Weekend "Australian Financial Review"
Turbulence Ahead for Qantas's Low - Cost Carrier
Qantas's decision to launch a low- cost carrier could spark industrial action from unions as well as spell a cannibalisation of its existing domestic operations, market watchers warned on Friday.
Qantas said on Thursday it would launch a new domestic carrier by May next year. The new airline has not yet been named, although Qantas met on Friday with appointed ad agency Dewey & Horton to table six suggested monikers. The airline will have 23 aircraft by mid-2005 and will primarily service leisure routes not currently profitable for Qantas.
Qantas chief executive Geoff Dixon maintained at the carrier's annual general meeting the new airline would not affect Qantas's existing domestic operations, saying having a third domestic carrier would grow Australia's leisure travel market by 20 per cent.
However, other industry players beg to differ.
``Undoubtedly this will put pressure on Qantas as a mainline carrier,'' Centre for Asia Pacific Aviation managing director Peter Harbison said.
``It's a serious risk because 23 aircraft represents roughly half of their current domestic fleet so there has to be some cannibalisation.''
Virgin Blue chief executive Brett Godfrey also said there was a ``huge potential risk in the execution, including cannibalisation of Qantas's own market and further disenfranchising of their own staff''.
Currently Richard Branson's Virgin Blue commands 30 per cent of the domestic market.
Others, meanwhile, pointed to the failure of other full service airlines' low-cost carrier spin-offs.
Those airlines whose low-cost carriers have struggled include Air Canada with Tango, Continental with Continental Lite, KLM with Buzz, US Airways with MetroJet, United Airlines with Shuttle and British Airway's Go.
Another risk associated with establishing a low-cost carrier is the threat of industrial action from unions.
Qantas has not released its staffing plans for the low-cost carrier yet but industry watchers said the airline could face union action if, for example, it tried to get existing staff to transfer to the new airline on lower pay.
Representatives from the ACTU and the Australian Services Union said on Friday they were monitoring the situation and waiting for more details on employment plans from Qantas.
Mr Dixon said Qantas did not expect any trouble from unions and that the new airline would create ``considerably more jobs in the industry''.
===========================================
"Business Sunday" (transcript)
UP IN THE AIR
19 October 2003
Helen McCombie
"… if you look at the last two or three years, the management team and the board at Qantas we’ve actually got a lot of decisions right."
A new low-cost version of Qantas, aimed at the about-to-float Virgin, plus continuing uncertainty over the Air New Zealand alliance and reports of senior managers being trained in the US in ground management and plane-handling techniques ... there is a lot going on for the country's major airline.
This week's annual meeting in Adelaide saw shareholders questioning the airline's direction.
Chairman Margaret Jackson was there to answer their questions. She speaks to Helen McCombie.
MARGARET JACKSON, CHAIRMAN, QANTAS: But if you look at the global world I think here is a structural change in aviation. I mean the growth in low cost carriers over recent years has been about 20 per cent per annum, and the full service airlines have grown at about four per cent per annum. So there is a structural shift and if you look at what is happening with the consumer is that they are very, very price sensitive. So we have to acknowledge that structural change that has occurred in the world. I think we capture and that we are a very focussed, can be a very focussed airline operator. So we’ve got Australian airlines, we’ve now got a history of a year since the start up of Australian Airlines. That started just about the time of SARS so that was pretty tricky but it is now doing very well, we also operate all of the regional operations so we’ve had the history of operating regional and we now think it is time to look at low cost operator.
HELEN McCOMBIE: It didn’t work for BA though, why will it work for Qantas?
MARGARET JACKSON: Well we think we have got the advantage of being able to look around the world and see where it has worked and where it has worked and why it hasn’t worked, and obviously not repeating some of the mistakes that other carriers have undertaken. And I think if you look at the last two or three years, the management team and the board at Qantas we’ve actually got a lot of decisions right. So we think we are very good at analysing, we’re very good at making good strategic decisions and hopefully we will get it right.
