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QANTAS - WHERE TO NOW?

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Old 6th Apr 2012, 07:58
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Ben is on the ball

Nice precis from Ben Sandilands at Crikey.

How could Qantas have done better in the 90s?

April 6, 2012 – 4:42 pm, by Ben Sandilands

The question has been asked here, and elsewhere, as to how Qantas might have pursued a strategy to retain market share and brand strength in the face of competition from the likes of Emirates and Singapore Airlines.
At the outset, the history of those times tells as that Qantas management was convinced that the Joint Services Agreement with British Airways, then a 25% cornerstone investor, was the key defence. It began in 1995, the year Qantas was listed on the ASX and it preceded by three years the formation of the oneworld alliance.
The JSA has always been more important to Qantas than oneworld. It has also been successful in leveraging good outcomes for what unfortunately was a nevertheless limited or Anglo-centric view of the future, which included a complete failure to recognize and deal with the vacuum left by the retreat of Lufthansa, Air France and KLM from the Australia-Europe routes, in the same decade that saw Garuda give up on such services where it had in fact made inroads, and the withdrawal of the old Soviet and post Soviet Aeroflot flights that for many years had been the source of unbeatable if at times scary bargains.
That vacuum began to be filled by Emirates and failure to recognize and act on the emerging commercial realities of those times has proven devastating for Qantas in the present, and will prove exceedingly difficult and time consuming to repair.
In the 90s the Qantas market share of international traffic peaked at close to 40%. On the routes to Europe its capacity rose to at least five 747-400s a day at its peak, including tandem services like Amsterdam plus Manchester. Today the Qantas capacity to Europe all the way in its own equipment is two A380 rotations to London and one 747 rotation to Frankfurt a day, having recently dropped two additional 747-400s daily in favour of trying to persuade its patriotic customers to connect for most of the way on BA flights.
The Qantas attitude to Europe is that of reducing the risks of having to compete by withdrawing from services, and then complaining that 82% of the international Australian market choses to fly with someone else, often because there is no Qantas service available.
Qantas does nothing to address in its own right the services its competitors with hubs in Dubai, Bangkok, Hong Kong, Singapore and Abu Dhabi offer to a wide and growing range of destinations in other eastern and western European cities, the Middle East, central Asia and the western, northern and eastern African economies, places it ignores at its peril, except that I don’t believe there is an atom of long term or broad scope strategic thinking in Qantas beyond short term possibilities to sell out of the main carrier or pursue the potentially lucrative expansion of its Jetstar low cost franchise.
There are many excuses offered for this including the lower cost of doing airlines everywhere but Australia, and being at the end of the line, and so forth. To the extent that these excuses are valid, there has also been no strategy to mitigate the loss of brand power or market share by actually doing things that might be more useful that demonizing staff, treating customers with contempt, and engaging in woe-is-me hang wringing.
But what might it have done? In the late 90s it could have invested in Boeing 777-200ERs to fly non-stop to Dubai and on to such destinations as Amsterdam, Manchester, and Rome as an alternative to closing them down and in effect giving the business to its competitors, because flying to them via London is not over a period of time something that will build brand loyalty, and customers will value getting where they want to go up to half a day faster when Thai, Singapore Airlines, oneworld partner Cathay Pacific, or Emirates offer it.
The -200ERs would not have been a replacement for A380s for routes with slot limitations, nor for A330-300s, which are unbeatable on routes like Sydney-Hong Kong because of the merits of an airframe that is as perfect as it can be for a nine hour flight in terms of fuel efficiency and payload to airframe weight matching.
But what the 777-200ERs would have done was protect the brand and prevent Emirates from an expansion in this market that was accelerated by not being opposed by competing product, city pair by city pair.
The 777-200ERs would also have made it easy for Qantas to transition to -300ERs with more seats, and better fuel economy, as what were once core Qantas services to Europe continued to grow.
These Boeings would have also meant that customers who wanted to fly Qantas from Brisbane or Perth, or Melbourne would have had more opportunities to avoid changing between Qantas domestic and Qantas international at Sydney, a factor that caused it to bleed market share.
