PPRuNe Forums - How to Fix the Qantas International Business

Back in March on QREWROOM a letter from a QF FO to Clifford was posted which generated over 10000 views!

The poster advised the reply consisted of a 3 LINE RESPONSE which said Clifford was satisfied with his Managements performance.:ugh:

Quote:

Mr Clifford,
The 16th of November marked the 90th year since the signing of the historic papers at the Gresham hotel in Brisbane where this airline took its infant steps. The resilience Qantas has shown through the decades is a testament to the loyalty and hard work of its employees that have come together to endure all that has been placed before us. In recent times though, the decisions of management have caused a shift in the goodwill of its staff with engagement levels at an all time low. The Qantas fleet continues to age and any chance for Qantas mainline growth seems to stall at every turn due to Jetstar being the flavour of the month. We have seen the airline go from aviation innovator to laggard in many respects and with the exception of “Next generation check-in”, Qantas seems to be shying away from the big picture decisions such as new routes, new aircraft and not only maintaining the passenger experience, but enhancing it. Mr Clifford, the reason I am writing to you today is not only as a concerned shareholder, but also as a concerned employee. All who I speak with fear this company will not live to see its centenary, we fear for Qantas’s future, we fear for this company we love working for.

You may question as to why I am to writing to you and not the CEO. Unfortunately previous correspondence to Mr Joyce has gone unanswered and unacknowledged. Such correspondence looked at ways of making improvements to the company that would enhance shareholder value. Improvements that would also raise the level of goodwill amongst employees which in turn leads to improvements in productivity.

We as employees want nothing but the ultimate for our customers. Not only do we want this airline to be the best, most respected and safest airline, but most importantly the most trusted airline to get your family from A to B. We, as employees, want to see an end to the “us versus them”, “employee versus management” that rages on. The segmentation of the airline damaged relations as managers did their best to maximise their own KPIs to get a bonus. More often than not this was done at the expense of the group as a whole because it cost other departments more money to rectify the problem. I believe the term used is Penny Wise – Pound Foolish.

Mr Clifford, the current KPI bonus system that Qantas employs is doing detriment to the Group as a whole. The siloed structure still continues with managers only thinking of their own rewards.

We as employees want to see the end to the constant stream of industrial and airline consultants that do nothing but drive a wedge between staff and bosses alike. We should not have to rely on Boston Consulting Group to gauge how the employees or customers are feeling – all you have to do is spend a day in their shoes and you will know instantly where we can improve. Perhaps senior management should take the Rob Fyfe line and go and talk with the ground staff, go and talk with the cabin crew, go and load bags, find out what is really going on. As employees we look for direction from management as to where this airline is heading. As yet we haven’t seen a definitive direction – Is mainline going to grow? Are we going to shrink? Will we see a time when Qantas mainline hires another pilot or will our junior pilots continue to live in fear of losing their jobs? We are still looking for inspiration and direction from the senior managers.

We want to be the pinnacle of world aviation, we just need direction. Mr Clifford, what do we as employees need to do to help?

As always the company and its employees will have the occasional stoushes when it comes to EBA time, but one hopes that we will never see a return to the fight that Qantas had with its engineers; a fight that Qantas reported cost well in excess of $160 million not to mention the non-tangible effect from passengers who now fly with other carriers.

Over the years this airline has gone from innovator to imitator. Not for a moment am I suggesting that we involve ourselves in risky strategies, but to be successful at anything you have to at least make an effort. Too often we hear how something is too hard or we cannot do it, what we should be hearing is what we can do to make it work. We should be utilising our proud workforce to look for ways of making things succeed. In this financial year alone, myself and several other pilots, have made presentations to the company that can save tens to hundreds of millions of dollars. These varied from operational efficiencies through fuel savings, a voluntary redundancy scheme (which was successfully implemented at BA), to crew reduction strategy by allowing pilots to transfer to other group entities, this ensures that on an overall basis the company saves money.

Mr Clifford, the Qantas mainline workforce is over 27,000 people strong. The backgrounds of each employee are different, from doctors to lawyers and even investment bankers. I personally have a commerce degree that included Dean’s honour roll for outstanding results. We should be utilising our staff not ignoring them.

