Business Sunday transcript 23/2/03QANTAS BATTENING DOWN
23 February 2003
Helen McCombie
"I mean this industry is in chaos. I mean hundreds of thousands of people are being put off, planes are being put against the wall... We’re trying to make sure we have got a sustainable company into the future."
On first reading, it's a good result from Qantas … a sharp recovery in the December half of 2002-2003 from the first half of the previous year, which was depressed by September 11 and the costs associated with the collapse of Ansett.
But investors took fright at warnings about a slowdown in bookings on some key routes because of jitters about a looming war in Iraq. Shares steadied and firmed slightly on Friday but there remains concern in the air.
CEO Geoff Dixon talks to Helen McCombie.
Reporter: You’re talking about challenges and difficulties in the aviation industry and increasingly fierce competition and discounting, there’s not a touch of Qantas crying wolf here?
Geoff Dixon, CEO, Qantas: Please Helen, how could you ever say that, I mean this industry is in chaos. I mean hundreds of thousands of people are being put off, planes are being put against the wall. There’s American Airlines are in bankruptcy, there’s great trouble in Europe, it is a difficult situation everywhere. We’re not crying wolf, as a matter of fact the exact opposite. We’re trying to make sure we have got a sustainable company into the future.
Reporter: But after all we you have got two important deals to stitch up this year, the joint services agreement with British Airways and the Air New Zealand deal?
Dixon: That’s right we have.
Reporter: And if you play your cards right you might get the trifecta, the shareholding cap lifted by the Federal government?
Dixon: Well we’d like to get that lifted because I think that you may have seen from our results today we realised our cost to capital would have done a lot better if we didn’t have that constraint over us.
Reporter: Isn’t it in your interest to cry poor a bit, to warn and to batten down the hatches?
Dixon: I’m not, look, people may think that but we’re not a cynical as people think. We’re not doing that, I mean if anybody thinks that Qantas as an international airline is crying wolf when there’s drum beats of war around everywhere, the threat of terrorism, there is the genuine, a genuine I drop in bookings which is highlighted this week, by the star alliance carriers. No, look, we are saying as it is, and we hope we can work our way through it. As a matter of fact I’m very confident we can but it will require a lot of restraint, a lot of hard work.
Reporter: But it is a way of negotiating with your union, with British Airways and the ACCC?
Dixon: No, it is not. We are not negotiating with our unions based on what is happening out there at the moment, we have made for an airline I believe a very, very good offer to our unions which includes in the main, sustainable employment and when we come out of the current difficulties that the industry faces and indeed the world faces, Qantas has a very, very bright future. We’re preparing for that.
Reporter: If Qantas is strong and profitable does it really need a weakened Air New Zealand?
Dixon: Um, I don’t believe Air New Zealand is necessarily weakened. Qantas is relatively strong compared to other airlines but that doesn’t mean it’s strong compared to many companies around the world. It is not a matter of needing it, we want a partnership. This industry will consolidate. If there is a ware in Iraq I believe we will have failures in airlines and the inevitable consolidation that must be necessary in an industry that has such high people and capital costs will happen. And what we are doing looking for a partnership with Air New Zealand in a market that is small compared to world standards and it is main competition is at the moment by government financed airlines which I happily say cannot go broke, but we can.
Reporter: You and Qantas have proved that despite all their diversities that you are up to the mark, that management and staff can more than hold their own?
Dixon: I think we are holding our own, yes.
Reporter: And this result was a very, very good result, so why are you so defensive? It was probably your best every result?
Dixon: I’m not being defensive, I’m very proud of the result and I’m very proud of the result on behalf of the Qantas people but what I am saying since the result which was December 31st, there’s been a whole global situation that has changed. There has been renewed threats of terrorism, we saw what happened in the United Kingdom last week, there has been continual threats of war in the Middle East and the consequences of that could happen as a result of that, so what we have seen is that we have indicated today that for the next 18 weeks bookings have come off, quotes quite substantially in some of Qantas’ major markets. We are making changes to our activities and the way we operate to ensure that we can continue to make the profit that we would like to make and we don’t want to make that because that goes to any particular person. What it does it enables us to buy the fourteen or fifteen billion up to possibly twenty billion dollars of aircraft so we can continue to run and it will enable most of the people in Qantas to have decent jobs.
Reporter: So what do you do about costs, how much more can you get out?
