Qantas: A Synopsis

[packrat]

AFTER the termination of an $8 billion merger proposal with British Airways last month, speculation has resurfaced that Qantas has turned its attention to Asia and is looking into a tie-up with Asia's biggest budget airline, Malaysian-based AirAsia, or Malaysia Airlines.
Speculation emerged last month in Malaysia that Qantas and AirAsia were in preliminary talks about a merger deal, but they were quickly hosed down by both companies.
Yesterday, Qantas again denied the talks, saying it wasn't in merger talks with anyone at present.
But with consolidation going on globally, driven more by the need to boost profits than being the biggest carrier, it is only a matter of time before Qantas's new boss, Alan Joyce, puts his stamp on the company and does a deal.
Qantas is an end-of-the-line carrier that operates in an uneven regulatory, competitive and financial playing field.
To try to protect its bottom line, it has been reducing capacity on international routes to keep a lid on its costs.
But this is a risky strategy and the price it will pay is a permanent loss of high-value traffic to competitors, many of whom are increasing inbound capacity into Australia over the next few months. Even more alarmingly, some have long-term agendas in this region.
The upshot is that industry consolidation is the most logical longer-term fix to this fundamental issue for Qantas.
The natural place for consolidation is Asia, particularly Malaysia, which is emerging as an airline hub, particularly since the Government's recent decision to open up inter-capital city routes.
For this reason, doing a deal with AirAsia can't be ruled out.
It is a publicly listed company with a market cap of about $US603 million ($852 million) and its colourful chief executive, Tony Fernandes, who launched the airline just two months after the attacks of September 11, 20001, when few wanted to fly, was recently forced to cancel a plan to privatise the airline after failing to get finance. Since then, the share price has continued to fall, making a tie-up a cheap option for Qantas.
AirAsia would certainly increase Qantas's footprint in Asia, but it would be a clear admission that its own Jetstar Asia strategy had failed.
The Qantas board obviously has a lot of faith in the budget airline model given its decision to appoint Joyce, the former head of Jetstar, as the new head of Qantas during the toughest industry conditions since 2001.
In such tough times, airlines with the lowest cost base are the ones most likely to survive. His international airline experience was also another big factor in the appointment.

But doing a deal with AirAsia has its pitfalls, not least of which is: which airline would dominate in the merger?

Qantas is a powerful brand but it would be short-sighted to do a deal with a budget airline when it could do a more strategically complimentary deal with Malaysian Airlines.

Qantas held unsuccessful exploratory talks with Malaysia last year and it is understood that the Malaysians have since indicated they are still willing totalk.

The reality is the market is waiting to see Joyce put his stamp on Qantas -- before somebody else does. If Joyce is smart, he will talk to Graeme Samuel, chairman of competition regulator the ACCC, to sound out his attitude to an Air New Zealand/Qantas tie-up, which would offer numerous synergies.

The two airlines tried to do a deal a few years ago, but abandoned talks in late 2004 when the competition regulators on both sides of the Tasman knocked it back.

In changed conditions, with new governments, their views might well be different.

But putting aside the highfalutin ambitions of global expansion and any speculation on what might happen to Qantas if the OneWorld alliance falls apart, Joyce really needs to get the airline's house in order domestically.

He needs to re-engineer the airline's domestic service process, address customer satisfaction and improve conditions with the unions.

Whatever surveys the company brings up, mounting anecdotal evidence shows that Qantas has lost the mindshare of customers. The perception is Qantas doesn't care about safety, customer service or its employees.

If he really wants to win some market share back from Virgin Blue, he needs to look at more than just price.

Too many flight cancellations with little warning, flights running late, flight attendants with low morale, sour faces at check-in desks and poor IT systems have left a bad taste in many people's mouths about Qantas.

It is no surprise then that Qantas has been having a tough time holding on to market share as customers switch to Virgin Blue. In a bid to win back customers, as well as a reflection of continued weak demand, Qantas abolished the domestic fuel levy.