The retention of more of a share in a strongly growing market would have also opened the very real possibility of negotiating a deal with Emirates, in that the purpose of Emirates like that of Singapore Airlines has always been to develop the respective economies of the Dubai and Singapore by encouraging traffic. There is an interesting divergence between the experience of Emirates and Singapore Airlines in this regard, in that Dubai is too successful at attracting more than 100 competing carriers to its airport, while Singapore Airlines failed to contribute to growth at Changi to expectations in recent years, and appears to be struggling in some measure to adjust to the opportunities of low cost air travel. Singapore Airlines is less relevant to Singapore than ever, while Emirates is highly relevant to Dubai, yet competitively challenged by Asia, Middle East and European brands determined to offer their nationals a flag carrier service to the Gulf economy cross roads.
Would this have made Qantas both more profitable and larger than it is today, even if Emirates hadn’t done a deal? I think so, but there is a further element that better management could have adopted to make that profitability increase more convincing.
And that is fleet financing. Qantas has clung to the once nearly universal view that it needed to own and maintain its fleet types for decades, rather than churn the aircraft through a mixture of leases and outright purchases with a view to keeping its average type age young. I can remember James Strong as CEO and Gary Pemberton as chairman saying that Qantas would buy its jets in small numbers and never place large orders, and sweat the asset, in the lovely phrase of the 90s. And, in the always perfect rear vision mirror view of history, they were wrong, or rather, became wrong. High fuel prices, the need for the very latest in fuel efficiency, and the need to avoid major aircraft age or cycle related maintenance schedules, are far more important now than then.
It is sad that Qantas is clinging on to 747-400s, including the first, last, only and thus middle aged 747-400ERs, when its competitors will be retiring their first A380s for upgraded versions as this decade comes to an end.
It is true that depreciation regimes in some countries disadvantage Qantas, but so does the way Qantas persists in managing its fleet. It is next to useless to move to outsourcing jets to work shops in Asia if the jets concerned are so passé that some centres might only see them in freighter conversions in a few years time. Qantas has an old fleet of 747s and 767s, and had the old knowledge and experience to get away with it.
Squandering that resource was business school text book perfect, and dead stupid in an operational sense.
Had Qantas done things differently, and more ambitiously in the 90s it would still have lost market share to the likes of Emirates, because free or freer trade has enriched Australia in real net terms, and protecting the carrier is way, way down the list of national government priorities in the 21st century.
But in the process Qantas would have addressed internal reforms as to how it organized and managed its fleet, and its people, with less disruption and morale and brand damage than today, because it is always easier to reform a growing business than a shrinking business.
If Qantas was on 25-30% of international market share today it would nevertheless be a larger enterprise than it was on around 35-37% share of the smaller total market of the mid-90s.
Such a Qantas could still have the benefits of its Jetstar brand at its current size internationally, because unlike its domestic routes, its long haul route contraction has scarcely been driven by very long haul Jetstar activity, which remains negligible.
Jetstar has been successful on Japan-Australia routes, but is it in part illusory because we have a lack of evidence as to how many former Qantas full service customers have opted to fly via Hong Kong or Singapore on non-Qantas carriers, and because we don’t know the intentions of a post bankrupt Japan Airlines in relation to its full service ambitions on the route?
Low cost flights to Europe on Air Asia X have failed. On flights to Singapore non-stop on A330s, from Melbourne and Auckland, Jetstar seems to have wobbled a bit, with frequencies being cut. And this is before Scoot clocks on in June.
Qantas in the 90s, and thus into this century, could have stood its ground and built itself a hub in Dubai or Abu Dhabi, and fostered a profitable but not wildly profitable relevance to Europe. The airline is unlikely to become fabulously profitable until something extraordinary happens to its fortunes, but it could have done better, much better.
Had the airline kept some of the advantages of size it would have also commensurately increased the quite remarkable contribution to profits of its loyalty program. It would have saved on costs, and it would have inhibited or even completely discouraged the international adventures of what is now Virgin Australia.
There are a quite a few billion dollars at least in additional profits this century in such consequences of this reverse hypothetical, as well as from the benefits of Qantas managing its fleet and market planning and opportunities more optimally than it did since the mid 90s.
A bigger, more successful, more relevant, and less ideologically obsessed airline could have been really good for its staff, its shareholders and its country.
Instead it’s an embarrassment, and fixing it is problematical.
My starting point is to be straightforward. I’ll call it as I see it.

