The Q is for quality - not a quick buck
November 12, 2011
Opinion
<em>Illustration: Shakespeare</em>
Illustration: Shakespeare
When Singapore's Lee Kuan Yew used to talk of Australians becoming the ''poor white trash'' of Asia, he was careful to exempt one Australian institution from his dim view of us. That was Qantas. If Singapore Airlines could be as good as Qantas, it would be a success.
Now Qantas is emblematic in positioning Australia in the new Asia. At home, it's the focus of a struggle between corporate, workforce and government power, but how it continues to fly the skies of Asia will say a lot about our ability to stay up with the region.
Since the lockout two weeks ago, commentary has focused on the immediate industrial relations' contest. But the strategy pursued by the airline's chief executive, Alan Joyce, and backed by the board under its chairman, Leigh Clifford, needs much closer study.
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Identifying Asia as a high-growth market for air travel is a no-brainer. Choice of location, partners and market entry is the hard part. Are Joyce's plans for Asia the best strategy? I'm not so sure. One thing that makes me suspicious is the sheer volume of his blarney. To hear him duck and weave about his $2 million package increase you'd almost think he'd had a pay cut.
The strategy, outlined three months ago in a document called Building a Stronger Qantas, includes the two initiatives that are causing angst about jobs being moved offshore: a new ''premium'' airline, preferably based in Singapore but alternatively in Kuala Lumpur, and a new low-cost carrier based in Japan.
The Singapore airline, maybe named ''RedQ'', would be a premium, full-service airline using up to 11 of the popular regional planes, the A320. Will it get the approval of Singapore's leaders, still smarting from the rejection of a Singapore-Australia stock exchange merger and the continuing refusal of ''beyond'' rights, from Australia across the Pacific, for Singapore Airlines?
Then, would Singaporeans seriously allow Qantas to muscle into the highly profitable business-class highways between Singapore, Hong Kong, Taiwan and Japan? Competition will be intense: Singapore Airlines plans its own premium feeder airline, Scoot, and Malaysia's low-cost pioneer, AirAsia's Tony Fernandes, another one.
The new airline in Japan, meanwhile, will be called Jetstar Japan, and have as local partners Japan Airlines and Mitsubishi Corporation. Qantas says it will be the first ''true'' low-cost carrier in Japan, with huge prospects for expanding domestic air travel. This is true enough: Japan has recently deregulated fares, prefectural governments are opening up smaller airports, and the public is switching from travel agents to online bookings - coming closer to the Jetstar model.
What Qantas doesn't mention is that the more nimble of the big Japanese carriers, All Nippon Airways, is establishing two new low-cost airlines: Peach from a hub at Kansai (Osaka-Kyoto) airport, and a joint venture with Fernandes called AirAsia Japan operating from Tokyo's main airport, Narita, head-to-head with Jetstar Japan.
It will be a race for market share and profits may be the main sacrifice. It also has to be asked if Qantas still has the deep expertise on Asia it once had. Its network of regional offices was shut down at the time of its privatisation. Only one or two remain of the bright young executives who were rotated around Asian capitals, coming face-to-face with local travellers, agents, freight shippers, financial systems, regulators and politicians.
Jetstar is even thinner on Asian savvy. Its senior management's style on recent Asian missions is understood to have left local expat executives cringing. Some aviation sources wonder how Jetstar manages to meet the Japanese regulation requiring all incoming aircraft to have at least four Japanese speakers in their flight crew. Its inbound flights dump bewildered Japanese tourists in places like the Gold Coast airport, with little assistance.
What does Jetstar have to offer in Japan? Above all, aviation specialists wonder why Qantas is trying to build up these two new brands in Asia when its own brand is widely known and respected, a result, perhaps, of $1 billion of historic investment in selling costs around the region.
Some think Qantas should try instead a strategy that worked in the 1980s, when the airline faced a similar range of low-cost rivals. Under the then chief executive John Menadue it made a rigorous study of every aspect of travel, then enhanced the business-class segment that Qantas had pioneered.
With a similar targeting of business travellers and high-end tourists - the sort of people who read Conde Nast Traveller and decide they want to see the Bungle Bungles or India's Buddhism sites - plus high-value airfreight (just-in-time spares and online orders one way, premium fresh food the other) and more use of ''beyond'' rights in Asia (Qantas has 28 from Singapore alone), these experts see an attainable recovery of profitability within three to five years.
As well as diminished Asian expertise in the company, Joyce inherited an ageing, fuel-guzzling fleet, arising from his predecessors' poor choices - notably the decision not to invest in the economical Boeing 777, now the mainstay of many rivals, but bank on the 787 Dreamliner, which will be delivered years behind schedule and possibly lacking some of its promised performance.
But perhaps Joyce's biggest limitation is his own mindset, formed in the low-cost carrier market that expanded so dramatically in a merged and borderless Europe, and then here at Jetstar. Add the strike-breaking mentality of his chairman, who has a background in Rio Tinto coal mines and the KKR private equity and junk bond group, and you have a familiar syndrome of a management that sees solutions in ''smashing the culture''.
With a pre-tax profit up 46 per cent to $552 million, despite a claimed loss of $216 million on international fights, Qantas is far from the imminent basket case suggested by Joyce and Jetstar's chief executive, Bruce Buchanan.
Meanwhile, the Middle East competition - Emirates, Qatar, Etihad and Gulf airlines - is heading for a shakeout.
Joyce might do well to give Menadue a call. Of course, Qantas pilots, engineers and ground crews will have to concede some productivity gains, and the word is they are ready to do so. But they need to be taken into an Asian expansion, not left behind.
Superb quality has to be the way Australia competes in Asia. Chase mass markets on cost, and we really will end up as Asia's trash.
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The Q is for quality - not a quick buck