HELEN McCOMBIE: You will have to acknowledge there is some risk, you think it is worth the risk?
MARGARET JACKSON: Well we’ve think we have got the risk anyway, whether we have the full service or start a low cost as well, so if the risk exists how are we going to face that risk and we think this is our best bet.
HELEN McCOMBIE: There is a hint of desperation? You can’t stop Virgin so you will join them?
MARGARET JACKSON: Well I don’t think it is a hint of desperation. I think it is just us looking at the market, looking at what we can do to service the market better, what can we do to underpin tourism in Australia because you look at the impact of all of these events over the last few years, September the 11th, Bali and particularly SARS, quite dramatic impact on the tourist industry in Australia, from inbound and indeed travel around Australia. So we think that starting a low cost carrier, what we know is that people are sensitive to price and we believe that we might be able to also stimulate the demand for travel.
HELEN McCOMBIE: Isn’t there a big delusion here of the basic strength of Qantas?
MARGARET JACKSON: Well I think one of the strengths of Qantas is actually in our diversity and our ability to take on new challenges in a managed way and to try and reinvent ourselves and if you look at the history of Qantas that is what we have always done. Just a small example which not everyone remembers is Qantas actually invented business class in the world, and took it to the world in 1979, and then the rest of the world followed us. So there is lots of things in our history where we have been very innovative and brave, and we have always had very high standards.
HELEN McCOMBIE: How can the board run three different airlines?
MARGARET JACKSON: Well we’re actually talking about four airlines. Full service international and domestic, the regional operations, low cost and Australian Airlines. So today we have announced a reorganisation and each of those businesses will actually have its own head and in the reorganisation what we are hoping for is greater accountability, greater focus by the various heads.
HELEN McCOMBIE: That reorganisation, that restructure, that’s all about cost cutting?
MARGARET JACKSON: Cost cutting is one of the issues, what it is is that we have a business that is very dependent on capital, we spent a lot of money on aircraft, on lounges. What we want to make sure is that we remain very focussed on getting a return on that capital and one of the difficulties we have had in the network business. It is very difficult to then have clear accountability on that capital and the return on that capital so one of the reasons for the reorganisations is to increase the focus on the return on capital, to look at ways to do things in a more efficient manner, to increase the accountability and decision making speed of our management team. So we are hoping that we are going to empower the organisation even more than we have in the past.
HELEN McCOMBIE: And the reorganisation is also about succession planning?
MARGARET JACKSON: Yes, always in large corporations you need to think about succession planning and I think there is some really delightful things in the reorganisation. We now have two women reporting directory to Jeff Dixon. We have all bar two of the direct reports to Jeff Dixon are under 50 and we have three executives who are new to the management team and three who are under 40, so I think we have got a very energetic, lively and talented group of people.
HELEN McCOMBIE: And you do need a new Jeff?
MARGARET JACKSON: Well we don’t need a new Jeff yet but one day we will.
HELEN McCOMBIE: But that is not so long in the future?
MARGARET JACKSON: Well Jeff’s mid-term through a contract. I think by any standards externally or internally we all would say that Jeff is doing a fabulous job, we’re very lucky to have an outstanding CEO like Jeff but he is backed by a fabulous management team, and sometime in the future we will evolve and Jeff will go on and do something else at an appropriate time but when that is I can’t say and neither can Jeff.
HELEN McCOMBIE; There is also speculation that some of these units could be floated off, you are considering that?
MARGARET JACKSON: No we have no intention at this point to be floating any of our businesses off.
HELEN McCOMBIE: So not catering or Qantas Holidays or eventually Australian and even this new low cost airline?
MARGARET JACKSON: Well at the moment we have no intention but it doesn’t mean that sometime in the future your intention changes or circumstances change, or opportunities emerge, but at the moment we are very happy with the mix of businesses that we have, the flying businesses, the support businesses and indeed you mentioned catering and freight. We think there is some great opportunities for growth in those businesses.
==========================================
Last edited by Wirraway; 20th Oct 2003 at 09:16.