Qantas - Some food for thought....

[Paul Waters]

G'day,
I don't post often, but I feel the need to share this around. I received it via email through several people.

Some of you may be aware of the media attention recently coming upon Qantas- especially from it's CEO, Alan Joyce.

Joyce came to the Qantas Group to run Jetstar, and had a small stint in Ansett, and a large stint in Ryanair previous to joining Qantas. Joyce has in past few months called Qantas pilots "Recalcitrant", "Kamikaze", and "Rogue", as well as accusing them of "Living on cloud cuckoo land". The reason- Qantas pilots are asking to ensure Qantas pilot jobs remain in Australia, as there is gathering evidence that Qantas wants to move more of it's operations offshore. Qantas Engineers are also asking for the same guarantees. So far, Qantas has refused to negotiate at all on these asks from the pilots and engineers.

Joyce was the golden haired boy of the previous CEO Geoff Dixon, the man who masterminded the attempted private Equity buyout of Qantas in 2007. Thankfully that did not get through. If it did, Qantas would have defaulted on the debt it was going to be loaded with, and would most certainly not exist anymore. Dixon stood to make $60m out of the deal, and Joyce in excess of $20m.

In the Dixon/Joyce years, decision have been made that have severely damaged the Qantas brand, including forcing passengers onto Jetstar without choice, closing in-house maintenance of engines which has resulted in a 180% increase in engine failures in the past 5 years, and not buying the right aircraft to modernise Qantas and allow route expansion. To add, Qantas has subisided the Jetstar operation from the start including paying for maintenance, payment of landing fees, fuel and terminal charges, and seat subsidies.

As a result, Qantas share prices are below their 1995 issue price of $2.00.

Joyce was in Singapore recently for the International Air Transport Association (IATA) conference and blasted the pilots and engineers as being to blame for the tanking share price. He also stated that there would be no more investment in Qantas until it "started to return it's cost of capital". As one commentator put it, this is akin to "not spending any money on your car to make it run until it starts".

To put some of this into context and to show how badly Qantas management have stuffed up, here is some quotes from Qantas management and what has subsquently happened:

"Jetstar will not operate more than 15 aircraft" G.Dixon 2004. It now operates more than 70 aircraft.

"Jetstar will never operate internationally" G Dixon 2004. It has taken many Qantas routes from it's parent company to Hawaii, Japan, Bali and other ports.

"Emirates is not a threat as it is not a growth model" G Dixon 2001. Emirates now operates more than 60 services per week to Australia and flies to 26 destinations in Europe.

"The B777 is an old technology aircraft" G Dixon 2006. The B777 could fly 90% of the routes currently flown by the B747 with a 30% reduction in fuel burn and is flown by every major airline in the world.

"There is no money in freight" G Dixon 2004. Qantas now operates a full freighter B767 aircraft flown by contract pilots as well as full time contracts with Atlas Air Cargo.

All the while Qantas pilots get assigned Long Service Leave because of a surplus in pilot numbers due to the outsourcing of flying previously done by Qantas pilots to Jetstar, Atlas cargo, Jetconnect across the Tasman, and Jetstar Asia.

You will find below a succienct, precise, summary of where and why Qantas finds itself- loosing money and loosing market share. This was written as a response to a blog by Ben Sandilands on crikey.com.

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Qantas pilots and engineers ask for your support and patience this year while we try to end the rot, keep Australian jobs in Australia and attempt to save a national icon from corporate greed.

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Of all the elements a board and a CEO must manage and protect, surely building and protecting the brand of a company must be their number one priority.

Clifford came out swinging on the weekend saying the focus of the board and CEO must be, and is, on the share price and return of capital. But it is the brand that drives the share price, not the other way around. Everything else flows from that.

If you followed that logic Jetstar never would have been started and Virgin wouldn’t be spending a fortune relaunching and building the brand. If Virgin can do that, why cant Qantas?

Let’s look at the facts. This is marketing and business studies 101.

Qantas from the inception of the very first brand surveys decades ago consistently and without exception, year in year out, always lead the pack as the NUMBER ONE BRAND in Australia. This was not just in terms of brand recognition but also in relation to the more significant drivers of financial success in the market place; trust and emotional attachment for the brand.

The Qantas brand was pure 100%, 24 carat, rolled gold.

This was Qantas’s number one asset. It still should be. Bigger than all the aircraft and other tangibles combined. Every airline has plant and equipment, but only Qantas had that number one position, the ultimate in brand power.

After sitting at number one for decades Qantas is no longer even in the top ten. But worse than that here’s a report from Readers Digest annual Most Trusted Brands survey way back in 2008.

” … the iconic flying kangaroo, Qantas, dropped 47 spots in consumer confidence.”

You read right. In 2008 Qantas dropped 47 spots.

That massive drop in the brand if quantified in dollar terms is so much more than the net worth Jetstar has added to the Qantas group.



So what happened. How did the best, most loved, number one brand in Australia for decades crash and burn. So quickly. So badly.

There are two main reasons for this. And they have names, the first being Dixon, the other Joyce. The destruction of the brand has zippo to do with the current biffo with the unions.


1/ When Dixon took over as CEO the Qantas brand was still riding high and proud at number one. It was untouchable. He was seen by many as marketing and PR genius. Yet the destruction of the Qantas brand can be traced back through these exact same brand surveys to having commenced during his tenure. It is no coincidence that this rapid decline coincides EXACTLY with the rise of Jetstar under the Qantas umbrella.

BA when they held seats on the board warned Dixon an in house low cost carrier would cannibalize the parent brand. Dixon thought he knew better.

