How a 70K bonus killed an airline.
Ever wondered what the segmentation of a business would do? About 15 years ago it was all the rage in the States. A few years later, the business school that invented the concept has changed its mind and now is against the concept.
Well GD Split Qantas into the business units. AJ said he was going to combine it back into one, but Qantas is still split in so many units, that it is literally ripping itself apart in the struggle for managers to get their bonuses.
There are two units that are killing the airline. And Jetstar is not one of them. The First is freight. A famous statement was made by a former QF CEO "there is no money in freight" - well we all know how wrong that is....
The problem with QF Freight is the fee that it has to pay Qantas for the use of belly space. It is a simple paper shuffle form one department to another. No money exits the company but the amount QF freight pays to Qantas determines which manager gets the 70K bonus for making the most money. The freight charge was set at standard industry rates - all good so far. That should work, shouldn't it?
Well no. To make more money, QF freight now uses a external cheep operator in the US to move its freight from JFK to LAX.
QF freight is making more money now and the manager is getting his 70K bonus
Big problem.... QF operates an A330 on the run with 30,000kg of belly space not being used. The actual cost to the airline is the extra fuel if this space was being used. On this run it is 180Kg extra fuel burn per 1000Kg of freight. That is about 20c/kg to use belly space.
Qantas is charging QF freight much much more than this, so in its company smashing wisdom freight are chartering aircraft to take the freight rather than send it on the Qantas jet.
This now makes the LAX JFK run look unprofitable for Qantas - well it is QF Freight are chartering another jet to fly along side the A330 with its freight.
Now any CEO worth his salt (or exorbitant pay) would sack the freight manager and get the freight back on their aircraft. - But no Not the clown that is in charge. He has no idea what freight is doing.
Remember the $200,000,000 fine that QF Freight cost the company for illegal activities last year??? The old CEO said he had no idea what freight does (I suppose he had to say that otherwise he would be in jail). Well the new CEO is no better.
So what is the CEO going to do? On the 24 of this month he is going to announce that Qantas is pulling out of the LAX JFK run - becaust it is loosing money. (the load pax factor is over 85% so where is the problem????)
QF Freight in the last few year has cost the company over $300,000,000 - But according to the segmented business model that they operate under, they have made lots of money, and Qantas international is the one that is loosing money.
As a Qantas Shareholder I am appalled at the lack of over site that the current management team has.
I am sick of hearing about the greedy pilots. It is the segmentation of this company, and one persons 70K bonus that has killed another Qantas route.
And an inept CEO that is incapable of running a complex company.