Fixing Qantas? Find Out What Rod Eddington Is Doing

INITIAL INSTINCTS to back Qantas on the issues it faces — certainly, where its dealings with unions are concerned — are hard to heed when judged against past events; the song being sung by current Qantas CEO Alan Joyce after announcing a record $252 million half-year loss yesterday is identical to his tune after grounding the airline, only at a cost of 5,000 jobs. Other factors created the quagmire, but Joyce is no answer: he must resign or be dismissed.

Readers will know that this column has been resolutely supportive of Qantas CEO Alan Joyce in the face of unprecedented difficulties and pressures experienced at the Flying Kangaroo, not least the extortionate bill for labour it is saddled with on the back of decades of enterprise bargaining agreements entered into with its unions.

The Red And The Blue continues to be supportive of Qantas as an entity and as a national icon, and its critique of the unions involved with Qantas remains current, topical, and ever relevant.

But in light of the result Joyce himself admitted was unacceptable when announcing it yesterday, it’s obvious that the Joyce regime at Qantas is every bit as much to blame; it’s time for the little Irish fellow to hop on one of his A380s and disappear back to Ireland, and for someone who actually knows how to run an airline properly to be brought in to run Qantas in his place.

We’ll come back to that.

As much as I blame the unions for some of the malaise that afflicts Qantas — basically, everything to do with wage costs that they had and have any input into whatsoever — my only loyalty, in writing about the national carrier, is to Qantas itself: the enduring entity, the historic icon, and the nation’s favourite bird species that finds itself at risk of going the way of the dodo.

I will confess that in light of yesterday’s developments (which my silence on had nothing to do with my business, for once, but illness: something 2,000mg of penicillin each day is fixing) I was initially thinking through how to stoutly defend Joyce and Qantas management in general. Then I reread an article I posted the day Joyce grounded the airline, all the way back in October 2011, and it hit me right between the eyes that yesterday’s excuses and the “plan” articulated by Joyce two and a half years ago are virtually identical.

It in no way exonerates the unions or their “bleed it till it’s dead” approach to wage “negotiations,” but it’s pretty clear Joyce is as much an albatross around the Qantas neck as they are.

Before we get to those regrettable points of commonality, I note that then — as now — the unions were itching to pull on strike action, as unions always are; then, the pretext was a series of co-ordinated and ambit pay claims, which we now know all too well were as unaffordable as I (and others) said they were. Now, it’s over the imminent sacking of 5,000 workers to cut costs, and whilst it’s perhaps impertinent to remind the union that they don’t run Qantas (management does that), those 5,000 jobs are set to become the price to pay for two and a half years of poor or non-existent outcomes since the airline was grounded.

Then: Qantas had recently booked a clear $550 million full year profit for the 2010-11 financial year. Now: the result for the half year — half year — recently concluded was a $252 million loss.

Then: Qantas International was losing (depending on the source of the estimate) between $150 million and $220 million each year. Now: Joyce reported yesterday that Qantas International lost some $262 million for the half year ending 31 December alone.

It can’t be viewed, mind you, that Qantas — minus International — “only” lost $10 million in the half: its traditionally profitable Jetstar division ran at a loss, whilst its cash cow domestic business gave up 75% of its profitability; the frequent flyer program rocketed further into the black which is reassuring, of course, but when the core business of an airline is nudging a billion dollars in losses on an annualised basis, the fundamental problem is dire.

Then: Joyce pointed to the commencement of a process to retire Boeing 747-400s, Boeing 767-300s and the older Boeing 737-400s from the Qantas fleet as a reason for maintenance workers potentially losing their jobs, as newer replacement planes required a fraction of the heavy maintenance. Now: Joyce flagged yesterday, as part of a series of measures to shore up the airline, the retirement of — you guessed it — Boeing 747-400s, Boeing 767-300s and the older Boeing 737-400s from the Qantas fleet.