All of these tough conditions have prompted analysts to revisit their numbers.

Earlier this week, Citi analysts estimated net profit would fall from $970 million last financial year to $348 million.

The International Air Transport Association estimates that world airlines will lose a collective $5.2 billion this year.

Nevertheless, it is still operating in a duopoly with Virgin Blue domestically and for that reason Qantas will stay profitable in 2009.

This is in sharp contrast to some of its Asian brethren, some of which are expected to make a loss.

In the past year, Qantas's share price has more than halved to $2.55, and pressure is expected to continue as global economies fall into a recession, leaving airlines exposed to dwindling demand, falling prices and tough debt markets.

Running an airline is never easy, but Joyce has taken the helm at one of the tougher periods in recent history.

If he plays his cards right and starts to improve customer service, staff morale and management's relationship with the unions, he will set the airline up for better times ahead. That will mean less bad press, less safety issues, and less flight delays.

[argusmoon]

Looks like Joyce and Clifford have got their work cut out for them.
Unfortunately Clifford is a union basher which in turn means an employee basher.From here it looks like more of the same.

[QFinsider]

Same old crap different bucket....

[Wingspar]

I know I'm not the sharpest tool in the shed but I have not read anywhere a detailed account of why consolidation especially with Malaysian is logical!
This article states;
Qantas is an end-of-the-line carrier that operates in an uneven regulatory, competitive and financial playing field.
A bit subjective don't you think?
To try to protect its bottom line, it has been reducing capacity on international routes to keep a lid on its costs.
Can the author please expand on that? I would of thought to increase yield to relatively reduce fixed costs!
The upshot is that industry consolidation is the most logical longer-term fix to this fundamental issue for Qantas.
Again why?

I'm still yet to see definitive reasoning. All the commentary seems to reflect QF statements.

[SkyScanner]

Malaysian are teeting on the brink. Even before the credit crunch they were talking about grounding 25% of the fleet.

If their 744s are in the same state as the ones Qf bought, god help us!

[struggling]

Utmost respect for Adele Ferguson at The Australian who wrote the Rat's Synopsis on Qantas - Asia the perfect fit for Qantas and for her statement that 'Joyce has taken the helm at one of the tougher periods in recent history (and) if he plays his cards right and starts to improve customer service, staff morale and management's relationship with the unions, he will set the airline up for better times ahead'

But how the hell will geting into bed with either MAS or AirAsia help fix: Qantas' dwindling demand, falling prices and tough debt markets.

Worse than going to bed on your own I reckon.

However, if as Adele states, 'Joyce is smart, (and) talks to Graeme Samuel, chairman of competition regulator the ACCC, to sound out his attitude to an Air New Zealand/Qantas tie-up,... which would offer numerous synergies for Joyce to put his stamp on Qantas -- before somebody else does',

Her speculation on what might happen to Qantas if the OneWorld Alliance falls apart may not be all bad, in that the Roo could then be free to flirt with Sky and Star.

Never did go much for English roses.:O

[Reeltime]

Why don't Clifford and Joyce try doing what Dixon never did..just run the damned airline. It's what you're being paid to do boys!

Forget about the deals, yes I know they enrich you management types, but they can come unstuck big time, remember APA, freight cartels etc. How many millions of dollars were lost by Qantas management decisions over the last few years? Not to mention the laws that were broken (but i will anyway)...I'm still waiting for ASIC and the ACCC to grow a set and investigate properly some of the 'deals' that came unstuck.

What was the figure? 80 million dollars in fines for price fixing, yet not one Qantas manager in Australia has faced a court. :ugh:

[Howard Hughes]

There are only two airlines that Qantas will end up in a merger/buyout with, the rest are just smoke screens trying to stave off the inevitable...;)

Emirates or Singapore, end of story!:ooh:

[sunnySA]

Why not Qantas and Cathay. Qantas to Hong Kong, Cathay to everywhere else...

