It is past time for the unpredictable, mean, overconfident little ego-driven leprechaun to be given the flick.

    In saying what I just did, I have presumed that Crikey has policies about avoidance of personal abuse in the Comments columns. That’s why I was so restrained and fair-minded.

    My apologies to the majority of leprechauns, who are of course happy, generous, smart, smiling and courteous, kind to their staff and highly respectful of their customers.

  • 12
    Hamis Hill
    Posted Sunday, 12 January 2014 at 3:34 pm | Permalink

    As QANTAS goes so does Australia?
    Especially given the similarities between the QANTAS management and the Abbott regime.

  • 13
    Philip Bond
    Posted Monday, 13 January 2014 at 8:19 am | Permalink

    Grossly unfair to Alan Joyce. His thesis on how to start a small airline in Australia is not yet complete. Just a few more months, a year tops and it’ll be ready for peer review.

  • 14
    Itsarort
    Posted Tuesday, 14 January 2014 at 12:25 am | Permalink

    10 planes at $400K a month(each) amounts to $4M a month for SFA. At least Joyce sorted out those greedy unions…

  • 15
    Dogs breakfast
    Posted Tuesday, 21 January 2014 at 3:31 pm | Permalink

    Back in the 80’s, when it was a gonvernment airline, it was well known to be one of the best run companies in Australia, and probably the best run airline in the world.

    Sure, times were different, but hasn’t the quality of management improved now that it is in the efficient, effective and focussed hands of the private sector. What a joy to see such wonderful captains of industry adding quality wherever they go with their uber-brains!!!!!!!!!!!

    Spare me!

    As for those claims some time ago how much the international routes were losing, I wonder how much such things as those ‘parking fees’ found their way into the Qantas international books and didn’t show up in Jetstar.

    Wasn’t Jetstar supposed to be the great untroubled offshoot?

    A conspiracy theorist might reasonably posit that this has all been a long term plan to denude the value of the airline for private equity plucking. I would say that it was the case, but I trust the old aphorism that where it is a choice between a stuff up and a conspiracy, always back the stuff-up.

  • 16
    Pete Simpkins
    Posted Saturday, 25 January 2014 at 12:57 am | Permalink

    @Dogs Breakfast: while Qantas was profitable when it was a government monopoly, it was not at all efficient or well-run. The old management’s ability to run it in a completely changed competitive environment was nil, although they did get two bits right: staff relations (easy when you gave into union demands year after year) and government lobbying that successfully saw foreign competitors from entering the market. Clifford (the brains behind the current bloody-minded management approach, not Joyce) has made heaps of mistakes, but probably the biggest one was not ceding an inch to Virgin. Putting them in a do-or-die position is the reward for trying to crush them at every turn with the ‘65%’ rule, and now they’re on a last ditch attempt to buy market share by heavily subsidising the business market..and hence Qantas domestic’s profitability. I’m not fan of the way Qantas is currently run, but the mistakes they made are rarely the one identified by armchairers. Tony Webber’s critiques have been the best, and look what he got for it: a nasty and personal diatribe from CFO Gareth Evans. I honestly think there’s no way out for them now: saddled with high costs (particularly labour), too many aircraft on the balance sheet that can’t be flown profitably (the result, perversely of a AAA credit rating), competitors with far deeper pockets, cost and geographic advantages and government support (try setting up a full-service airline in Singapore or Dubai). Nope they’re in a pile of trouble: some management-made, some legacy from the government days, and other bits the result of the Aus government’s laissez-faire approach to markets. While hindsight’s wonderful, putting aircraft on operating leases, dealing with union intransigence, much more effective government lobbying and giving Virgin room to grow (a bit) years ago would have seen them face this battle more assuredly. None of these things were suggested by anyone back in the time they’d have made a difference.

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