View Full Version : Joyce and 65% market share

24th Sep 2012, 10:42
So now we know why the line in the sand is being held at all costs. Even if yields suffer ...

Alan's bonus is tied to it. Not what's good for Qantas... The bonus.

The mind boggles .

( today's fin review, back page)

24th Sep 2012, 11:17
Anyone got a link?

24th Sep 2012, 11:43
Subscription I'm afraid

24th Sep 2012, 11:54
Someone else want to sign up for 14 day trial to AFR?

24th Sep 2012, 13:09
I'll play Auld Lang Syne.

My point being Borgetti mentioned he couldn't see the logic in holding 65% market share if yields suffered as a result, thus destroying profit. I was wondering the same thing . It seems crazy to stick to a plan if the circumstances change .

Now we know why

24th Sep 2012, 13:58
Here is the article mentioned:

Australian Financial Review, Page: 48
Monday, 24 September 2012

The grumblings of Virgin Australia’s pilots over pay and conditions are the tip of the iceberg when it comes to concerns over rising costs at the resurgent airline.

With Virgin back in the black, its captains want a better deal to match the pilots cap that chief executive John Borghetti gave them when he took over two years ago. Last week they told Borghetti what they thought of his pay offer, with a solid 62 per cent "no" vote against the deal put on the table. The situation is nowhere close to approaching the industrial relations meltdown at Qantas last year, but the language and demands coming out of one of the two pilots’ unions sound very familiar.

The Australian Federation of Air Pilots, the smaller of the two pilots’ unions involved, has backed the offer from the company. The dominant Virgin International Pilots Associa-. tion says its members are entitled to more, with executive director Simon O’Hara trying to link the domestic dogfight against Qantas to a campaign for similar pay and conditions.

The gap between the two is substantial, with Qantas pilots having built up their conditions over decades of negotiations and Virgin starting with a clean piece of paper 11 years ago. Last week, O’Hara said that if the main competitor is now Qantas, rather than Jetstar, then the company had to pay accordingly.

The trouble for Borghetti is that the union is asking for a lot more at the exact same time as Qantas is dragging down average airfares by adding capacity to protect its market share and destroying Virgin’s recent yield gains in the process. A government index of domestic airfares shows business fares dropped from a reading of 81.4 in August to 64.9 this month.

Being a full-service airline with inflight meals and airport lounges is expensive. And critics and fans alike of Borghetti say the Virgin chief has a flair for the brand and marketing side of the business that is matched with a propensity to spend up in the process.

Qantas’s first class lounge in Sydney is a case in point. The lounge is considered one of the best in the business, but it cost $20 million.

The Virgin chief says he completed most of the past two years’ product enhancements such as new lounges and refurbished aircraft with a business class offering for around the cost of buying a single-aisle 737 aircraft, around $30 million.

But that was only phase one. As Virgin continues to up its game in everything from chauffeur pick-ups for business class transcontinental flights to catering and improved terminal facilities, it is continually adding to its cost base.

At the same time, Qantas is not only bringing down average airfare prices through a capacity counterpunch to Virgin’s own growth but also reducing its cost base through redundancies and efficiency gains to give it more room to fight from a margin perspective.

Virgin’s labour costs rose from $742 million to $841 million last year. A quick glance at the company’s income statement shows every expenditure from aircraft operating costs to fuel and general expenses increased in sync.

Costs per available seat kilometre (CASK), the standard industry gauge for an airline’s outlay, rose 4.5 per cent last year. That paled in comparison to yield growth of 12 per cent, but as Qantas brings down full-service airfares with the mainline brand and attacks the leisure end with Jetstar, the question becomes how much longer the yield gains can outpace the cost increases.

CASK has risen at Virgin every six months for the past two years. Indeed it is at the heart of Borghetti’s strategy to spend more in order to make more, by attracting more business travellers with a premium product.

Comparable costs at Qantas fell 3 per cent last year, with improvements at both the full-service carrier and Jetstar. Its traditional yield premium of between 30 and 40 per cent is slipping at the same time, but CEO Alan Joyce is not likely to pull back from his current domestic strategy soon.

Joyce has made maintaining his line in the sand of a 65 per cent domestic market share something of a corporate mantra, and that goal is one of the key performance indicators towards his annual bonus.

Borghetti must have been hoping that the current round of enterprise bargaining between the airline and its short and medium haul pilots (the vast majority of Virgin’s business) would be conducted behind closed doors and away from media scrutiny.

The company achieved that with its small retinue of long-haul pilots last year, quietly agreeing to a 3 per cent pay annual increase at the same time as industrial relations went nuclear at Qantas.

The Virgin CEO may now settle for not creating a costly precedent.

Aside from the current round of bargaining with the short-haul and medium-haul pilots, Virgin has to negotiate new agreements with its domestic cabin crew, ground crew and engineers over the next year. And just as the formerly no-frills airline benefited through an influx of new passengers during Qantas’s industrial woes last year, it is now on the receiving end of bigger demands from its own staff.

