At last, a journo is starting to get it
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At last, a journo is starting to get it
Hamish Mcdonald in the Sydney Morning Herald, is questioning the whole Asian deal, have tried to post it with no success, somebody might be able to pick it up and post. It makes excellent reading and has the same questions we are all asking.
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There were some interesting articles in last weekends Fincial Review. About a quarter of that issue was about Qantas and about 50%.50% either way so more than one journo is on to it.
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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.
Read more: The Q is for quality - not a quick buck
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Did he really describe Scoot as a Premium Feeder airline? (yes he did). And his typewriter seems to have got a bit muddled when he was typing the name of the airline from Abu Dhabi. But I guess he wrote some of the things that people want to read.
Last edited by alangirvan; 12th Nov 2011 at 21:26.
alangirvan Did he realy describe Scoot as a Premium Feeder airline? (yes he did). And his typewriter seems to have got a bit muddled when he was typing the name of the airline from Abu Dhabi. But I guess he wrote some of things that people want to read.
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Thanks Prong, my PC is not the same after the grandkids have got hold of it, I had to fight my way thru some sort of star wars program, to even make it function. Much obliged.
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But the biggest failure in his article is that he doesn't recognise the recent profit as being way thinner than it sounds:
He has made the same mistake as the unions. $552 million sounds like a lot of money, but in fact it is a tiny profit and represents a razor thin margin (about 1.6%).
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 ...
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Collectively airlines have lost more than they have ever made.
Fact.
Airlines will never generate an acceptable return on the capital investment.
Fact.
Qantas would be better sticking the billions in the bank.
Fact.
However Qantas is an airline and that is what is does for better or worse.
Fact.
However they do generate commerce and trade and that is where their true value is golden,
That is why the should be state owned.
And beancounters like Joyce should be sent somewhere like the Canadian NWT where he can't destroy everything he touches.
Fact.
Night all
Fact.
Airlines will never generate an acceptable return on the capital investment.
Fact.
Qantas would be better sticking the billions in the bank.
Fact.
However Qantas is an airline and that is what is does for better or worse.
Fact.
However they do generate commerce and trade and that is where their true value is golden,
That is why the should be state owned.
And beancounters like Joyce should be sent somewhere like the Canadian NWT where he can't destroy everything he touches.
Fact.
Night all
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But the biggest failure in his article is that he doesn't recognise the recent profit as being way thinner than it sounds:
Quote:
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 ...
He has made the same mistake as the unions. $552 million sounds like a lot of money, but in fact it is a tiny profit and represents a razor thin margin (about 1.6%).
Quote:
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 ...
He has made the same mistake as the unions. $552 million sounds like a lot of money, but in fact it is a tiny profit and represents a razor thin margin (about 1.6%).
The $552 million Profits Before Tax for 2011 is well up from $377 million PBT in 2010. This is despite the grounding of the A380 fleet post QF32 incident and the natural disasters earlier this year that have a costing of $224 million.
The $249 million profits after tax for 2011 are more than double that of the $116 million of 2010, despite the problems mentioned above.
Earnings per share of 11c are again well up from the 4.9c of 2010.
This year has been the best year for QANTAS since its record year back in 2008 with a PBT of $1,408 million and after tax profits of $970 million and earnings per share of 50.2c Although, Dixon always played the part of Chicken Little and the sky was always falling in.
The question that hasn't been answered is how is QANTAS International losing $216 million per year? When international revenue is up, passenger numbers are up .
This could be creative accounting with aircraft depreciation and new aircraft purchases in the one year
Folks,
And speaking of John Menadue, he was the one who introduced a profit sharing scheme for staff ( similar but not the same as the old SQ scheme) and the effect on staff moral and performance was electric, as in cattle prod, but with a smile.
Unfortunately, after some time it was killed by the "wages accord" deal Hawke did with Bill Kelty and the ACTU --- the latter never likes the idea of earning more by working harder or smarter.
Tootle pip!!
And speaking of John Menadue, he was the one who introduced a profit sharing scheme for staff ( similar but not the same as the old SQ scheme) and the effect on staff moral and performance was electric, as in cattle prod, but with a smile.
Unfortunately, after some time it was killed by the "wages accord" deal Hawke did with Bill Kelty and the ACTU --- the latter never likes the idea of earning more by working harder or smarter.
Tootle pip!!
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A full premium service on a A320? Hell, battery hens don't live that close to each other, you will either need to refig, or go back to flinging muffins, the CC would be really battling to do a full service on a A320, but then again I doubt if Joyce has ever been on one.
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He has made the same mistake as the unions. $552 million sounds like a lot of money, but in fact it is a tiny profit and represents a razor thin margin (about 1.6%).
I would expect a man of vision to able to work with this, but he's not is he? As the article says, he's low cost airline to the core.
And as MACH says, airlines, airports etc are infrastructure, they facilitate business. Yes they do need to be lean and profitable.
Have a think about when Joyce first got the CEO gig and what he was saying and what he's saying now. You don't think he's being manipulated? So who is making the decisions? What experience do they have in the airline industry? Does anybody on the board have a clue? If anybody thinks that business in any other sector equates with business in the airline industry, they're dreaming' also.
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He has made the same mistake as the unions. $552 million sounds like a lot of money, but in fact it is a tiny profit and represents a razor thin margin (about 1.6%).
To put it another way, if you bought a block of land for 35k and it goes up 5k in 12 months, that is a 14% return on investment. What's sad here is that a small investor who put 35k in to Qantas shares 12 months ago saw that investment earn 5k in profit but the Board decided not to share that with the investor. As a double hit they also oversaw a falling share value partially due to their IR policies.
The banking sector in Australia handles trillions of dollars each year. If success was measured by how much of that cashflow they kept, their margin would be less than 1%.
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Hey Teresa Green, "a full service on an A320".......come over to Europe, you will find Cabin Crew doing a full service on an A320, while the pilots take-off in 125m RVR, and land in 0ft 75m RVR, and get paid less than QF crew, and some of us have Aussie ATPL's.
If your costs are higher than the competition, regardless of historic or current reasons, if you cannot convince your customer to pay a premium, you will go out of business.
Be profitable, or go the way of Pan Am, Swiss etc
If your costs are higher than the competition, regardless of historic or current reasons, if you cannot convince your customer to pay a premium, you will go out of business.
Be profitable, or go the way of Pan Am, Swiss etc
Last edited by TallestPoppy; 12th Nov 2011 at 22:44.
If your costs are higher than the competition, regardless of historic or current reasons, if you cannot convince your customer to pay a premium, you will go out of business
As for Europe I have flown BA short haul and that is hardly 'full' service. It's no different to anybody else it's just that you don't pay for the food.