Traffic,
Your second para seems to link lack of business class with staff productivity, its not the lack of business class that makes the workforce more productive; its simpler work rules.
QF started AO to make a product that would be profitable on low margin routes where Qantas was typically unable to make a profit. (or make less of a loss than Qantas would in a downturn).
Your comment 'All this simply to cut out a small amount of cost, demoralise staff and indirectly destroy productivity across the group.' to me is a rather broad and sweeping statement. AO's cost base is SIGNIFICANTLY lower, the staff morale is high and productive.
You may have been correct about the service, depends on when you flew. I havent been here the whole time, I have been told that the service that you would see now is significantly improved on what it was initially. I did hear recently that one of the major issues re catering and service is storage space, 271 seats versus 230 odd means space is tight and some compromises have to be made; especially when some locations cater for consecutive flights.
On an aside, it seems that the AO business model is often mis-represented. The lates Aus Aviation mentions that AO is low fare airline. It has never branded itself as a low fare airline, it will always charge the maximum fare that the market will bare, to maximise profit on its low cost structure (YIELD management). Dont all businesses strive to do this?