Over the past 12 months I have had the opportunity to fly on Emirates, British Airways, Jetstar Asia, Etihad, Cathay Pacific, Virgin Blue, Silk Air, Transavia, Vietnam Airlines, Ryanair, Tyrolean and finally Thai Airways last week; thus you could say I have had a good cross sections of airlines with which to make comparisons. Moreover, with the exception of intra-Europe flying, all of the other services could have been operated on Qantas as either a route we used to fly or one in which we can. Without wanting to sound biased the Qantas International product (in particular 330 and 380) is one in which many airlines can only strive to match. Etihad was amateur, Thai Airways didn’t have personal entertainment, the Cathay seats were shocking and Emirates simply had too many nationalities of cabin crew to form a cohesive working group. As such I wonder why Qantas continues to deny Australians a viable alternative?

We continually hear from Yield or Network (no-one ever identifies themselves) that Qantas just “cannot make money on that route”. I refer to the earlier statement as to “why we cannot do something” and simply say “what do we as an airline have to do to make it an attractive option”. I, as do many others, sometimes wonder if these are the same so called experts who told us that the 777 aircraft was not right for us, this aircraft being of course the backbone of Emirates, Singapore and Cathay. Are these the same people from cargo who have cost us millions in unnecessary fines... money that could have been better spent re-investing in a new fleet.

The Qantas fleet age is also becoming problematic. Whilst all airlines have their difficulty with difference aircraft from time to time, our recent problems are due to the age of our aircraft. At present we have 56 aircraft aged 15 years and over, this is equivalent to driving a VN model Holden Commodore 15 hours a day, every day, for 15 years; eventually, no matter how great our engineers are, they are going to break, we are rapidly reaching that point. We are supposed to be a premium carrier offering our passengers nothing but the best, yet our fleet age is staggering. The 767 OG series average 17 years, the 747-400 (excluding 6 ERs) average 18 years, the 767 ZX series 19 years and our fleet of 737-400 also average 19 years old. To put that into comparison, Emirates have an average fleet age of 6 years, Singapore Airlines 6 years, Virgin Blue 5 years and Jetstar just 4 years. The frequent flyers are sick of flying on old aircraft and wonder with amazement why we are insisting on giving the latest and greatest 787 to Jetstar before mainline. Aren’t they supposed to be the low cost arm of the Group?

Due to the recent staff embargo, I had to fly Darwin to Singapore on Jetstar. The flight I flew on was JQ 57, a daily Airbus 321 which replaced the original QF 81/82 mainline service. As you are well aware the target market for Jetstar is the money conscious passengers on a budget. This flight was particularly interesting given the demographic was not budget at all, but full fare passengers who were all going onto Europe. As such I got talking to fellow passengers and asked them their view on services out of Darwin. All were of the unanimous view that they would fly Qantas in a heartbeat, it is just they do not offer NT passengers a choice. The same goes for Cairns passengers who now chose Cathay because of the convenience.

Morale plays an important role in any organisation. Previous Qantas managers have openly stated that the shareholders come before staff. This approach only has limited success until engagement plunges. I recently read an article about how Ralph Norris has taken the Commonwealth Bank to a new and improved level. As the AFR reported, he has undertaken a “people revolution”, this is where more engaged staff leads to more satisfied customers and wealthier investors. 5 years ago his organisation was quoted as being “very hierarchal, bureaucratic and siloed” where there was too much “internal competition instead of focusing on the real competition, the bank’s external rivals. That drove risk-adverse behaviours and a lot of butt-covering.” Today, because of the culture change, the staff engagement now rates at over 75% with retail customer satisfaction at an all time high. The parallels between the CBA and Qantas are so frightfully similar. Mr Clifford, you and other members of the board are filtered as to what really goes on in this organisation because those below you do not want to lose face; this is dangerous. This sort of culture needs to change. The CBA experience though gives us employees hope that change can happen for the better. Engagement can be improved. Trust in management can be rebuilt. The staff will deliver greater benefits for the customers who in turn will reward the shareholders. Management must lead the way.

At a recent briefing given by Alan Joyce and Lyell Strambi, they mentioned the fact that Virgin is charging the Gold Coast passengers a premium because they do not really have any real competition on the route. When mainline pulled off the Gold Coast to Melbourne in 2004, replaced by Jetstar, the patronage for all airlines that year was 836,000. Fast forward to this financial year and the passenger numbers have almost doubled to 1,645,900. Also in the current year the Gold Coast to Sydney route
serviced 2,295,000, making it the fourth busiest route in Australian domestic airspace. Load factors remain well above 80% and Virgin operate 33% more flights than Jetstar does. All in all, in the 2009-10 financial year we have just under 4,000,000 passengers who did not have the opportunity to fly mainline. As not only an employee, but also a shareholder, I am staggered as to how and why we continue to neglect not only one of the busiest air routes, but one of the largest non-Capital city markets by population.