Higher labour costs will also be unavoidable for the company as Borghetti continues to add to his corporate team to better challenge Qantas in the business market. A raft of new senior executive hires are being augmented by new teams working underneath them.

And then there are the added costs of moving to the Sabre global distribution sytem (GDS) from the existing budget distribution model where travel agents effectively link in to Virgin’s website to buy tickets.

Sitting over all of these incremental cost increases is the biggest expense of all, fuel. Just three months ago, Singapore jet fuel looked to fall back below $US 100 per barrel but has since trended steadily upwards to now trade above $US1 30 again.

Additional expenses go hand in hand with Borghetti’s strategy to take the airline upmarket, and it would be tough to describe any as wasteful or extravagant. They are core requirements to being relevant in the corporate game that Virgin is now playing.

Virgin still enjoys a significant cost advantage over its core rival, but the immediate concern is that expenses are being added at the same time as margins are being squeezed in the domestic market. Those concerns were echoed in the raft of 2013 and 2014 earnings downgrades that followed Virgin’s full-year results despite a pledge to deliver $400 million in productivity gains over the next three years.

With unrestricted cash of less than $500 million, compared with more than $3 billion at its rival, Virgin’s ability to withstand a sustained bear hug in the domestic market is not great. If things get ugly, it is the smaller of the two that most say will have to blink first and temper capacity growth Essentially Borghetti and his team could do everything right strategically and still be in for a rough ride this year due to the Qantas response.

Net profit is estimated to rocket to $100 million from $22.8 million last year, but that is still far from what Borghetti wants to achieve.

It is in this context that the pilots’ demands are particularly ill-timed, and why Virgin is keeping a low profile on the industrial relations front.

Borghetti achieved his three-year goal of generating 20 per cent of revenue from the corporate and government market in his first two years in the job. The lightning pace with which he has turned around the airline to date will be harder to sustain in the year ahead.

Andrew Cleary [email protected]~afr.co,n.au

Eastwest Loco
24th Sep 2012, 14:46
Among Travel selling professionals, QF remains the easier and more predictable product to sell.

No fighting with websites, full GDS accdess and one can do most non regular actions such as special meals, wheelchair bookings, meet and assist and domestic seat allocation for premium passengers all on screen on the GDS.

The good people in Manila try hard but - nah! If the website or the web itself is dodgy, as happens then you have blown at least half an hour for no return on something that would take seconds on Sabre.

The culture is not there at Virgin yet either. the old heads in the upper realms of IT is what I refer to.

Case in point: I had 4 young ladies recently travel to Athens on their trip of a lifetime. First hurdle was getting out of Aus. DJ fare connecting EK. Fare under EK fare basis ex LST, EK 176 ticket issued. I used IATA accepted title of Miss as these were all lovely young things who didn't roll their own tampons and wished that title.

Some drone at DJ changed their titles after ticketing to Ms. this then disconnected the E tickets from the DJ system as the E tickets then conflicted with the Airline system. It should be mentioned that DJ uses Sabre, our host system as a base. They also have no right to alter the names after ticketing AT ALL!

On the outbound leg the girls were offloaded and LSTKTDJ couldn't react quickly enough to get them away. Another poor piece of work from someone I know who has enough years under his belt to call, but not to be.

They got away on the following flight and still made connection, but that was just the beginning.

Because of the title change, the EK system was now in conflict with Sabre as the E tickets and the actual PNR carried conflicting names due to the titles. Reissue under these conditions was rendered impossible.

Of course, all 4 changed their returns.

Thankfully after 37 years on Unisys and IPARS systems I have enough nouse to know what to do. Emirates didn't and nor did DJ - they couldn't even get the concept of the problem.

It was messy but fixed.

My point is that DJ wants to play legacy, but they have no legacy to call on.

QF isn't perfect, but their for of imperfect works far better for my clients and I will admit for me.

They may be just the thing for the spotty little Hermans at Blight Centre, but sorry - there aint no plastic Captain outside my office and there aint no pretend crew inside.

DJ - if you want to be one of the big boys, get up with the speed and lose the half arsed systems. Hire some old heads - ONSHORE.

That is the only way you will compete in the eyes of the senior parts of the Travel Industry.

Best all


24th Sep 2012, 18:49
Well said EWL
Let's hope someone senior in DJ understand the problem.

24th Sep 2012, 23:19
Thankfully after 37 years on Unisys and IPARS systems I have enough nouse to know what to do. Emirates didn't and nor did DJ - they couldn't even get the concept of the problem.

It was messy but fixed.

My point is that DJ wants to play legacy, but they have no legacy to call on.

EWL excellent post. This is the problem in a nutshell. An early 30's MBA executive (I'm looking at you Bruce Buchanan et al) without industry experience cannot understand that they are dealing with highly complex systems & plumbing, not widgets on an organisational chart. Experience and being an expert at what you do is seen by these executives as a liability and some sign of weakness, lacking ambition & motivation. That's why corporations have ritualistic purges to get rid of the grey heads and welcome in the bright young things. This thinking has gutted this industry - from pilots, engineers, IT & front line staff.

