Comment: Qantas, the sagging spirit of Australia

By admin


Earlier this month, Richard Branson suggested, in far from eloquent terms but in language we could all understand, that Qantas is in “deep shit”.

Whatever you think of the brash British entrepreneur, you have to say he got that one right.

Scanning the mess yesterday that passed for its financial results, and the related $2 billion cost reduction program that includes the loss of 5000 jobs, it is clear to anyone that Qantas is in the mire.

Not that we were oblivious to what was coming, of course. Stories leaked days ago that big job cuts were on the cards, and the carrier had previously flagged that financial losses would be deep. But seeing the figures yesterday, and hearing the words of gathering doom uttered by beleaguered chief executive Alan Joyce, seemed to bring it home just how bad it has become for Australia’s flag carrier. It was a wretched day for Qantas. The worst in its history? It must be up there.

In delivering such grim tidings, Joyce can hardly have felt any better than when he made the sombre announcement back in October 2011 that he was grounding its entire fleet, a drastic response designed to bring union disputes to a head. It was a high risk strategy but it just about worked.

Qantas’ response to tackling the challenges it faces now are many and varied, from the painful aforementioned job cuts, to deferring and selling aircraft and narrowing down its fleet.

Management clearly felt they had no option but to make drastic cuts to the workforce, but a new fight with unions is now on the cards with the prospect of strike action a distinct possibility. It is, it seems, a never-ending procession of gloom for Qantas, and its staff.

As long as service levels remain high and flights depart on time, customers, by and large, are shielded from the internal woes. But strike action brings a completely new dimension to the airline's problems; angry and disillusioned passengers.

Joyce, as we all knew he would, vented much of his frustration on Virgin Australia and its majority-ownership by three foreign airlines – Singapore Airlines, Etihad and Air New Zealand.

That structure – one denied to Qantas on account of the Qantas Sale Act – has been responsible for the declining profit pool in the domestic aviation arena, Joyce argued, with investment from Virgin’s three major shareholders supporting “continued domestic capacity growth by Virgin Australia despite its growing losses”.

“As a result of these capacity increases, the total domestic profit pool has shrunk from more than $700 million in FY12 to less than $100m in 2014,” Joyce said.

A domestic profit of $57m, down from $218m in the previous first half, illustrated his point, but Qantas cannot shirk all the responsibility for this. It, too, hiked domestic capacity as it stubbornly protected its 65% market share. It is an observation Virgin Australia chief executive John Borghetti will no doubt articulate today when the carrier reports its own horror story.

International capacity growth has also been rampant, a fact not lost on Joyce. The 46% increase in the number of seats since 2009 is double the world average, and the 9% increase in the current financial year is also “well above” global levels.

While Qantas can control its own operations, the strategies of its competitors, some state-owned with little concern for profitability as Joyce pointedly remarked, is clearly out its hands. If the international capacity growth is such an issue, that is a serious concern because these competitors are not about to reduce the number of seats they operate in and out of Australia.

Joyce reluctantly promised recently that tough decisions would be needed. Yesterday’s announcement was true to that.

Helloworld, meanwhile, reported a loss of its own 24 hours earlier, albeit nowhere near on the scale of Qantas, one of its major shareholders. It was, so the company said, in line with guidance and expectations.

The transformation of the business is still in its early stages, no one was expecting soaring profits, but the pressure to see earnings on a “positive path”, as chief executive Rob Gurney said, will increase markedly over the next six to 12 months.

Gurney defended the closure of the Best Flights brand – although he oddly rejected the terminology that it has been “closed” – on the basis that the technology provided by Helloworld, through its alliance with Orbitz, is far superior and that Best Flights added nothing to its travel agency members.

Nevertheless, shutting a business with a $180 million turnover – a figure based on “pure speculation”, according to Gurney – still seems a mighty strange one.

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