Last edited by limelight; 6th Apr 2012 at 11:20.
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Old 6th Apr 2012, 08:47
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And the situation will continue until Qantas lowers it cost base, and can increase its yield.

There is no way Qantas can afford the Capital Expenditure required to replace the B747's with B777's until the above happens.

Sorry guys, but your current costs are too high, and your product and its marketing isn't attracting enough Business and First Class passengers to the airline.

Qantas and its employees need to change to suvive.
The problem is that when someone says "your costs are too high" and "you need to change" they only refer to the operational staff - the LAMES, The Pilots and FA's.

This completely ignores the thousands of staff having coffee and meetings each day at the QC precinct in Mascot.

This also completely ignores the millions upon millions of dollars paid to Boston Consulting Group, Bain & Co and Oldmeadow Consulting. In the case of the latter, this consultants business model is designed to ensure ongoing conflict between the workforce and management.

This also ignores the 140 million being currently pi$$ed away building a new 'corporate campus' at mascot (at the expense of crew parking of course) at a time where SLIC would have us believed that the bankruptcy of the group is not far around the corner.

It also ignores the setting up of the new 'Qantas Strategy Department' - staffed almost entirely by ex Bain & Co personnel, the majority of whom are on 6 figures and the 'super executive' staff travel benefit scheme.

All of this is against the complete and utter failure of the business strategy as so succinctly outlined by Ben Sandliands.

The great tragedy of all this is that when Qantas fails (and I believe that is inevitable now given all of the above) it is the hardworking operational staff who will be blamed. The true culprits will escape to their next big payday
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Old 6th Apr 2012, 10:01
  #103 (permalink)  
 
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Well said mohikan. From my observations, there is probably 10 corporate staff for 1 front-line person. It's an inverse pyramid. The operational staff r not over-paid or overly expensive. We all know this as we r now being forced to look at alternative employment with other airlines and have priced ourselves in the market. It's corporate spin to save corporate butts until the very end
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Old 6th Apr 2012, 10:57
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Booglaboy, what are these 'corporate staff' positions that aren't necessary?

Does anyone actually know of any bloated, unnesessary departments? Or is it all just heresay?
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Old 6th Apr 2012, 11:01
  #105 (permalink)  
 
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I am being very serious here.

Anyone above operational level HAS to go or Qf is dead.

It is that simple.
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Old 6th Apr 2012, 11:10
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I believed its been outlined. Hundreds of advisors, more management positions than there r workers. Even social media managers. 100's of Millions spent on a corporate campus but they can't invest in an appropriate fleet or maint hangars? It's not heresay. Take a walk inside the jetbase. It used to be full of engineering skill, now it's full of I.T. Nobody's. I see it daily in every area.
A while back they supposedly reduced management by 500 people. I don't know anyone who actually knew any of these 500 managers. God only knows where they worked or what they actually contributed to the running of the company if u can't tell they r gone
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Old 6th Apr 2012, 11:34
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In Flight Ops they just changed the name. Fleet manager became Fleet Captain. Manager of Fleet Training became the senior training captain, and so on. I'm not saying these positions are not needed, but that is an example of where these "managers" went.
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Old 6th Apr 2012, 11:50
  #108 (permalink)  
 
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QF, to my knowledge has always been top heavy, full of middle managers building little empires in corners, in fact in the early nineties when bomb scares were in fashion, some dill rang and said there was a bomb in Admin 1, they reckon people came out nobody had seen for years, in fact they thought they were dead! Qantas for some totally unfathomable reason, go every four years or so on a witch hunt. They sack anybody remotely knowledgeable, and with experience, then start recruiting again bringing in people with no experience at all. Anybody who has managed to survive one or more of these purges knows exactly what I am talking about. Truly QF flies in spite of itself, it truly does, and yet its exasperated but incredibly loyal staff, just keep on keeping on, and always have done, they deserve better.
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Old 6th Apr 2012, 12:13
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That is such a shame. It sounds like no-one within Qantas actually wants to save their own jobs long term. If the Flight Ops managers aren't even trimming their patch, what hope for the rest of the Airline.

In an airline where seniority rules, I bet the senior people will be ok for a few years until Qantas disappears. As for the junior people, its such a shame. If I was junior in QF, I think my future would have to lie elsewhere.
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Old 6th Apr 2012, 13:00
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Ahead of the Dynamic curve

If I was junior in QF, I think my future would have to lie elsewhere.~many already have found their future elsewhere
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Old 6th Apr 2012, 13:29
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QF, to my knowledge has always been top heavy, full of middle managers building little empires in corners
plus the cost of consultants, they appear to be breeding at an alarming rate.