We all know the story. As soon as Jetstar was launched Qantas ****ed off many local communities with the haste it pulled out of so many key domestic and international markets and forced people who were used to, and wanted full service, onto Jetstar with an appalling lack of service.

Everyone knows Jetstar is Qantas. Each and every time people feel ripped off or mishandled by Jetstar, which is often, the knife is dug deeper and twisted further into what is left of the Qantas brand.

Just ask any of the tens of thousands of passengers forced to fly Jetstar (because Qantas has pulled out) to destinations like the Gold Coast, Sunshine Coast, Tasmania, Hamilton Island, Bali or Japan. They don’t blame Jetstar, they blame Qantas.


2/ From the day Jetstar was conceived fleet renewal and investment in the mainline product ceased almost completely. While Jetstar got an entirely new fleet of fuel efficient A320/A330 aircraft “full fare” passengers on “full service” Qantas were stuck with clapped out, gas gusling, dirty and unreliable aircraft. The new Dallas debacle is a perfect example.

As you point out Ben, when Qantas could have, should have been renewing its mainline fleet, such as buying B777 as did all of its main competitors, there was no money or motivation as all the focus and cash were thrown at Jetstar.

Clifford and Joyce had already earmarked the first B787s for Jetstar, meaning Qantas mainline will not be seeing any new aircraft for many years. Just who has been subsidising who? This only serves to compound the destruction of the brand.

Joyce is now the biggest most vocal detractor of Qantas brand, constantly screaming hysterically that long haul is in serious trouble.

What would the books look like if Qantas had, as it should have as the premium brand, a fleet of all new and super efficient aircraft while the budget arm Jetstar was stuck with the old aircraft from the current mainline fleet.

A/ Jetstar would no longer be making money


B/ Qantas mainline would be making money


C/ Qantas would have a product people expect of a full service carrier and it would be growing its market share.

No one at Qantas management either remembers, nor understands, these important lessons from history.

The only player who appears to do so is John Borghetti. You can see he ‘gets it’ by his determination to invest substantially in a full service product, to grow markets such as this morning’s tie up with Singapore Airlines, the business and the Virgin brand.

He knows where Qantas is vulnerable and it is insightful too that he is branding Virgin Australia as the Australian airline and he is vocal about returning jobs to Australia service his aircraft here.

Cheers

Paul

[Ash W]

Who wrote this? Like most things littered with half truths to suit the story and cause, in particular the bit that said that the Qantas brand started to diminish exactly when Jetstar was launched. Clearly forgetting some of the other factors that happened around the same time, such as 9/11 and the demise of Ansett. If anything the demise of Ansett allowed Qantas to ride high in that period and grow like never before, including growing Jetstar to take over marginal routes.

The rot has set in since the growth period is over and the market (both stock and passengers) want either a better return on their investment or better value. Being stuck with a high cost Qantas neither allows good return on the massive investment of the stock holders (hence the low share price) nor allows the brand to be competitive. Something must change if Qantas as a brand is to go forward.

Also bit untrue to say Qantas has not received any new aircraft. If I am not mistaken in the time of Jetstar's existance they have received 40 odd new 737's and removed all 733's, 10 A380's, 17 A330's and 25 or so Q400's. Sure no 777's, but clearly the fleet and network strategy at the time didn't require them (rightly or wronly) as Qantas had ordered the 7late7's and A380's. If these had been delivered ontime we would now be seeing the 767's starting to leave the fleet and more of the 747's would be gone too.

Also wrong to say the brand value drives the share price. What drives share price is the return on investment and at what risk. In the current market with Qantas not able to re-invent itself, the return is low due to high costs and high competition levels, meaning low fares and low to no return to shareholder with high risk.

[Paul Waters]

Ash, I'm not exactly sure of the author, but what I do know is they are a Qantas employee. They wrote it because they among many others in Qantas are concerned about their future and the future of Qantas as a whole.

Paul

[Jon Harris]

The stuff about JQ and what Dixon said is spot on. JQ is growing larger and larger at the expense of QF.

As for AJ - he seriously has lot the plot and needs to get on the "A-TREE-TURTEE" back to Dublin quick smart. He has more than overstayed his welcome in oz and QF.

[A McLaughlin]

And insulting Joyce by taking the pi$$ out of his accent is a really mature way of making an argument in what is an otherwise serious issue?!?! :rolleyes:

[Ash W]

The stuff about JQ and what Dixon said is spot on. JQ is growing larger and larger at the expense of QF.


Maybe the staff need to stop and think why, clearly it is the only workable way that Qantas can get the costs down to stay in business.

[Ash W]

And insulting Joyce by taking the pi$$ out of his accent is a really mature way of making an argument in what is an otherwise serious issue?!?! :rolleyes:

I think those that make it personal are just trying to deflect attention away from the real issue which is the the inability of the workers to face modern reality and actually work WITH management and find a solution to reduce costs that is workable and sustainable. It wouldn't matter who was in charge the message is going to be the same.

[Jon Harris]

absolutey! Why not take the pi$$ out of him?

AJ lost all respect when he trash talked his own company and blames QF employees for its woes...he needs to direct some of the analysis on himself and his performance (or lack thereof) at QF

And for the record I am not a QF employee.

[Mick F]

I think those that make it personal are just trying to deflect attention away from the real issue which is the the inability of the workers to face modern reality and actually work WITH management and find a solution to reduce costs that is workable and sustainable. It wouldn't matter who was in charge the message is going to be the same.

So creating shelf companies offshore and paying the employees about half is the modern reality? I don't think so.

[Ash W]

So creating shelf companies offshore and paying the employees about half is the modern reality? I don't think so.

