Let me tell you what is going to happen to Qantas.
No, it's not operational doom, it's financial doom if QF is not very very careful.
Some of you have been critical of QF's slash and burn management style, especially its predilection for outsourcing and "user pays" practices, for example the ideas that pilots should borrow money to pay for their own training and endorsements, that employees are easily replaceable by contractors, and that the experience of employees is a worthless commodity.
Well the penny finally dropped for me.....
That entire style of business is based on one simple assumption.
- that debt financing is cheap, and there is plenty of it to go around.
Well I have news for you. Don't just think about Greece and Ireland. The entire world is now entering a period, for at least the next Ten to Twenty years, when debt of any sort is not going to be cheap at all.
You might like to follow the predictions of these little fellows, as far as I can tell they haven't put a foot wrong since they started forecasting trends in 2006.
English | LEAP 2020
What does that mean for Qantas? It means, folks, that cash is going to be king. It means that countries with very high savings rates, like China, are going to see their currencies appreciate. It means that the Eurozone are not going to be able to subsidise the manufacture of Airbus. It means that corporate finance costs are going to double, or triple or quadruple.
To put it another way "stuff" is going to become more expensive; fuel, nuts bolts, aircraft parts, aircraft, engines, blades, vanes, bearings, whatever.
Stuff is going to get more expensive
compared to Australian labor costs. If QF hasn't got all its finance needs locked in place right now, it won't even survive, because finance is going to dry up rather quickly now.
What that is going to do is place a premium on skills, most importantly the ability to maintain and repair stuff and extend it's working life to the absolute maximum.
..And as any former and perhaps current aircraft engineering person will know, that takes great skill, and experience, and ingenuity, and innovation.
...and you won't get any of that through outsourcing. To put it another way, paying "one low hourly rate " to get your engines maintained in Singapore is suddenly going to appear very, very, expensive. In fact sending
anything out to be maintained is going to be expensive compared to doing it yourself - simply because of finance costs and working capital requirements.
Furthermore, you won't be getting any cadets willing to take on debts of around $130,000 to get a cockpit seat either, if they could even find a bank willing to take on the risk.
It's going to be back to about 1970 folks. I wonder if Qantas can write to all its old retirees and offer them their jobs back, especially the engine folk. Doing everything in house is about to become a much cheaper option than sending stuff offshore....again.
Watch the debt markets.