Red is great, green is good and gold is so-so. See what Pemberton Strong makes of the Qantas route maps.

A good tip when planning your overseas travel via Qantas is to take a visit to the website www.qantas.com.au
and call up the page of routes and start looking at the various
options. There are routes in red, green and a sort of orange/gold
colour. A colourful display, and one that the intelligent traveller
always looks at because it tells you where full Qantas services
operate, or where you fly through
lesser options.

And the
clever Qantas shareholder also knows these colours tell a story about
the airline’s profits and where Qantas knows where its long term
balance sheet interest lie. But hold on, I hear you say, its a bit
trite, talking about all these colours. But now, it’s what they
represent
and the approach it takes to its business that these routes represent.

Those
red routes in particular, represent lifeline of the airline, the tip of
a great bucket of profits and cash in Qantas. One of those red routes,
to Paris, is shortly to be replaced by a green line, signifying that
its become a code share arrangement. On Air France.

Just like
Rome, which is a code share with Cathay Pacific from Hong Kong. You can
fly Qantas or its budget overseas airline, Australian, to Honkers to go
to Rome. That won’t be affected by the looming cash crisis that could
ground Alitalia, nor will Qantas be affected by
the looming cash crisis at Swissair, which is warning that it may not survive the northern summer.

Even
United, the struggling US giant could have financial problems in coming
months as its latest attempt to obtain cheap government loans seems to
have hit a wall. More pleasure and profits for Qantas on all those red
routes across the Pacific as competitive pressures
are lessened by the problems at United.

No
doubt any failures of these and other airlines will be seized upon by
Qantas and its combative CEO, Geoff Dixon, as a warning that Qantas
faces a plethora of problems, from nasty unfair competition, to cost
problems and all manner of chicken little happenings. Well, the only
problem Qantas is facing is what to do with the huge profits its making
and the jumboloads of money sloshing through the bank accounts.

The
airline is simply awash with earnings and no amount of CEO posturing or
mutters by influential board members(such as newbie James Packer) will
be able to hide the fact.

Go back to the route map and ask
yourself what’s the difference between the colours. Take Australian
orange (or gold). It’s a low cost operator on overseas routes and
that’s why it trawls through the budget travel and low cost
international businesses.

Holidaymakers and budget travellers don’t generate huge profits, but
get the costs right, and the returns can be golden, like the
routes for Australian.

That’s why it works out of Brisbane and Cairns, and not so much out
of Sydney. Its cheaper up north, as Qantas revealed this week with its
plans to base 250 international Qantas cabin crew there from early next
year, mostly for the Brisbane-US trans-Pacific routes.But more of that
shortly.

The red routes represent ones flown by Qantas itself, and if you
look at them, they are the most profitable parts of the international
business. London via Singapore and Bangkok, and soon, Hong Kong,
Australia Tokyo, Australia-Singapore and Australia to the US. All good
tourism routes, but heavy use by full paying business, first class and
full economy passengers. Gold mines in fact.

The introduction of the new sleeper beds on the Kangaroo route for
business class and their introduction elsewhere have tightened capacity
and boosted demand for business travel. No discounts there and using
frequent flyer points is nigh impossible.

Code share means Qantas is sending you on another airline, and
taking a small but juicy profit for processing your bookings
through the system. BA, Air France, Cathay, American all will try and
make a profit out of you, but after they have recouped their costs. For
giving you access to the route anddestination, at minimal cost, its a no brainer for Qantas by comparison.

So that’s why the Paris route will soon switch from red to green,
from a high cost, low return Qantas service, to a low cost, nice return
code share offer.Obviously Qantas couldn’t make a decent return flying
to Paris with a full service, so rather than give it up and let a
competitor slip in ( say Virgin), it continueswith a code share service(and will make a better return).

That’s micro-managing cost controls, something that Dixon is a past master at, as the cabin attendants (cabin crew) are finding out.

The Brisbane international base will attempt to remove a nice little
lurk that’s emerged within Qantas. The international flight attendants
who live on the Gold Coast or in Brisbane, (sometimes operate another
business as a sideline )and have to be flown to Sydney to start work
each week, and returned to theirpoint of origination, Coolangatta or Brisbane.

Now, based in Brisbane, these people will not cost Qantas capacity,
a big issue now that only two Qantas flights fly to and from the Gold
Coast, the remainder are flown by Jetstar, which wouldn’t like wastingmoney carrying Qantas staff.

Meal allowances and accommodation costs in Sydney will also be
eliminated. The attendants based around Brisbane will now have to drive
to Brisbane airport to start work each week, a big, big saving for
Qantasand a boost, however small, in yields and revenue per kilometre.

Likewise with the London base, where there’s another wrinkle. The
four hundred attendants to be based there from midway through next year
will be employed by a British subsidiary of Qantas, but will not be
paid British wages. No they will be paid wages commensurate with
foreign airline staff based inLondon. Lower wages.

The starting salary according to union sources is around $29,000 a
year, compared to the $35,000 to $50,000 a year now paid. Allowances
lift that to $80,000 a year for attendants with the most seniority. The
savings for Qantas will be lower accommodation costs and allowances,
but more importantly, big improvements in yields and revenues per
kilometre because there will be very little re-positioning of staffinvolved.

That’s when staff travel as non-paying passengers to a distant port to start work or begin work the next day ( like living on the Gold Coast and flying to Sydney to begin work).

That means not only the elimination of dead money(i.e. the overheads
or cost per kilometre being totally borne by Qantas for carrying
non-paying staff), but there will be revenue generated to meet the per
kilometre overheads, and in the present conditions on some routes (the
Trans Pacific and the KangarooRoute) will mean larger profits.

With fuel costs now high and expected to remain high, reducing non-
paying staff flying to the absolute minium will play a small,
profitable part.For example, someone will now pay the fuel surcharge
for sitting ina seat occupied by a non-paying staff member (working).

Qantas says it will save $18 million a year from these international
bases. A good bet is that the associated boost to operating returns
from more revenue will boost that saving by a small, but profitable
amount. That’s why those colours on the Qantas route map can tell you a
lot about the airline’s performance,especially when you read it alongside with recent developments.

The red routes are the most profitable and the ones where Qantas
will be working to maximise earnings. The international crew cases
argument will not stop where it is now. Qantas undoubtedly has other
plans,and plans domestically using Jetstar.

And you can bet that Qantas’ good friend and close employment partner, Adecco will be involved, just as its involved in Auckland and Bangkok.

Peter Fray

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