When it comes to our nearest competitor it is no secret that Virgin has grand plans for the domestic market. John Borghetti lived and breathed Qantas passengers for in excess of 3 decades and is certainly in a position to know the customer. Already they have let slip that they have plans for 4 330-200 aircraft with Business class service to match. We know that their target is to gain 20% of the business market, thus I am asking what we will do to counteract it. Passengers know that the 767 are far past their prime. We should be counteracting immediately with its retirement and the putting on of more 330s to Perth. For every 1 passenger that flies Virgin business class, this is 1 passenger we risk losing to our competitor.

Mr Clifford, the Australian public want to travel on Qantas, not just to London or Frankfurt but to other great cities of the world. I am realistic enough to know that we cannot service a substantial amount of European ports or US cities, but I am also acutely aware that we can be doing a lot better than we really are. The Australian public want to travel Qantas however are not given the opportunity to do so. In the year 2000, Qantas International flew over 64.879 Billion ASKs and had over 34% of the international passenger market, this year we flew only 60.608 Billion ASKs or 7% less than 10 years ago, as a result our market share has fallen to under 20%.

My father is a life time gold Qantas frequent flyer. He was a platinum flyer for many years, so much so he was invited on the inaugural Los Angeles to Brisbane flight. Although subsequent family circumstances have meant he has cut down flying a lot, at his peak he had well over 1,000,000 frequent flyers points, enough for 4 first class return tickets to London. Even now he is getting frustrated that he cannot fly Qantas on his points (even the any seat function was not available), because we don’t offer such opportunities. An example of this was our recent trip to Ireland, whilst he was able to come up on the QF 29 to London, he had to fly home on Finnair via Helsinki to Bangkok and then Jetstar to Melbourne because Qantas was not available.

Qantas management throughout the years have spoken of our continual inability to have enough cash flow to fund new aircraft at the rates which we want. Having the finance degree under my belt and having studied well over 50 airline financial reports it is certainly understandable. At the recent meeting Mr Joyce held in Brisbane highlighted the great capital expenditure in the coming years. At this briefing the CEO also mentioned that Qantas and Jetstar are two separate companies that fund everything individually. You can imagine though the disappointment when CASA documents reveal that Qantas are the registered owners of the latest four Jetstar A320 aircraft (VGI, VGJ, VGO, VGP). Why do we continue to fund Jetstar’s fleet?

I fervently believe that despite what the accountants continually espouse, if we provide the passengers with the best experience possible, they will come in droves. The current thinking that Jetstar is our saviour is still unfounded, their dismal profit performance especially during the last 6 months combined with a depreciation of just $17 million, a total that leaves many financial analysts, university professors
and employees scratching their heads has to raise questions as to where this company is really heading. Just because an airline is full service, doesn’t mean it will not make a decent profit. Cathay Pacific is on target for a $1.6 billion profit, Emirates just made over $900 million for the half year and Singapore Airlines is also on track for a billion dollar profit. All full service carriers, all with the right aircraft and route structure to provide for the passenger need.

The accountants have also told us that we need to continue to cuts costs. This began many years ago and in my time has seen us being cut back to the bone. We have done so by pulling off routes (Paris, Rome, Chicago) and it seems their philosophy is that we can make money by cutting costs. The revenue opportunities are out there and instead of cutting costs we should be fighting for that revenue. The group’s selling and marketing expenditure was $572 million, yet I cannot remember any major Qantas advertising campaigns being run.

The reason I have flown on numerous airlines is because I could not fly on mainline – my preferred airline. On occasions I have flown in economy with Qantas because the flights were full. Whilst people groan and moan about having to fly economy, ours is certainly one of the best out there and I think we should be promoting it. Endless entertainment, relatively comfy seats (including the extra wide Airbus seats) and plenty of food and snacks, certainly puts us ahead of the game of the likes of Cathay and Thai. Moreover, I have it from a Cathay source that they are actually going to replace their economy seats because they are not comfy. I think we should be celebrating the fact that we are a full service carrier that is all inclusive. Although no marketing expert, I have even thought up a TV advert that pokes a bit of jovial fun at our low cost competitors by celebrating that fact that we are a full service carrier.