It’s true some of these planes have been retired in the intervening period, and it’s also true that to retire a plane, there must be something to replace them with. But Joyce is now signalling an overall downsizing in the Qantas fleet (rendering replacement planes something of a moot point), and he has deferred deliveries for a number of types of aircraft that could have accelerated the process and achieved the desired cuts in Qantas’ maintenance and labour budgets.

Joyce has already had at least one major attempt at culling “unprofitable” routes since 2011: an endeavour that clearly failed in its intent.

And whilst these “before and after” snapshots probably sound all too familiar, here are a few other things that have transpired since October 29, 2011.

A putative merger with British Airways was aborted, for reasons that were never adequately (or to my mind, satisfactorily) explained; the resultant airline would have been Australian-controlled and majority owned, headquartered in Sydney, and would have realised enormous efficiencies of scale.

Instead, a codeshare alliance with Emirates was established: an arrangement that serves Emirates well, I’m sure, but under which Qantas A380s still fly half-empty, routes have still been cut, and any traveller not wishing to travel via Dubai to get to Europe has been disenfranchised.

Speaking of Europe, Joyce last year halved the number of services between Australia and London; what was two daily services from each of Melbourne and Sydney is now one, and even those were rumoured to face the chop until as late as Tuesday.

In fact, Qantas — on Joyce’s watch — is fast becoming the airline that doesn’t take you very far at all; with the Johannesburg route to be axed in the latest round of route rationalisations Qantas now flies nowhere in Africa, to one city in South America, three cities in North America, and one in the UK, along with a handful of destinations in Asia and New Zealand. For everything else there’s codeshare via Dubai.

Did it have to be this way? Labour costs are one of the biggest imposts on the Qantas purse, but — like any business — labour is a controllable expense.

Or at least it should be, which is why the agreements brokered with unions are almost criminally negligent in their abrogation of due diligence: the unions don’t care; they simply bleed companies until they collapse under the weight of unreasonable demands (extorted using the very worst tactics imaginable) and then move on in search of fresh industries and companies to infest and infect.

But managements who bargain with unions bargain with the very lifeblood of their enterprises: it’s little wonder the white-collar unions are as strong as they are; generally, it is governments — therefore, the taxpayer — which ultimately funds their largesse.

In business, however, EBAs might save employers (and especially big employers) the bother of investing the time in negotiating individually with their staff. But packed with allowances, penalties, special conditions and loadings on top of an “agreed” base rate — all of which automatically increases and compounds, generally faster than inflation — the end destination on the EBA route is business collapse, as revenue simply fails to cover outgoings. So it is with Qantas, as it has been with the car manufacturers, SPC and others. The unions and their “responsible approach” to such matters be damned.

As for the ongoing problem of the Qantas fleet, Joyce can hardly be blamed for fleet purchases more than a decade ago which have proven foolhardy at best.

I likened the A380s today to someone buying a car: nobody walks into the showroom of, say, Holden, and places an order for a concept vehicle that might be deliverable in five years, but mightn’t appear for ten; the kindest thing that can be said of the A380s is that Qantas couldn’t have known what it was getting. The reality is that it was the wrong aeroplane at a time the B777-200LR and B777-300ER were available and could be supplied within a couple of years. Of the Boeing 787s, three of a total order of 50 have been delivered to Jetstar, and again, the delays on that aircraft are hardly Joyce’s fault.

But by the same token, Alan Joyce has been CEO at Qantas for six years now; it isn’t as if he hasn’t had time to sort through these issues. If the older planes are so expensive to fuel, maintain and run, where are the short-term leasing solutions he might have put in place instead? If the A380 is the dud most aviation watchers have agreed it is — especially for the uses Qantas wanted it for — why have future orders not been switched to B777 orders, and why have existing planes not been onsold or leased to waiting Airbus customers?

In the meantime, Joyce’s pet project — Jetstar Asia — has haemorrhaged hundreds of millions of dollars from the Qantas bottom line for no better return than to turn forewarned Asian competitors into predators in their approach to Qantas’ routes and customers; there are even new planes parked on the tarmac at an Airbus facility in Toulouse that have never carried revenue-paying customers that cost $400,000 per month, per aeroplane, to sit idle as they wait for regulatory approval on a Jetstar Hong Kong venture that may never happen.

