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?!?!

[Ash W]

Originally Posted by Jon Harris

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]

Originally Posted by 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?!?!

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]

Originally Posted by Mick F

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.