Qantas’s network used to circumnavigate the globe in both directions. Whilst I don’t see us returning to ports such as Acapulco or Bermuda, there are definitely plenty of opportunities out there available including,
1. Brisbane - Bangkok – Rome, Melbourne – Bangkok – Athens: Currently mainline code shares with Cathay Pacific on its Rome service. Both original Rome and Athens services always had good patronage but the aircraft were never the most fuel efficient. The service would be operated by A330-200 which has the range out of Bangkok with oxygen requirements are met by flying via the Gulf and the old Red 19 route. The flight would operate out of Melbourne 3 times a week and Brisbane 2 times a week. At present, mainline only has a presence in Bangkok via the QF 1. By having flights out of Melbourne and Brisbane we are providing our customers which a choice between Thai Airways and ourselves and also opens up a new Asian hub. This also has the added advantage of allowing passengers to complex in Bangkok and thus free up seats on the domestic network. It also allows 2 additional European destinations for our network.
2. Hong Kong – Beijing: For a while there we used to operate Sydney direct Beijing with Shanghai on alternating days, since then we have pulled out of Beijing all together to go daily Shanghai. Due to our revised complex network announced a few months ago we now have a 330 aircraft sitting idle on the tarmac in Hong Kong all day (due to arriving at 6am and departing just before midnight). As you know it costs the aircraft money to sit around all day. The idle aircraft could be operated to Beijing, sit there for a few hours then head back to Hong Kong in time to complex with not only the Perth or Brisbane service but the QF 128 also.
3. Sydney – Dubai – London: Just fewer than 1 million passengers passed through Dubai airport in the last financial year enroute to Australia and we have our biggest competitor with no competition against it. Instead of having a double daily Singapore – London we can have the QF 31 go via Dubai. Alternatively just have a daily service which could link up with 1 of 3 British Airways flights onto London.
4. Hobart – Sydney: Presently 6 flights per day across all carriers on this route yet only serviced once by mainline mid-morning. Hobart is the not only the capital but commercial hub of Tasmania and every time the Virgin Blue flight departs at 5pm for Sydney it is comprised mainly of business people.
5. Cairns – Darwin – Singapore: Change from Jetstar to mainline and remove one of the Qantaslink flights for reasons already described above.
6. Darwin – Bali: A market that seems to not be able to have enough capacity so much so that Air Asia have recently announced that will commence flying the route. Not all Bali passengers are in for a cheap holiday and this route could easily be serviced by mainline. Jetstar already have 10 services per week. 3 of these services could be returned to mainline or even seasonal. By complexing in Darwin, the flight could upload complexing Qantas passengers from Brisbane, Sydney and Melbourne flights.
7. Cairns – Tokyo: Despite the Jetstar management spin, the Japanese do not fly low cost. It is not in their culture as demonstrated by the fact that there is not one low cost carrier who is or has successfully operated in and around Japan. Recent experience I had in August proved that mainline was the preferred choice of Japanese travellers given the fact the QF 21/22 was near capacity and both Jetstar flights to Australia were half empty. In the past this route was operated with an inappropriate aircraft and was doing well with the 330 until the route was gifted to Jetstar.
8. Brisbane/ Sydney – Cairns: Load factors are always high on both routes (82.7% exactly for both) especially on weekends. In the 2009/10 financial year on the Brisbane Cairns route, Qantas mainline had zero flight cancellations and the best OTP out of the competing airlines. Back in the old days the QF 69 used to operate Brisbane – Cairns – Tokyo. By having a 330 on this route it could do something similar by allowing more capacity whilst maintaining a good frequency. Consequently this allows a 737 to be freed up for additional flying.
9. London – Dublin: Classed as the 4th busiest air route within Europe and with an airport that handles close to 20 million passengers per year, this is a perfect route to utilise our aircraft on down time in London Heathrow. The airport is the largest in Ireland and can be used by Qantas passengers who don’t like the terminal transit at London Heathrow.
10. Cairns – Hong Kong: A route that was originally tried by Australian Airlines however closed down when the airline did. Since then Cathay Pacific has taken up the slack increasing its services from 5 per week to daily. This service could be used to supplement the Brisbane run on
alternate days and be used to provide additional patronage to the Beijing service.
11. Brisbane – Nadi: Currently Qantas does not operate any services to Fiji as these are done in association with Air Pacific. That being said despite the country’s troubles, it is seen as a family friendly destination as opposed to the budget traveller. Given the 737s are normally not working as hard on weekends this is an opportunity to have a weekend service similar to the service that we provide to Noumea.
12. Singapore – Hong Kong: Originally classed as one of our “rice bowl run” flights, the Singapore Airlines and Cathay fares between Singapore and Hong Kong are normally ridiculously priced and the route is ripe for a bit of competition. They, along with Tokyo are the financial hubs of the emerging market that is Asia and demand is always at a premium.
13. Shanghai – Europe: We already have a daily service to the business and cultural centre of China. This is another great potential stepping stone en-route to Europe.
14. The Honolulu hub: Many years ago Qantas used to make Honolulu a hub for its American operations because the 767 did not have the range and we did not have enough aircraft to serve the west coast directly. The 744 is currently too big for a daily service on routes such as Sydney- San Francisco or Brisbane – Los Angeles, thus I propose re-introduction of the Honolulu hub although this time using new Airbus 330s. We can still maintain our daily QF 107 and QF 93 out of east coast to Lax direct however in addition to these services we also have a flight departing Brisbane, Sydney and Melbourne bound for Honolulu. Once they land, they can complex to different destinations such as Los Angeles, Vancouver, San Francisco, Chicago, New York or Dallas. The Honolulu routes are already in the flight planning system and when comparing a 747-400 versus a 330-200, the latter saves 100,000kg of fuel over the route per trip. Additional savings come from reduced crew requirements. The Brisbane passengers know that they always cop the oldest aircraft in the fleet and certainly are not happy about it. We can utilise new 330 aircraft with the latest entertainment which will certainly go a long way to appeasing the passengers. Moreover, it allows passengers to avoid the dreaded Los Angeles customs.
15. Rockhampton/ Mackay: These two regional Queensland centres have become Mecca’s with the growth in the mining boom. Both are serviced by Dash 8 aircraft but with the influx of funds is a possibility for a jet service from Brisbane morning and afternoon. No overnights are required as they both depart Brisbane early in order to pick up the passengers for an early arrival back that would enable morning meetings.
16. The Gold Coast: For reasons mentioned above. Gold Coast to Sydney at least 5 times a day, Gold Coast to Melbourne at least 4 times a day and a daily Gold Coast Perth service.
17. Defence force contracts: A few years ago no one had ever heard of Strategic airlines. They grew from nothing to become the primary civilian troop carrier. There must be some lucrative perks to operating such defence services as Strategic has built itself up to a 330/320 fleet. There was once a time when we ferried troops on our 767 aircraft via Singapore and Dubai. Given we now have spare capacity and pilots, this would be a perfect opportunity to fly our troops to and from the middle east.

