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Dec 6, 2013

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.

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36 comments

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36 thoughts on “Qantas’ playing field isn’t level — it has poor managers running it

  1. Suzanne Blake

    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

    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

    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

    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

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

  6. JRAPQQ

    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

    Only some geriatrics have a fondness for QANTAS

  8. Grant Carroll

    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

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

  10. Suzanne Blake

    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

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