[ebt]

Reeltime, isn't that why there is an EGM running Qantas Airlines? The whole idea, as I understand it, is that the Qantas Group is made up of a number of businesses with the CEO holding all those together, with separate EGMs for each part of it. Sure, the investments have been disproportionate to other businesses, but I think it is up to Borghetti and his management team to really run the airline. Joyce needs to have the freedom to pursue the strategic agenda for the health of the Group, including possible tie ups with other carriers.

[denabol]

It seems to me that Adele Ferguson in The Australian and Ben Sandilands at Plane Talking got the same leak but came at it from different directions.

Qantas and the Malaysian equation - Plane Talking (http://blogs.crikey.com.au/planetalking/2009/01/10/qantas-and-the-malaysian-equation/)

What are the chances this is how Qantas gets out of deals gone bad in Singapore and Hanoi. Maybe its sending a signal to Singapore Airlines that if it calls off Tiger it will fold the Singapore based Jetstar.

[Sunfish]

(Sigh) Reeltime has it right, just run the damned airline.

Malaysia is a corrupt business environment, they will skin Qantas alive if they merged it with Malaysian.

Singapore is a one party dictatorship. They will also skin Qantas alive.

In fact, just about any first rate airline in the world has better strategic decision making skills than Qantas.

The only thing Qantas has to bargain with is its stranglehold on the Australian market, so nothing good is going to come out of it for the General public unless that stranglehold is removed - which vitiates the reason for a merger in the first place.

[QF22]

Maybe QF could merge with Jetstar !
Get the airline all under one roof again !

[SkyScanner]

Maybe QF could merge with Jetstar ! Get the airline all under one roof again !
Who would be the dominant partner :E

[takingover]

Jetstar of course!

Australian aviation has been heading downmarket ever since Ansett collapsed & seems to be determined to keep going in that direction. That will change eventually - most things go full circle eventually - but, once again, don't hold your breath!

[lowerlobe]

ebt....
Reeltime is right and that is the CEO and the rest of the board should concentrate on running the airline not working out who they want to get into bed with....

Darth admitted that he dropped the ball during the takeover bid.Was he chastised for that......no way,in fact his bonuses kept going up....as usual.

The only reason QF would benefit from a merger would be if they did so with an airline that had a route structure that complimented QF's...ie flights within Europe or the America's.

[Mstr Caution]

I doubt it would be a merge, more like a re-branding. Joyce stated recently which brand has the "not negotiable" tag for change.

[Alex 009]

Stupid question but IF Qantas were to partner up with Malaysian, would QF leave ONEWORLD?

[waren9]

Merger with an Asian carrier?

Be careful what you wish for.

Jetstars use of Thai cabin crew for flights out of PER at a fraction of the wage cost of the Aussie crews is just the start.

Pax them in, pax them out. Clever way to get round immigration laws?

[QFinsider]

Ahh Waren globalisation is the convenient tag used to outsource labour. The result a lower cost base whilst enjoying the convenience of Australia. The end result is another wedge to drive into existing labour...Quite pitiful really but it does deliver huge wealth transfers to managers who jazz it up as efficiency..

Want to know why Dixon/Joyce/Clifford don't run an airline and search for "deals" Read Micael Pascoe's take on it from the SMH..Along with Alan Kohler and occassionally Terry McCrann were the standout lone media voices against APA..


Micael Pascoe SMH 9 December 2008

"Most people think they are better-than-average drivers, which, by definition, most people can't be. Call it a mass delusion.

Takeovers and mergers are generally like that too - a source of delusion for the key players.

Various studies over the years have found most big corporate takeovers/mergers are failures as far as the acquiring shareholders are concerned - but that doesn't stop the moving and shaking boards, CEOs and fee-hungry advisers all proclaiming that their takeover is different.

But there is one player who never loses in a big takeover - the CEO of the taker or takee. The quickest and easiest way to receive a multimillion payout (without the slight opprobrium of being sacked for incompetence) is to be taken over. Next best is to do the takeover, which enables the CEO's remuneration consultant to argue for a pay rise on the basis of greater responsibility.