Well if you have tried for years to transform the onshore work force into a more competitive unit then I don't have an issue with it at all. And yes it is a modern reality of a very competitive industry.

[Lee G]

I vowed not to post anything on this forum again, but reading this thread made me decide to air some opinions I have on what I have read so far. (You were right Nigel!).

There is lots that I could post up here about the current situation and from a historical viewpoint - I can't.

Having said that, the industry is not like anything else in Australia. It operates on a truly global, totally competitive basis with many carriers operating under "preferred conditions" and subsidies from their host countries. If the medical or banking sector worked this way in Australia, you'd find government intervention as it would result in people's deaths or would destablise the whole economy of this country!

Most Australians now believe it's their god given right to heavily discounted airfares anytime, anywhere - it isn't! Every sector which feed into aviation has put it's prices up - fuel, catering, aviation and airport charges, government fees and taxes (don't start me on that one!), yet the Australian public still believe that economies of scale should provide them with a "freebie".

At some point, the discounted airfares charged will make operating a wholly full service airline in this country unsustainable - this point is rapidly approaching without some rationalisation occurring.

The travelling public want latest IFE systems, full catering, extra seat pitch, etc - but don't want to dip their hands in their pockets to pay for it. They would prefer the staff wages and conditions take a cut so they can get to their holiday or business trip for next to nothing. Unfortunately, McDonalds style wages will only bring McDonalds style service - and airlines don't run with high school students working after school to pick up a little cash on the side! They work best with fully trained professionals and staff who have worked through the industry from the ground up, providing expertise and knowledge which can only be gained inside the industry. Try going to a hospital and asking for cut price service - see what they say and imagine the service you would receive - picture a medical student conducting your heart operation or a high school student dispensing class S4 drugs!

The airline managements are also damned if they do and damned if they don't so I don't blame them for looking at the only variable they can influence to stay competitive without putting prices up ... but maybe, just maybe it's time for the industry prices to again be governed by an Independant Airfares Commission, just like it was back in the good old Ansett/TAA days - remember them? $1000 return in Y class Melbourne to Perth back in 1982! What would that be now? Probably about $2500 as a guesstimate, maybe more! It works for health funds who are private entities - why not the airline industry?

I can't predict the future of the airline industry in this country and I'm not in a position to influence it, but for 60,000 or so airline workers in this country it should not include wage cuts and fast food wages just so the masses can get their travel fix each weekend at a consistant bargain basement price. Joe public pays $100 return for a 20km taxi fare .. surely the price for a 2000km round trip could be reasonably expected to cost more!

[Mike W]

The travelling public want latest IFE systems, full catering, extra seat pitch, etc - but don't want to dip their hands in their pockets to pay for it.

Unfortunately for Qantas Lee, Emirates and the like have set an expectation with travelers that these features are available with budget pricing that Qantas has to compete against.

[Lee G]

Unfortunately Mike, I understand that one all too well :(

"operates on a truly global, totally competitive basis with many carriers operating under "preferred conditions" and subsidies from their host countries"

I understand that people expectations are that they are not confronted by those dreaded overhead the colour projector circa 1980 and that the latest and greatest are required to compete, particularly on long haul.

It's a fact that those with the greatest to offer on the long haul get the market if the price is right of course - the problem for Qantas is that the public perception (not necessarily the truth either) has been swayed by much adverse media (again not necessarily true yet again) and by some bad reports which then get blown out of proportion. Certain unions also can not be held as blameless on this point either.

Lowering airfares may be a temporary solution and cutting staff wages (or simply not allowing wage rises) may be a stop gap however hurts those who are dedicated to the cause of keeping the airline on track and running efficiently. The wage lowering exercise then becomes a downward spiral as to save costs it happens again and again.

The old saying of "Look after your staff and you staff will look after your company" certainly is true. Unfortunately, a lot of staff also remember the Dixon era when restraint was called for and received but larger management wage packet resulted.

[Todd Hendry]

Well if you have tried for years to transform the onshore work force into a more competitive unit then I don't have an issue with it at all. And yes it is a modern reality of a very competitive industry.

Ash. For years we have, as a workforce, taken pay cuts effectively, ( pay freezes). We work our guts out for on time performance, fuel saving etc etc etc. To have the management taking everything QANTAS has ever stood for and make it a skeleton of it's former self. And get bonuses.
The thing we used to have was a large and great engineering department. Now it's still great but the resources are just not there. QANTAS had the longest RB211 on wing and between overhauls. Now we outsource and it's showing.
I don't know what you do but I doubt you have the passion for the company you work for that most QF employees have.
So if transform means take stuff away and hope they can perform the same then let's hope it doesn't happen to you. It sucks.
Regards Todd.

[Ash W]

I don't know what you do but I doubt you have the passion for the company you work for that most QF employees have.
So if transform means take stuff away and hope they can perform the same then let's hope it doesn't happen to you. It sucks.
Regards Todd.

Sorry Todd, but herein lay the root problem. Passion does not generate the money required to operate an airline let alone return sufficient money to the investors who own the company. The traveling public will not dip into their pockets and pay a premium price for this passion when they can fly on other airlines that have a substantially lower cost base. Simple economics I am afraid.

The current Qantas model was perfect for the days that Lee was referring to when the industry was heavily protected. But alas with deregulation of the domestic market and the rise and transformation of Virgin from LCC to mainstream carrier Qantas is pushing the proverbial up hill. On the international front they are facing increased competition from companies owned by oil rich gulf countries that operate as tax havens, as well as a raft of Asian carriers who have substantially lower cost bases. How is Qantas meant to compete? You tell me where they can reduce costs to allow them to be competitive. And don't roll out tripe about bonuses to exec's, in the grand scheme of things these are a drop in the ocean.