Some of the above routes such as Brisbane to Fiji, Hong Kong – Beijing and Cairns – Darwin- Singapore can be utilised using current fleet by better fleet management. The additional use helps reduce costs
because it adds to the ASKs. Moreover, given the fact we have many pilots being paid to do little flying, from a flight operations point of view the costs are minimal. The remaining routes can be done using new aircraft, funded by the additional flying undertaken.

I mentioned earlier that for some reason we made the decision not to invest in the 777. Hindsight is a wonderful thing however at the moment the airline seems to be putting a lot of eggs in the 787 basket. The aircraft is years behind in its delivery date, the 767s continue to age and as such we have no real
plan except cross our fingers that the 767s can hold out. Airlines such as Emirates say that realistically the 787 is not for them and Emirates President Tim Clark actually has stated that the 777 and 380 will become the mainstay of their fleet. Given that the 787s are going to be given to Jetstar first, perhaps it is time we invested in the 777. It is already in service, has a proven track record when it comes to operational costs (including a 30% more efficient burn than the 744 for the same passenger load) and the aircraft can be fitted out with the same interior we presently have on our Airbus 380 fleet. The consolidated fleet of 737, 777, 330 and 380 provides a good mix of flexibility, range and allows us to shift growth as and when required. The 777 will allow us to open up new routes to Dallas, Sydney-New York and London – Perth; non-stop to Australia would be a big coup for the national carrier.

Qantas is at a crossroads, we are heading in an unknown direction with the employees fearing another Ansett type situation. As staff we get up every day and do our best to look after our customers. Many go above and beyond what is required and they do that because they care. Not only for the airline but genuine warmth is something that you cannot train into many foreign nationalities. All employees want to help to ensure not only that this airline succeeds but provides a future for themselves and a carrier for their nation. They do though want to know that their efforts will lead somewhere and it is up to the company executives to provide guidance on where we are going. Cathay’s staff motto is to be the most admired airline in the world. I think ours should be something like, Fly Qantas – because you deserve the best.

By engaging your staff the rewards will follow, Ralph Norris has adopted this approach at the Commonwealth Bank and they are reaping the rewards. Qantas management too has the ability to lead the way. If they look after their staff, then we will continue to help return this airline to being the pinnacle of world aviation.

I hope you take this correspondence in the spirit that it has been written in and I look forward to any feedback