How many have operational aviation experience on the Qantas board? They are experts in other area's, such as finance and Private Equity, but that's another story.
Is anyone surprised its all turning to sh!t?

piston broke again
25th Sep 2012, 00:07
Should all be fixed (hopefully) when Sabre res kicks in early in the new year.

Eastwest Loco
25th Sep 2012, 09:20

Sabre was due to cut in October, but even though DJ's base system lives there it won't happen until January at earliest.

If you know any of the responsible DJ execs, get them to call me. I rent out - and by the kilo:E

Haven't had an Airline to call my own for far too long, and would like to help.

It is so damned simple I could cry. Old heads to teach new heads. A simple reinstatement of the AIRIMP principals and the staff learning them. That is at least a start.

That way we are all on the same page and the "old magic" is reinstated and can work.

This moves the SLF back to the No1 spot, the Airline to a position of authority and the spotty Herman agents into the crosshairs as if they don't perform then any mistakes they make cannot be blamed on anyone else.

Somehow DJ (and I won't mention the well meaning disaster I hit today with Ratlink, who did all the right things ex PLO but didn't system load the result) need to osmose the past into their present and future.

QF need to take a good look too, but slowly the logic already seems to be returning. that is refreshing to say the least.

We old farts gifted or were forced to gift this industry to the incumbents.
Don't be afraid to ask, dig back, try a decison on your own or as we used to do call Shambles Planning and tell them what they are going to do.

It has to be an improvement.

Best all


Jack Ranga
25th Sep 2012, 10:29
Joyce has made maintaining his line in the sand of a 65 per cent domestic market share something of a corporate mantra, and that goal is one of the key performance indicators towards his annual bonus.

Well, if the board approved that without yield being part of the equation they are morons.............(rhetorical question)

25th Sep 2012, 11:10
This why I wonder why Qantas takes the trouble to alienate it's valuable, highly competent, experienced staff with incompetent management.
It's only because of dedicated staff who see problems and fix them without hesitation, that the wheels keep turning.
Joyce and co. know that staff won't turn their backs on a difficult situation and yet continue to see them as a necessary evil.
Borghetti on the other hand rightly sees his staff as an asset and lets them know it. No problem with staff morale means better productive staff.
The same cannot be said at Qantas.

65% market share???

Not a snowball's chance !!

25th Sep 2012, 11:50
I'm sure I read recently about the foolishness of chasing market share over profits. No point having a 65% market share if you have to sell the tickets for 5 dollars to keep it.

Was it Laker Airways I think?

25th Sep 2012, 11:58
There is a point.... His bonus

25th Sep 2012, 18:09
What's worse is in some segments of the Qantas Group the passengers are been paid to fly with them......:ugh: e.g. the shareholders are buying market share,,,a recipe for disaster...

25th Sep 2012, 21:07
Please explain ?

26th Sep 2012, 01:59
From another 'old fart' EWL. the old IPARS.

Had an interview recently back in the industry and used the term IPARS. The young, he looked no more than 25, HR type had no idea what the acronym stood for.

Pay was crap but I knew that but what got me the most was the 25 year old trying to work out how old I was :=.

Back to topic, sorry.

26th Sep 2012, 02:22
Understand what you are saying busdriver. It is a particular Australian business practice that does work.

If the company you have your money invested with is giving you returns, why would you not spend your returns with that company?

26th Sep 2012, 03:21
It is a particular Australian business practice that does work.

If the company you have your money invested with is giving you returns, why would you not spend your returns with that company?

Correct. If all you're interested in are the immediate returns.

Meanwhile the rest of the world, who are able to see beyond their noses, knows that you often have to invest in a business in order to generate the returns. Investment should be going in to where tomorrow's return will be found, not today's. As you say, a concept completely foreign to Australian managers :rolleyes:

Hugh Jarse
26th Sep 2012, 03:43
Joyce has no say in his company's market share.

That will be decided by the travelling public :ok::ok:

29th Sep 2012, 13:18
Looks like its fallen below 65% ...

30th Sep 2012, 07:13
The capacity war between the big airlines has sparked claims Qantas Group's market share has fallen below 60 per cent on the nation's top 10 domestic routes.

A review of capacity by analysts at RBS puts Qantas's share at 58 per cent, down from 63 per cent and well below the group's 65 per cent "line in the sand".
Steve Creedy
The Australian
Sorry...can't post a link FG

psycho joe
30th Sep 2012, 07:21
Joyce has no say in his company's market share.

That will be decided by the travelling public

I agree, but I've heard that AJ's term "market share" referred to capacity or seats, rather than actual bums on seats. would love to know if that is the case.

Nose wheel first
30th Sep 2012, 14:41
Well if that's his logic behind market share the company is screwed.