This morning’s media, like yesterday’s supposedly learned commentary from some financial analysts, is crammed full of claims that the full service Qantas international operation is going broke.
It is time for Qantas CEO Alan Joyce to prove it.
Bring on the forensic accountants with power to fully inquire into how much those losses come from gifting assets and continuing cost support from the rest of Qantas to Jetstar.
There are glaringly obvious management failures at Qantas in terms of fleet planning and networks. Why should the investors and customers accept at face value that the fading fortunes of Qantas compared to other international competitors are due to government support or trade liberalisation when in fact they may substantially reflect inadequate management, or, as seen in the failed private equity bid, perhaps an underlying obsession with pocketing the true value of the business.
No-one should be in any doubt that the once low fare franchise of Jetstar (which is now sometimes more costly to use than Qantas) can make excellent returns and grow the Qantas group business, and in a much overdue way given the current investment in Jetstar Asia and Jetstar Pacific, actually generate new investor wealth on an attractive scale from participation in the Asia markets for air travel.
But if the full service business internationally is to pilloried as not making money, and used as an excuse for cutting the Qantas standards of in-house excellence, there are some very serious matters to be examined, especially concerning a management that hasn’t paid a dividend for more than two years and despite Jetstar has seen its domestic market share remain essentially static and its international share continue to shrink.
Why were daily San Francisco flights dropped for a less than daily service to Dallas Fort Worth, which would make sense if it was flown by a 777-200LR that could actually do the route both ways with a full load and passengers and freight and keep business travellers united with their luggage without exception?
Why has Qantas given away half of its capacity to London Heathrow, one of the airline’s most valuable route assets, in order to retire four aged 747-400s with no real asset value in the used aircraft market.
It is a dismal trade off, made more dismal by the fact that the key to keeping those jets reliable was to continue the Qantas investment in its own maintenance of their Rolls-Royce RB211 engines instead of supposedly saving money by sending the work to a Hong Kong facility where Qantas now has to wait for a much needed modification to keep those engines safe from a serious failure mode that has become apparent as they age.
If Alan Joyce was truly concerned with the preservation and enhancement of the Qantas and Jetstar brands he would retain control of such thing as maintenance excellence, not outsource it. Or is the Qantas excellence premium unaffordable? Are we trading the brand’s unique standards of excellence for tick-the-box ‘world’s best practice’, yet not actually saving any money anyhow, as the customers desert the carrier for airlines which have invested in the most appropriate aircraft and deployed them on routes that get them to their destinations on the one airline, like Qantas used to before opting for ‘alliance gateways’ which give away the passengers and part of the revenue?
There is an interesting issue to consider in financial analysis, which is whether to deal with the long game, or the short game. Asia is a long game.
Dropping out of a large part of the London market to transfer activity to British Airways, a widely loathed product that is held inferior to that of Qantas, to be able to retire four jets that Qantas management knew years ago should have been replaced in a timely manner is scandalous.
Coming to the market with a new premium single aisle Asia base airline, yet one without a name, a base, or a joint venture partner that can be revealed is at best hasty.
Few would doubt the merits of investing in Asian air transport growth through franchising the Jetstar model. The issues arise from what appears to have been the clear intent of Qantas to rotate Asia based labor conditions for pilots and cabin crews through the Australian domestic market to avoid Australian taxes and superannuation charges and other costs.
Those issues have already been identified by Senator Nick Xenophon as cause for proposed legislation requiring such labor to be paid under Australian terms and conditions, and trained to nothing less than the highest Australian standards in terms of competency and safety.
Xenophon’s intentions have the potential to keep the Qantas ambitions in Asia locked into what they claim to be, an investment in a growing market, rather than what they are widely feared to be, which would be a dilution and destruction of the standards which currently give Australians a viable and growing domestic market.
His call for a Senate inquiry into exactly what is going on in the Qantas restructuring deserves multi-party support. It took several efforts in the last Senate inquiry into pilot training for Qantas and Jetstar to fully explain their assertions about costs and training arrangements, so given that workout, they should be more than ready to set the records straight again.