So if some how Qantas employee's can convince Joe public to pay more than their competition then clearly the status quo can exist, if they cannot then something must give.

[Anthony T]

I equate the current situation at QANTAS to be like that as an elderly reletive in a nursing home.

It had a great life from birth thru childhood and adolescence into a mature adult, but now after 90 odd years it is getting past it, it is currently in pallative care by the loyal employees, QANTAS will soon be gone, and replaced by those younger than itself, but it had a great life and will always be remembered.

There is probably nothing now that can stop the terminal decline, it's sad but face the facts, it's probably all over, and there is nothing more that can be done. :-(

[Dave Dale]

Passion does not generate the money required to operate an airline let alone return sufficient money to the investors who own the company.

I actually think that passion does and has translate into income. I believe that Qantas especially has a following that is enviable to many other airlines (and the following is not just airline enthusiasts). Qantas is quitessentially Australian and we are a proud nation, proud of Qantas and it is our airline. If it was to be acknowledged, it is probably this passion that keeps bringing return customer and account customers to Qantas. Passion like loyalty however, is only maintained if the incentive present. It would appear that the incentive is at minimal best.

[Ash W]

You are right Dave, passion does attract loyal customers (me being one actually), so maybe my wording should have been "passion does not create SUFFICENT money to operate the airline...".

So yes maybe passion has in the past generated money which has kept Qantas afloat for so long. However it is rather apparent that people are voting more with their wallets and are flying the competition. Of course made all the worse by the current very public stoush between employee's, union and management. Neither side being Saints in the damage they have caused the company.

[Paul Waters]

So Ash, if you were a Qantas employee, would you want to have to move overseas just to keep your job?

And would you accept a massive paycut like you're proposing these poor souls should?

Mick

[Dave Dale]

I equate the current situation at QANTAS to be like that as an elderly reletive in a nursing home.

It had a great life from birth thru childhood and adolescence into a mature adult, but now after 90 odd years it is getting past it, it is currently in pallative care by the loyal employees, QANTAS will soon be gone, and replaced by those younger than itself, but it had a great life and will always be remembered.

There is probably nothing now that can stop the terminal decline, it's sad but face the facts, it's probably all over, and there is nothing more that can be done. :-(

I hope this is not the case ultimately, although current soushes/comments from unions and Qantas management seem to point to this demise...

You are right Dave, passion does attract loyal customers (me being one actually), so maybe my wording should have been "passion does not create SUFFICENT money to operate the airline...".

Ash, I concede, you are probably correct.

[Ash W]

Paul why do staff have to move offshore to keep their jobs? If the workforce could reform into a more competitive outfit there is no reason why the bulk of the jobs couldn't stay on shore. Afterall Virgin Aus and Jetstar are mainly onshore operations with mostly Aussie staff and are both competative.

Though if I were a Qantas employee the question I would be asking is do I want a job or no job at all? Unfortunately if things keep going the way they are the latter will be the case.

[Ash W]

Ash W: If you were on a wage of say $49,000 a year, and I proposed that you needed to be more competitive, by doing the same job for $25,000 per year and giving up leave entitlements - would you feel quite annoyed by that? I'd think that most people would pack up and find a job elsewhere.

Who said anything about massive pay cuts? I know I didn't. I was talking about reforming the organisation and work practices, nothing to do with pay, two different things I am afraid.

Though since you brought up pay, why for example is it ok find for someone at company Q) to be payed $49,000 to do the same job as an employee at company V) who is getting payed $25,00. Is the employee of company Q over payed or is the employee in company V underpayed, or a bit of both?

Now put yourself in the shoes of company Q how do you compete with company V? Remembering that brand and customer loyalty will only take you so far.

Then add into the equation international ops, who does company Q compete with Asian carriers with cheap labour and gulf airlines that operate in tax havens?

[James S.]

I equate the current situation at QANTAS to be like that as an elderly reletive in a nursing home.

It had a great life from birth thru childhood and adolescence into a mature adult, but now after 90 odd years it is getting past it, it is currently in pallative care by the loyal employees, QANTAS will soon be gone, and replaced by those younger than itself, but it had a great life and will always be remembered.

There is probably nothing now that can stop the terminal decline, it's sad but face the facts, it's probably all over, and there is nothing more that can be done. :-(

I really REALLY hope this does not happen.

Come on QANTAS, pull your socks up. :(

[Raymond Rowe]

Why do you recon joyce was put there.It was not to build up Qantas.look at where his grass roots are.Qantas will be gone as domestic carrier and Jetstar will be built up.Thus payoing staff at half the rate they are now

[Greg McDonald]

I remember a thread from some time ago on this board (or the old board maybe) where people were discussing the fact that, at that time, it was starting to look like Qantas would morf into Jetstar then disappear all together. Scarily that looks like a lot closer to the truth than anyone really thought!!

[Montague S]

Also wrong to say the brand value drives the share price. What drives share price is the return on investment and at what risk. In the current market with Qantas not able to re-invent itself, the return is low due to high costs and high competition levels, meaning low fares and low to no return to shareholder with high risk.

and AJ is in a race to the bottom...

[Jon Harris]

so true Montague - a very fast race indeed.

[Kelvin R]

So then what is the alternative? That's what I would like to hear from the Unions. What is the Union plan to turn QF around and enable it to compete on a global platform?

It is very easy to launch personal attacks on the CEO and to start polls, claim misinformation and to complain about "management" getting huge bonuses but how about offering an alternative?