Dixon: It is not just a matter of taking costs out and slash and burn, and we haven’t been doing that for quite a few years. We must improve our productivity, we must improve the processes and how we run the airline, we must improve the cross section functionality that we have in the company and we intend to put a program in which we have been working on throughout the last six months, we’ve got special people in to do it, now not outsiders, we’re going to do it internally. It is going to be run by our chief financial officer, Peter Greg and we are hoping to be able to take on billion dollars worth of costs, meaning productivity improvements over the next three years, and it is not about people, it is about working better and smarter.
Reporter: So for instance how will you do it?
Dixon: Well that is up to us. We’ve got a plan and Peter’s going to implement the plan but it will improve the processes. This is an airline that has grown up with process over eighty two years. There are smarter ways to do things, part of us buying new fleet, more efficient aircraft will help us. The part of us putting single class aircraft on leisure routes will help us but there’s a lot of other ways to do business better. We’ve been working on it for six months, as I said we have a team internally and we’re starting to implement it now. And we must and that will ensure that Qantas grows and it will ensure that it’s job growth. I don’t know of many airlines any airlines, any airline that is a traditional airline meaning not one of the new start ups, that increased I employment by almost two thousand over the last twelve months as Qantas has. We’re not g crying wolf.
Reporter: Do you think you will have any problems with trying to improve productivity?
Dixon: Well if it involves people and changing work practices or getting out what we regard out moded work practices, we usually find there is some resistance yes.
Reporter: And you are prepared for that?
Dixon: Yes we are prepared for it.
Reporter: Was it fair to staff when the Qantas cut backs plan was leaked ahead of this result?
Dixon: I’ll tell you now, absolutely, we did not leak it from the Qantas senior management.
Reporter: So where did it come from?
Dixon: I don’t know where it came from because a lot more people than the Qantas senior management knew that what we were planning, what we were planning and we have been doing it now for about three weeks, is to ensure over the next to three to four months before the end of the financial year that when we make cut backs in flying that we have people leaving the company not by redundancies by buy to taking accumulated long service, ordinary leave and possibly if there are some want it, leave without pay. I think that is quite legitimate, it is a very, very decent way to do it.
Reporter: Qantas is pretty attractive at the moment, who could or would want to take you over?
Dixon: I don’t know, I don’t think they are allowed to. I think that the Qantas Sale Act prevents anybody taking us over. I don’t think that would ever happen at any rate and we would like very much like the Qantas Sale Act to be taken off so that we could encourage more foreign investment but also ensure that we get a lower cost to capital but I don’t think in any circumstances that would result in Qantas in being taken over.
Reporter: But at this point there would be no one who would want to take you over, so the shareholding cap doesn’t matter?
Dixon: Well it is not just about that but I’ve always said that, I don’t think that people are not going to take us over. I mean if there is hostilities in Iraq, if as in the industry settles down it will, I think no airline there would be a couple, would be as well placed a to take advantage of that as Qantas would be and perhaps we will be in the position to be able to look at whether there is potential opportunities out there, not people looking at us whether we are a potential opportunity.
Reporter: Do you think there are?
Dixon: No, I wouldn’t know because I don’t who is going to be left standing, all I do know is that we will be.
Reporter: Isn’t the rationale for the deal with Air New Zealand growing less because of the potential war with Iraq?
Dixon: No, it’s not. The rational for the Air New Zealand deal to me is as compelling today for Qantas and although I can’t speak on behalf of Air New Zealand, I would have thought for Air New Zealand as it was when we first muted it, and we would like to go ahead, but as I said today in another press interview that we will not pay a price, in other words a regulatory price or that is above what we think is fair.
Reporter: So in terms of regulatory price you mean you won’t make any concessions?
Dixon: No, we’ve already indicated we’d made concessions but there is going to be a point where for us for too many concessions it won’t be worth while going ahead. We know that, that’s sensible, we know what the bottom line is.
Reporter: Have you been sounded out about the concessions?
Dixon: No, but we do have a little bit of a smile that those paragons of free enterprise and competition, Virgin have asked for a three year moratorium on anybody else starting a low cost airline across the Tasman in that part of the world, that’s really competitive isn’t it?
Reporter: How do you think you are progressing with the ACCC?
Dixon: In this particular issue?
Reporter: With Air New Zealand?
Dixon: It’s been tremendously professional.
Reporter: But are you making progress?
Dixon: Well it is in the discussion period, they ask a lot questions and a lot of hard questions and I think we are answering the questions but we are not down to where we sit opposite each other and say well look, this is what we desperately need. What we need you to do and for us to say well we can do that or we can’t do it, but that is not thew way it happens at any rate, no it has been very good, we understand the position.
Reporter: Do you think it is going to take longer than that six months that you talked about initially?
Dixon: There is some discussion that it could be a month or two out, but in the current circumstances I’m not sure that’s going to change to the world.