Then there are the great urgers of modern capitalism, the investment bankers and advisors whose very existence is fed by doing the deal, not the long-term outcome. Corporate Australia is littered with the skeletons of takeover mistakes that nonetheless made an army of urgers rich.

And therein lies one of the under-examined aspects of M&A mania - the moral hazard whereby key players in the process make vast profits even if shareholders lose.

There are occasional exceptions - Vince Gauci's brave and wise fight against Xstrata's bargain basement takeover of MIM - but most CEOs happily stay in step with their boards, take the money and move on to the next game. Some seem serially successful at being corporate prey.

And it's not as if the CEO class is unaware of the dangers of moral hazard. For example, in the middle of the rescue of AMP, the then CEO, Andrew Mohl, stuck out his hand for a few million more as compensation for the fact that AMP would be smaller and, therefore, his pay packet less huge. Well, you wouldn't want him to be tempted to not sell assets that needed to be sold.

The urgers are another problem again. CEOs and chairman are constantly duchessed and propositioned by very personable investment bankers who profess to want nothing more than to find ways to add shareholder value. Or something like that.

And CEOs and chairmen are forever on the lookout for some bright "company making'' deal i.e. they are willing buyers of the urgers' wares. Never mind that the urgers only real concern is to keep the fee flood flowing.

Which brings us to the brouhaha de jour, the bemusing Qantas-BA merger talks. There's been plenty written about this dubious proposal, so much that there was little surprise in seeing Alan Joyce backpedalling yesterday.

But there's been little more than a passing wry observation about the role of the fee suckers, UBS and Macquarie. Yes, it is bemusing that Macquarie has gone so quickly from being Allco's Qantas raiding partner last year to sleeping inside the tent as Qantas' adviser on the BA deal, while UBS has switched from the Qantas camp to the BA side at the same time.

It's a lot more than bemusing though - it's outrageous. It raises doubts about the competency of the Qantas board and management that they would wear such nonsense - unless, of course, that the Qantas hierarchy is so culturally attuned to the merger that they would sleep with anyone to achieve it.

Let's pause to remember that one of the early signs that Macquarie's love of money wasn't quite healthy was the way it jumped camps from being Email's trusted advisor to advising Email's hostile raiders in 2000 - and doing it with a no-holds-barred vengeance at that, complete with serving dawn writs at Email directors' homes.

There was a time when it was thought a gentleman didn't do that sort of thing, that the long-term relationship and honour mattered more than the quick killing.

Now nothing can be taken for granted, including the moral hazard of urgers and CEOs being fabulously rewarded when shareholders are not. Maybe that's what they mean by "win-win''

[Keg]

...IF Qantas were to partner up with Malaysian, would QF leave ONEWORLD?

Why would they? MAS belongs to enrich which counts ANA, KLM and Air France, Swiss, Virgin Atlantic and Virgin Blue as it's partners. It'd probably be more feasible that over time MAS would likely join Oneworld. It's got far greater scope than enrich.

[lowerlobe]

Merger with an Asian carrier?

Be careful what you wish for.

Jetstars use of Thai cabin crew for flights out of PER at a fraction of the wage cost of the Aussie crews is just the start.


waren9.....QF has been doing that for years to save money....They have Long Haul Cabin Crew bases in New Zealand , Thailand & London.....

[Gingerbread]

Why the BA-Qantas merger failed to fly

Alan Joyce, the new chief executive of the Australian airline, tells our correspondent how the secret negotiations fell apart.....

“We couldn’t get the commercial arrangement that was right for our shareholders,” said Joyce - a euphemistic way of saying that the two sides couldn’t agree on how the new company should be split between them.

Sources at BA said the British company was pushing for 55:45 in its favour, while Qantas executives, arguing that their company had the greater potential for growth, wanted more for the Australians....