Given that deregulation and free market policy are here to stay and given that QF cannot compete on a fair basis with overseas carriers what is the plan from the Unions then to keep their members in gainful employment? Surely a healthy vibrant, growing Qantas only delivers healthy, vibrant, growing Unions?

Also, given the membership base the Unions should be in the best position to identify potential changes within Qantas and to work with Qantas in creating changes to enable Qantas to better compete. Examples would be to use international Union contacts to help Qantas gain fair access to overseas markets such as additional EU ports or to lobby the AU government to enable Qantas to have the same depreciation rates on capital equipment enjoyed by overseas carriers, to lobby the AU government to reform air services and to reform airport pricing, customs and immigration charges and remove other unfair costs (like the air movement cap at Sydney airport). I am sure there are many other costs within Qantas that the Union would be aware off.

So what is the alternative plan on offer?

[Ray P.]

As always there are three sides to this story; what the Unions say, what QF Management says...and then there's the truth. :rolleyes:

[Ash W]

Kelvin, notice that no one had replied to your very spot on post. I wonder if that is because it is easy to complain and blame management then it is to do some sole searching and come up with answers. Or maybe it could well be there is no alternative.

[Mick F]

I don't know what the engineer's have claimed, but what is wrong with what the pilots have claimed? That being to keep Australian jobs in Australia.

I fail to see what's wrong with that? How is that not workable?

Mick

[Owen H]

You are unlikely to get much comment from any Qantas crewmember at this stage due to the sensitivity of the issue.

Sufficed to say that many suggestions have been put forward by the pilot group, as they want the airline to prosper, but with the one proviso - they come with a guarantee of a future for Qantas pilots. That does not mean they cannot be dismissed, or made redundant - just that the offshoring of jobs into sham companies and the drive to the bottom must stop.

[Kelvin R]

I don't understand, why is it OK to launch personal attacks against a company CEO in a public forum but offering suggestions on how an airline could halt its decline is too sensitive?

As yet I don't have enough information to form an opinion as to who is right and who is wrong. What I do know is as a long term passenger who controls his own travel budget and the budget of 7 staff the decline of Qantas is not new and started well before the current CEO. What I also know is it is very hard to continue to fly Qantas in a premium cabin for international flights when the price is often twice that of a competitor who offers a better hard product (flat bed over angle bed), and makes it harder to get to where I need to go compared to a competitor's direct flying.

I have had some great experiences flying Qantas and I have had some awful experiences. Sadly the good experiences are now few and far between and generally come from the younger crew, while the awful flights are the more consistent, especially in the premium cabins on international flights.

So QF is in trouble because it no longer represents what the flying public want in an airline, yet it seems unable or unwilling to change. What anyone involved in the international section of QF needs to understand is when you loose a previous long term loyal passenger they generally don't return.

This brings me back to my original point, the Unions want all of these new conditions for members, QF management want to restore the airline to being relevant and viable. Yet I have not seen in the public domain a proposal from the Union which would deliver the conditions to members and yet also enable the reform necessary for the airline to continue. Deliver that and you will instantly gather the support of the flying public, save a company and deliver what the members want at the same time.

[Grant Smith]

I don't understand, why is it OK to launch personal attacks against a company CEO in a public forum but offering suggestions on how an airline could halt its decline is too sensitive?

Because even the armchair experts have limitations ;)

[Garry Emanuel]

Kelvin, you have summed it up very well.

In the current situation, it is very similar to politics except in this case, the unions are the opposition and management is the government of the day. Caught between the two are the (mainly) innocent - the staff and the customer.

Both of the negotiating parties claim to be representing their "members" (shareholders or employees).

Unfortunately in the current play, it seems neither are particularly tuned in to the reality (and enormity) of the situation. Or more to the point, they are tuned in but a blithely ignorant of the imminent danger of "short termism".

The world of commerce is like so many other things - it is cyclical. One day shareholders are king, the next capital and the next customers. Regardless of that, employees remain, suffering at the whim of the "current king" and occasionally benefitting.

Right now, IMHO, the shareholder is king, management are focused upon short term wins to appease the king and the rest are falling in line behind them.

With choice now more readily available to the customer (a more aggressive and focused Virgin Australia), the customer is starting to gain some ascendancy. Soon, the shareholders will gain more sway over management to think ahead and there will be a shift but as we all realise, "oil tankers" don't change course quickly.

There will be more pain and there will be some casualties along the way - perhaps Clifford and/or Joyce and some others. Somewhere in the shadows, Bain, McKinsey or Booz are awaiting the call to come and assess the situation, make recommendations and arrest the decline.

Won't be of the epic proportions we saw on the waterfront, however, sustained change towards a more agile, competitive and responsive Qantas will only come with a compelling vision for change, a commitment to achieving it and a recognition from all parties that the dance lasted for a long while and now the party is over. Job guarantees, wishful salary increases and attractive fringe benefits come at a cost. So too, executive bonuses.

Until the compelling vision is formulated, communicated and adopted, the posturing will continue and so too will the decline.

Time for the boys and girls to collect their toys, manage their egos and earn their keep.

If they don't, there'll be less earnings to keep.

[Ash W]

Grant, don't think Kelvin's post was aimed at armchair critics, but more so at those from within the company who are willing to whinge and whine and point fingers at Joyce, rather than trying to come up with solutions to the clearly obvious problem in an attempt to keep the majority in a job.

[Justin L]

I was speaking to a buddy about an hour ago who was stuck at ADL due to QF cancellations but was able to change to a DJ flight.