All of this — and, to be clear, we could go on for days with other examples — feeds into the kind of horror scenario Alan Joyce presented on behalf of Qantas yesterday. All of it has needlessly cost Qantas billions of dollars that could have been reinvested in its business or distributed to long-suffering shareholders who’ve seen no sign of a dividend on their investment in years. And the buck for it has to stop with the man at the top.

Without divulging the specifics, I’ll share something with readers: my company has a proposal in front of Qantas at the moment; for the cost of less than the annual salary of the lovely girl who is my contact there, I’m able to offer — by way of quality, prime time exposure as a marketing exercise — to put planes with kangaroos on red tails on the TV screens of more than 25 million people each week, for 12 weeks, in 97 countries on four continents. I doubt Qantas will approve the deal. Why? Budget cuts. The numbers Joyce outlined today. Tight margins. Everything being squeezed. I might have a vested interest in this particular activity, but it’s a telling anecdote.

The fact I’m even talking about it (stripped of any meaningful detail as this is) should indicate how little confidence I have in getting the go-ahead; the point is that there’s a lot of money being misspent on Joyce’s watch — on labour, fruitless ambit ventures, and persisting with dead ends — and virtually none for meaningful initiatives that might help grow the airline’s passenger count. If Joyce could point to a track record over the past couple of years of doing what he said he would in 2011 it mightn’t be such an important point. Instead, Joyce has basically promised no more than he did back then, only with 5,000 redundancies to go with it this time.

I’m not going to rip into the Qantas board; that job, should they opt to do so, is the reserve of Qantas’ shareholders.

But I will say this: after six years of failed promises and recycled excuses, it is time for Alan Joyce to go. Voluntarily or otherwise. I think he’s had a reasonable opportunity at the helm of Qantas. It can’t be argued to have been in any way a success, even in conditions that are universally recognised as difficult for aviation globally.

A canny operator would have made a better fist of the realities with which Joyce was faced; a good example is the man he beat for the role — John Borghetti, now running rings around Joyce at Virgin, and able to sustain big losses on account of the foreign shareholders that bankroll them.

On that point, the Qantas Sale Act must be at the minimum overhauled, if not abolished: if, say, 60% foreign ownership were permitted, with foreign airlines limited to 20% “cornerstone” stakes and the airline mandated to remain based and headquartered in Australia — with some relaxation of the level of maintenance required to be undertaken in Australia to allow Qantas to leverage those shareholdings — I’d wager China Southern, Emirates and British Airways would be early favourites to buy: and if they did, Qantas’ problems with capitalisation would largely be remedied.

There would be little need for talk of debt guarantees or renationalisation.

If those in the position to influence such matters are serious about fixing up Qantas, they should perhaps enquire about the availability of the services of Sir Rod Eddington: a proven fixer and aviation specialist with a record of knocking underperforming airlines into shape, if Eddington couldn’t set Qantas right I don’t know who could.

Either way, the funny little Irishman should take the golden parachute, catch the next plane to Heathrow, and grab himself a connection to Dublin: he has had his go, and the price — rightly or wrongly — will be the 5,000 of his employees shortly to be thrown onto the street.

Joyce should be #5,001; the tragedy is that the savings from sacking all those people will help keep Qantas afloat a bit longer, and their departures in that sense are urgently needed now given unions won’t budge on any meaningful cuts to the (mostly usurious) remunerative agreements of their members.

Nobody will ever know if the outcome might have been different, or whether those jobs could have been saved.* But in order to avoid the same announcement of the same number of additional job losses in another couple of years for the same reasons as were given yesterday, it’s time for Alan Joyce to be given the boot.

 

*Not by government handouts. One car industry this lifetime is quite enough without starting up a ready replacement.

 

 

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