Times newspaper article available @ Why the BA-Qantas merger failed to fly - Times Online (http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article5536227.ece)

Might be flying, if it is was 45% each and 10% for the BA/Qantas Staff?:D

[blackguard]

Dixon ran Qantas like a fiefdom and Jackson let him.
Joyce is an employee and Clifford call the shots.
Joyce has a basic brief..undo Dixons damage
Improve morale and make middle management more accountable
Remove the upward filtering of information.
It will take a while and the removal of most of the old regime.
Brown has gone and so has Gregg.
A few more heads will roll over time.
Clifford is a hard arsed miner in the twilight of his life and his career.
At the moment Joyce is Bambi .......still dazzled by the headlights.
Aviation will take a big hit this year....it will not be dull.
It will be painful for many.
Qantas employees will have to take a bit more crap for a while

[Mstr Caution]

Qantas employees will have to take a bit more crap for a while


The only crap staff will endure is management spin in the short term. Longer term those staff that remain will end up ok.

[packrat]

But largely ill founded.With this years downturn looming large on the horizon Qantas will downsize.Natural attrition,VR.Long Service Leave,Forced Leave will all be implemented.More pain for the employees at the rat.

[blow.n.gasket]

And let me guess, Management will use this economic downturn as the excuse to futher squeeze Qantas to allow that brilliant business model Jetstar to expand:confused:

[genex]

Very good point Mr Gasket,

As you correctly intimate, Qantas mainline is manifestly unable to shrug off its old ways and cost structures to address these trying times. So this is the ideal time for management to allow JQ to expand, for the good of the whole Group and all employees.

[Wingspar]

I like Coke and I pay a premium for it.
If times are tough I'll drink less of it.
If the shop replace it with a no-name brand for cost reasons then I simply won't buy it.
I'll go to another shop to buy my Coke.

Lesson for QF.....listen to the consumer!

[lowerlobe]

genex....Qantas mainline is manifestly unable to shrug off its old ways and cost structures to address these trying times
Somewhat a fatalistic and perhaps myopic view of the parent company.....Unable.....I doubt it.....more likely it's a case of using any excuse to push J* rather than wanting to improve the parent airline...or taking the easy way out.

It doesn't take much skill to cut ..cut and cut..but it takes a lot of skill to improve and develop your existing product.

As Wingspar said,there are a lot of people wanting and more than capable of paying for a premium product and not interested at all in the no frills package.
unable to shrug off its old ways and cost structures
You are right about one thing though and that is there seems to be no limit of people willing to accept a job no matter how low the pay....then complain about it and be jealous of others doing the same job for more.

[Transition Layer]

lowerlobe,

Don't even bother dealing with genex, he/she is brainwashed with Jetstar ideology but apparently not a JQ employee.

Just let it go through to the keeper.

[another superlame]

I don't see Qantas slashing and burning in the current climate, they are already spread as thinly as possible, getting rid of more people woudl cause chaos when things pick up again. Hopefully some one in management can see past the end of his nose aand realise this.

I know engineering is one area with no excess fat to trim and now with the Dugong proving to be more labour intensive than first thought, and the lagacy fleet still behind in maintenance this is the time to invest and do something about it.

If the profit is going to take a hit this year they should bite the bullet and spend the cash now, that way it wont affect the future profits.

[max autobrakes]

Genex
the market JetStar caters for is if anything, a niche market, that by all reckoning is already well catered for in Australia by a plethora of LCC airlines. Let them have choice and lo and behold that end of the market does.
If you havn't noticed things have been evolving at Qantas and the cost gap is no where near what it was 5 years ago.
Yet management still havn't taken an axe to the inefficient areas in Qantas. Here's a hint, those inefficent areas aren't in the flying side of the business.
Why is that? Probably because of the bloody mined unions in those areas of the company?It would appear that management ie: Dixon took the real easy way out. He went with a greenfields business model ,JetStar and by all appearances was going to use Jetstar and WorkChoices as the industrial vehicle to clean out Qantas.
Unfortunately the "Dixon Plan" or whatever it was called is coming apart at the seams quicker than a tissue condom now that there is no longer WorkChoices and a sympathetic Government bending over backwards to help.
Where is Joyce going to take the company?
The JetStar business model will not exactly replace the Qantas business model without extensive modifications , there is room for both business models ,the only question being the size of each business unit and it would appear as if the JetStar International model is not exactly going gangbusters.How many times do you see a JetStar a330 departing Sydney on a 9 hr sector going straight to FL 380 or 400?:eek: Then there is the Japan experiment????