Anyway, he commutes two days a week each week between ADL and SYD and noticed on his QF flight last week that there was only one flight attendant serving drinks/meals etc. He said he wasn't served on his SYD-ADL flight until the plane was over around Mildura which is well over half way into the flight.

He is into aviation as well and out of interest asked the flight attendant why there was only one person serving on that flight. The flight attendant apparently said "it's called Alan Joyce" according to my friend and said she continued that each flight attendant used to serve up to 30 passengers but now it is 178 as of very recently.

I know I have read on the board about minimum crew numbers etc., but could this be true on 737 CityFlyer services? I have no reason to doubt my friend's story as he is cluey on these things and not the average punter whose horror travel stories appear in the papers.

And assuming it is true, it's not good if QF staff are publicly making statements like that to their customers about the CEO of the company. Morale for that staff member at least seems to be very low.

[A McLaughlin]

Airline AOCs mandate that you have to have a flight attendant for every 50 seats or part thereof on an aircraft, so a 737 must have four flight attendants on board to assist in emergency situations.

If she was serving alone, the other three were probably doing other things in the galleys.

[Justin L]

Thanks. Makes sense.

[Owen H]

And assuming it is true, it's not good if QF staff are publicly making statements like that to their customers about the CEO of the company. Morale for that staff member at least seems to be very low.


Its not very good for staff morale when the CEO calls the pilots of the company rogues and kamikaze's in the media either. Could you get much more offensive to a loyal and experienced group of aviators?

As to the Alan Joyce comment, there is some truth to it. It isn't a nasty comment, just a factual one. Just a few short years ago you would get 5 cabin crew on a service. Then it went to 4. Same on longhaul flights, which went from 16, to 15, to 14. However, the CC are expected to deliver the same service standards. That is exactly why there is only one or two serving in the cabin, compared to the past when you would have more.

That is part of the reason you see fewer of them in the cabin - there are simply fewer of them on the aircraft.

[Jack B]

same service standards.

In many cases expected to deliver a higher level of service! While at the same time going to work every day to know some PTVs will be out of action, passengers unhappy with "old" aircraft compared to what they had on Emirates etc

[Ash W]

But how can Qantas invest in all that new product if it is costing the airline too much money to run what they have and the competitors, both locally and overseas can do the same, if not more cheaper AND just as safely? Hence the issue that we have today.

[Owen H]

Other companies that Qantas competes with have costs too. Sure, some like Emirates are a lot lower. But AirNZ and CX do not have cost bases that are substantially below QF's. And they do not have the advantages QF has.

Except those advantages are not being exploited, and are being traded off to compete on price alone, something Qantas can never do.

If you compete on price, Qantas loses. If you compete on product, history, tradition and standards, Qantas can most definitely win. Its a shame that Qantas seems to be trying to compete on price alone.

[Ash W]

If you compete on price, Qantas loses. If you compete on product, history, tradition and standards, Qantas can most definitely win. Its a shame that Qantas seems to be trying to compete on price alone.

To compete on the criteria you mention above you need to charge more, which is not something the market is willing to do when they can fly others offering the same service, if not better for less. I also doubt anyone would pay more for history and tradition in particular.

This has been rather apparent on the international market for sometime, and domestically with Virgin Australia moving to at least match Qantas's service levels at a significantly less cost to the company, Qantas is left with NO option but to seek to reduce costs.

[Owen H]

Except thats not true. The market has been accepting a premium for those things for a long time, and continues to do so. Singapore Airlines doesn't undercut on most routes - they use their advantages to charge a premium. Cathay Pacific don't undercut on most services. These are carriers that quite successfully offer a service and product at a premium rate, and they do very well. Cathay in particular.

Qantas is the same. Passengers have chosen to fly Qantas over many other airlines on routes for decades, despite higher prices. That is due to loyalty, and those things that Qantas brings to the table that other airlines are unable to. Australian staff is a MAJOR component of that. Survey passengers as to why they pay more and still fly Qantas, and you'll find the results.

Qantas over the last 10 years has reduced their offering in those departments, by outsourcing its product and removing those little premium elements, and suddenly they're struggling. Funny that.

[Ash W]

Except thats not true. The market has been accepting a premium for those things for a long time, and continues to do so. Singapore Airlines doesn't undercut on most routes - they use their advantages to charge a premium. Cathay Pacific don't undercut on most services. These are carriers that quite successfully offer a service and product at a premium rate, and they do very well. Cathay in particular.

I am not talking about under cutting, I am talking about offering a competitive price (read not the cheapest) for the product and still being able to cover costs and yes return money to investors. Clearly Singapore and Cathay can do that and still return money to investors, but at present Qantas is struggling in some markets to do that (international) and domestically are facing the real possibility of loosing important yield which will make that market and the company as a whole struggle.

On international routes it is already happening. For years the European market has been in decline with a large number of passengers flying Emirates (~10 flights a day to Dubai and more importantly to many destinations beyond), Singapore (about same number of flights and onwards destinations), Thai etc. All quality airlines with good service, competitive pricing all at a lower cost to the airline, so better return to investors.

In someways I would blame the decline in Europe in the fact that the competitors can offer a 1 stop service to most of Europe, but with Qantas being in bed with BA, most European destinations are two stop, with a long flight to the far end of Europe then back tracking to main land Europe. If Qantas had a partner one hop from Australia with a large European network, such as Thai or Singapore then maybe they would have a fighting chance of taking share back from Emirates etc. But with Cathay as a partner and with Malaysian joining OneWorld both of whom serve less destinations in Europe than TG, EK, SQ then the chances of that happening soon are remote.

So that leaves Qantas to service directly a small number of routes in Europe, but again with a higher cost, so of course the return is going to be small. No one will pay a premium to cover that cost if the competitors are offering the same or more for less.