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Old 6th Apr 2012, 14:46
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Negative Selection (http://en.wikipedia.org/wiki/Negativ...tion_(politics))

Negative selection is a political process that occurs especially in rigid hierarchies, most notably dictatorships, but also to lesser degrees in such settings as corporations or electoral politics.
The person on the top of the hierarchy, wishing to remain in power forever, chooses his associates with the prime criterion of incompetence – they must not be competent enough to remove him from power. Since subordinates often mimic their leader, these associates do the same with those below them in the hierarchy, and the hierarchy is progressively filled with more and more incompetent people.

If the dictator sees that he is threatened nonetheless, he will remove those that threaten him from their positions – "purge" the hierarchy. Emptied positions in the hierarchy are normally filled with people from below – those who were less competent than their previous masters. So, over the course of time, the hierarchy becomes less and less effective. Once the dictator dies — or is removed by some external influence — what remains is a grossly ineffective hierarchy.
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Old 6th Apr 2012, 22:47
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A while back they supposedly reduced management by 500 people. I don't know anyone who actually knew any of these 500 managers.
Problem is anyone not operational is a manager. Manager of what? Usually manager of their secretary and possibly one other and that is it. Thousands of managers managing no one!!
So you would not notice 500 or 1000 going missing.
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Old 6th Apr 2012, 22:55
  #114 (permalink)  
 
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I think the point is being a little missed. I don't think this is about 'anti management' per se. Just 'anti THIS management'.

They have proved their incompetence over decades.

Question:
How many consultancy firms has John Borghetti paid for since he has been at VA?

I don't know the answer, but I would be very surprised if it was many at all. Simply because he knows what he is doing. Much like the ALP running Australia, Qantas management is so inept they have to rely on consultants either to prove to themselves they are doing the right things or to be able to legitimately shift blame when it fails. It is the ultimate tool of the incompetant.

These guys are simply so far out of their depth it is frightening.

All businesses start out small. They are lean and competitive. They have to be. When you run a successful business you need to know what you are doing and you do it, fast and clean. If an error is made it is rectified immediately. What scares me most about Qf management is that they know errors have been made, major errors (well, at least I hope they do - if they don't I would be totally shocked) yet they continue down the same path to save face. Even worse, because they have no idea about how to run an airline (I do not think they understand airlines and premium branding at all) they spend millions on consultants who have been to the same business courses as they did (so they know the answers will be 'sound') who also have no understanding of the airline business to tell them how to run the place. These guys could not run a small business because they don't' understand the very basics. To fly a jumbo (or dugong) you start in C150's. To run a corporation you are _supposed_ to understand the business. Qantas current management do not understand the very basics.

Now, why is Virgin doing so well all of a sudden?
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Old 7th Apr 2012, 03:16
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Q.Why All of a Sudden is Virgin doing So Well?

A.John Massimo Borghetti
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Old 7th Apr 2012, 04:51
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JB is a fine manager but the board made a choice to go with AJ. And they are sticking with it.

QF needs a drastic overhaul and AJ is just the guy to do it. And whether you like it or not, the business community in Oz loves him.
The unions thought they could pull their usual tactics but failed. And now cannot deal with the fact that they are unable to hold QF hostage to get their demands met. Thus the conspiracy theories, the moaning about management, the building at Mascot and whatever else comes to mind.

When things are going well the union mentality is "I show up to work so I should get a bonus." When things are not going well they are not willing to sacrifice.
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Old 7th Apr 2012, 05:03
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QF needs a drastic overhaul and AJ is just the guy to do it. And whether you like it or not, the business community in Oz loves him.
The unions thought they could pull their usual tactics but failed. And now cannot deal with the fact that they are unable to hold QF hostage to get their demands met. Thus the conspiracy theories, the moaning about management, the building at Mascot and whatever else comes to mind.

When things are going well the union mentality is "I show up to work so I should get a bonus." When things are not going well they are not willing to sacrifice.
Possibly one of the most ill considered posts I have ever read.

I would argue the numerous faults contained therein, but I really just cannot be bothered with such stupidity.
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Old 7th Apr 2012, 05:54
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shon 7

Do you work for BCG ?
Your profile indicates Ops Management.
Can you be more specific?
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Old 7th Apr 2012, 08:32
  #119 (permalink)  
 
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How many consultancy firms has John Borghetti paid for since he has been at VA?
Rumour is that the former CEO is paid circa $500k pa for just that purpose.

Another rumour is that $500k was considered a bargain to keep him away from the place.
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Old 7th Apr 2012, 08:50
  #120 (permalink)  
 
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Shon 7, I am starting to wonder if you are really Elaine.....
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