Where do you think the Qantas business would be today if the $150million ++++ spent on JetStar Asia and Jetstar Pacific had been reinvested in the parent company? When will those business units make a return if ever?
How much money does Jetstar spend on advertising compared to Qantas and what are the respective returns??

No one now denies that JetStar domestically was a smart business move.
Primarily I belive it was a defensive move by Qantas to tie up all remaining ground assets in the form of airport gates at the major choke points in the Australian domestic market in order to contain Virgin and to stop anyone else dead in their tracks who wanted to set up in Australia .
Imagine the bother Qantas would be in if a full service carrier decided to set up in Australia on the domestic scene and offered real choice!:eek:

I actually feel a bit sorry for Joyce and the monumental job he has ahead of him because of Dixon's gamble that in many ways will not pay out now that the Liberals are wandering in the political wilderness and WorkChoices is all but dead and buried.

It will be very interesting to see the financial scrutiny JetStar will be placed under in particular the International part of the operation now that there is such a long delay on delivery of the 787's and the APA deal falling over.
Interesting times indeed and I wouldn't write Qantas off so quick because I believe there is more money to be made under Qantas' Business model if run correctly than Jetstars.The $100 million question I suppose, is for whom? The shareholder or senior Management!:}

[waren9]

starting to mirror the "qf suffers while jq soars" thread or whatever it was called.

done to death.

anyone else with something new?

[packrat]

Its about what Clifford and Joyce are going to do with the mess they have been handed.
Jet Star is just one factor.There are many others.
Morale.
Trust.
Fleet Age.
IFE.
Maintenance.
Direction.
Toxic Culture of fear and intimidation.
These are the more important considerations.
JetStar International wont go anywhere until its new kit arrives...Somewhere around 2011.
A lot can and will happen in that time period.
Lets hope its good.
Joyce and Clifford need to be more inclusive with employees.
If not it will be to the detriment of Qantas as a Corporation and a brand

[lowerlobe]

waren9....

To be fair this thread is about Qantas..a Synopsis and so includes all the Qantas group.

That includes J* and discussion of the mix between QF and J*.

It appears that you did not know about QF Overseas Cabin Crew bases...so this thread does have it's uselfulness...

[waren9]

Fair comment. Whilst it wasnt at the front of my mind, I wasnt oblivious to it either. I didnt reply to your post because I didnt see it as quite what I was getting at.

My point about overseas crew coming here for a week at a time or so, and crewing flights out of Australia for about a third of the wage cost to the airline was my beef.

It is flying that I'm sure many Australians would like the chance to do, but not for those wages.

Those who wanted to take up long haul flying from other bases around the world with QF are either probably already doing it or have applied.

How would Australians feel if BHP or whoever was flying in cheap labour from the sub-continent a week at a time to work in the mines? I'm sure that would make the media.

Regards
W9

[lowerlobe]

waren9....

Thanks for your comment and I agree with your sentiments.The QF Cabin Crew bases though are used exactly as the reasons you have said you're worried about...

Cabin Crew in Auckland are paxed over and used because their pay and conditions are far less than those of Australian based crew.

If you want to get to the basics all crew used in overseas bases by QF are used to save money because they are not subject to Australian regulations such as superannuation etc...

If it was not for those bases Australian based crew would be doing all the flying and the company would have to hire more Australians....

So in essence it is exactly what you are concerned about...

[bill.lumbergh]

Howard where on Earth do you get that from?

A foreign government owned (or majority owned) airline is the last company Qantas would tie up with.