Towards the America's Qantas has had a hold of the market for a long time due in no small part to their superior product that many were willing to pay for. However with added competition (both Australian and US) now offering the same level of service at a cheaper price to the consumer and to the airline Qantas's share and more importantly their return in that market has dropped. I read once that the American market alone generated half the income for the international sector, so clearly loosing a lot of that dosh is hurting.

Qantas is the same. Passengers have chosen to fly Qantas over many other airlines on routes for decades, despite higher prices. That is due to loyalty, and those things that Qantas brings to the table that other airlines are unable to. Australian staff is a MAJOR component of that. Survey passengers as to why they pay more and still fly Qantas, and you'll find the results.

Qantas over the last 10 years has reduced their offering in those departments, by outsourcing its product and removing those little premium elements, and suddenly they're struggling. Funny that.

The key in your comment is they HAVE chosen to fly, meaning in the past. Think current loadings show that internationally many are now choosing to fly the competitors. You mention the loss of premium elements as a reason, to a certain extent that may well be true. However maybe stop and think for a second why the airline felt they needed to do that, and it will be apparent it was to reduce costs, not to be cheap but to remain competitive and to cover operating costs. If they didn't then maybe they may well be loosing money on those routes because loyalty will only get some many customers through the door.

The problem area though is domestic. For 10 years or so Qantas has been the only choice for the 'premium' market in Australia, and have been able to charge a premium for that service, especially at the front of the bus. Down the back they have been offering a competitive price with a better (?) service than that of the competitors, yet said competitors, including Jetstar have continued to grow. Sure Qantas's market share hasn't declined that much, but then again neither has it grown.

No doubt detractors will say that is because Qantas has channeled the growth into Jetstar, which is true, but yet again cost will be the reason why the growth has been directed that way. If it had been directed towards Qantas the return on investment would have been significantly smaller or non existent because Qantas HAD to chase the LCC end of the market.

Now with Qantas's major competitor finally evolving from an LCC into an almost full service carrier pressure will now be placed on the milk cow of Qantas domestic, the premium market. Made all the worse with Virgin Australia partnering with Singapore and Ethiad, who will no doubt start channeling their domestic connections passengers Virgin's way.

If Qantas were to loose even a small amount of the premium domestic market as predicted they will be in a whole world of hurt. So something must give BEFORE that happens, and sadly for some reducing costs is what is needed. After all if the competition is offering the same, if not better (with Australian staff too) for less and passenger numbers are falling then Qantas will be left with no option but to compete on price, which is not something they can afford to do at present so costs must fall.

There are many ways to reduce costs without cutting wages, which I don't think will happen anytime soon, nor actually do I think they need to. Things like new gen check-in, as much as we love to hate it, will help, and getting new fuel efficient aircraft such as the 787 will also help. However neither is enough, so clearly other area's need to be looked at, such as getting the work force to operate more efficiently, sending some work parcels offshore (just as ALL their competitors do) and yes giving work to Jetstar.

[Lee G]

Said like a true analyst, Ash.

Do you work in the banking or investment sector, by any chance? :)

[Jayden Laing]

Just found this on YouTube & thought it was quite funny. :D:D

http://www.youtube.com/watch?v=BZ3yqUDiLAk&feature=player_embedded

[Owen H]

I do not. Obviously airlines try to keep it pretty quiet...

I would imagine that CX has a cask that is lower that Qantas - but not substantially lower, which is the point. As you know (although others seem to question) it is entirely possible to compete without having the lowest cost base in the industry.

The next logical next question is of course why one airline has a higher cost base than another - and I'm betting that pilot and engineer costs are not a significant part of that. Leasing, tax rates, and in particular the aircraft type being operated will make pilot and engineer contribution look like peanuts.

[Ash W]

I do not. Obviously airlines try to keep it pretty quiet...


Whilst not an ASK, relative financial reports are freely available in company annual reports. Below is the report of Cathay Pacific. Page 26 is quite interesting, in particular the bit that shows the greatest operating cost to the company is fuel (about 1/3rd total costs) with staff coming in a distant 2nd at about half the cost of fuel.

http://downloads.cathaypacific.com/cx/investor/annualreports/2010_annual-report_en.pdf

Qantas also do the same. Here is there report, refer to page 47. This table show's Qantas's operating costs, with staff costs as their highest cost with fuel a close 2nd.

http://www.qantas.com.au/infodetail/about/investors/2010AnnualReport.pdf

So based on that comparison with Qantas labour and fuel take about 1/4 each of total operating costs, but at Cathay labour is about 1/6th and fuel 1/3 of total costs. Big difference I would say.

[Ash W]

Just had a look at the Emirates results over lunch and these too reflect Cathay Pacific in so far as fuel and labour costs go. With fuel at about 1/6 of total costs and labour 1/4. Refer to page 43.

http://www.theemiratesgroup.com/system/aspx/download.aspx?id=tcm:409-652708

[Mick F]

Keep in mind Emirates would pay nowhere near the actual cost of fuel. Helps when you own the oil well's.

And we may have proven one thing, that Qantas spends a lot on staff (if those figures are correct). But what are you proposing Ash? That staff take a 25% pay cut or something like that?

It's never going to happen. The pilots already took a pay freeze with the promise of it being given back to them and it never did.

Let's not forget that apart from the usual CPI increase (which should be normal, I know with the EBA I'm bound under there's always a CPI increase in there), the pilots aren't asking for anything else remuneration wise.

