Jan 10, 2014

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.

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

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.

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16 thoughts on “Qantas junked? It’s too late to save the flying kangaroo

  1. Tristan Wilson

    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

    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

    Perhaps a name change is in order. Ozymandias Air?

  4. bushby jane

    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

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

  6. Dulong Ttil

    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: .
    Some other success cases of linked currencies in Europe can be found on this link:

  7. Suzanne Blake

    Glad I emptied by FF account before Christmas

  8. macca

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

  9. Frequent Fixer

    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

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

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