Mick

[Anthony T]

Keep in mind Emirates would pay nowhere near the actual cost of fuel. Helps when you own the oil well's.
Mick

All airlines pay the same for fuel in Dubai.
And what are these oil wells you speak of?
Dubai doesn't have any oil, it has to import the stuff.

[Peter Agatsiotis]

That's what I thought Anthony but the media always goes on about the revenue from oil. Even so I'd say they get it mate's rates;);)

[Ash W]

...
And we may have proven one thing, that Qantas spends a lot on staff (if those figures are correct). But what are you proposing Ash? That staff take a 25% pay cut or something like that?

It's never going to happen. The pilots already took a pay freeze with the promise of it being given back to them and it never did.

Let's not forget that apart from the usual CPI increase (which should be normal, I know with the EBA I'm bound under there's always a CPI increase in there), the pilots aren't asking for anything else remuneration wise.

Mick

Actually what it proves is why Qantas is so uncompetative compared to other international carriers, in particular Emirates.

It doesn't actually show that Qantas employee's are overpaid (or underpaid for that matter), nor does it say said employee's should or shouldn't get payrises.

What it does show however is to be competative Qantas needs to bring this cost down because more or less every other cost is fixed. There are many ways to do this. For example, reducing staff numbers, be it through outsourcing certain functions to organisations that can do it cheaper, reducing staff numbers through new technology (New gen check-in for example), reducing staff numbers through workplace reform or setting up airlines offshore to do some or all of the work.

Now if I am not mistaken everything I said above is what Qantas management are trying to do and is the crux of the industrial strife they face with their workforce.

[Mick F]

I think more the problem that staff are in dispute about, is an Australian airline sending their jobs overseas, rather than keeping them here in Australia. And by doing so, the alterior motive is to eventually force these employee's onto lower pay.

I don't exactly call that engaging with your staff.

Since when did Qantas become the "Spirit of New Zealand" or "The Spirit of Asia"?

Maybe Alan Joyce should take a leaf out of Clive Palmer's book of management. Pay your staff what they're worth, treat them well and listen to what they have to say and you will get a well running company with high productivity.

Calling your staff "rogue" and "out of touch" isn't good for business, especially when they're more concerned about the airline's long term future than a short term CEO is. Let's not forget that Qantas pilots have not been on strike since 1966. You'd think that if they're threatening to do it now, it really must be the last straw.

Mick

[Mick F]

Ohh, by the way.

Has anyone thought about the fact that Emirates don't pay taxes?

[Anthony T]

No airline operating to the UAE pays taxes, Emirates pays the same rate of tax in its foreign ports as do all other airlines.

If QANTAS operated to the UAE they wouldn't pay taxes there either, but QF choose not to fly to the UAE, but still complain about UAE carriers as well as some others. :rolleyes:

[Ash W]

Anthony think you will find the comment was directed at company and income taxes, not operating taxes which is what you seem to be talking about. Weather Qantas flies there or not has nothing what so ever to do with trying to level the playing field.

Now if Qantas were to operate to the UAE they and their staff would still very much pay Australian corporate and income taxes. If however they were to set-up base in the UAE then they wouldn't.

In fact this example actually highlights the difficulty faced by Qantas and other airlines in trying to compete with airlines from the gulf and shows the inequity which different airlines need to deal with and why Qantas needs to look at setting up offshore operations and bases. A similar issue applies when competing with airlines from lower labour cost countries etc. Qantas of course has lost the argument of protection so to compete now needs to look at other area's, such as staff costs and of course setting up a base in a country with lower costs such as the UAE or maybe even Malaysia!

[Ash W]

I think more the problem that staff are in dispute about, is an Australian airline sending their jobs overseas, rather than keeping them here in Australia.

What option do they have? On an international market Australian staff cost WAY too much, in no small part due to our higher cost of living. There is no way that an airline like Qantas can survive on international routes paying Australian wages and as many have pointed out staff here shouldn't, won't or cannot take a pay cut. So the options left to Qantas are to seek ways of reducing costs by sending work o/s, reforming work practices, setting up an international base or maybe even shut down the international operation altogether.

In any case one thing is clear, Qantas cannot in any way shape or form compete in an international market when labour costs make up so much of their costs. If Qantas were to charge the appropriate fare to cover these costs most people these days will fly the lower cost opposition. So basically they are in a no win situation

And by doing so, the alterior motive is to eventually force these employee's onto lower pay.

I think the motivation is to reduce the labour costs of the company so that they can be competitive. This can be done without forcing employee's onto lower pay.

I don't exactly call that engaging with your staff.

Disagree actually. The management is telling the workforce the bleeding obvious. To me it seems as if the workforce is in denial about the issues and what must be done to reform and get back into a competitive position. As I have been saying if they can reform the company should prosper thus providing further opportunities for Australians. If they do nothing the company will be left with little option but to cut further thus putting more people out of work.

Since when did Qantas become the "Spirit of New Zealand" or "The Spirit of Asia"?

Maybe when the world changed from a protected international market to an open skies type market. Look around the world and you will see similar issues and pressures placed on more or less every legacy carrier based in high cost locations. The exception is the US, who still very much live in a highly protected market.

Ohh, by the way.

Has anyone thought about the fact that Emirates don't pay taxes?

That is one of the reasons why the cost of employee's to Emirates is so low compared to Qantas. Qantas clearly cannot do the same, so must find other ways to reduce this cost to them.

I guess Qantas's issue is if they cannot beat them (which they cannot based on cost) then they need to join them. As unpalatable this is to Australia and the staff at Qantas it is the reality if the company is to survive internationally. Though as I have said if international operations prosper it should lead to further job opportunities within Australia where relative labour costs are not so important.