ONE OF THE WORST corporate results in Australian history — a full-year statutory loss of $2.8 billion — caps three years of uninterrupted “restructuring” at Qantas that has spectacularly failed to deliver any benefits; it must also sound the death knell for the tenure of CEO Alan Joyce, whose story is as consistent as the atrocious outcomes recorded on his watch. This much-loved, iconic business deserves better than tired excuses and recurrent spin.
It’s something of an irony that the single largest component driving such a horrendous end of year result — the decision to book $2.6 billion in write downs on aircraft — is one of the few praiseworthy aspects of the announcement made yesterday by Qantas CEO Alan Joyce; if the airline isn’t going to cut its losses on the great (red and) white A380 elephants and onsell or lease them to another airline that might be able to fill them and/or run them at a profit, the next best thing is to accelerate the process of absorbing the capital costs associated with them and get it over and done with.
But for the most part, yesterday’s announcement was like Groundhog Day, and I want to begin my remarks by reacquainting readers with what I had to say on 1 March, when Joyce fronted the media to announce what was a record (but comparatively piddling) half-year loss of $252 million.
Joyce and his method of announcing bad news and/or the imminent birth of “the new Qantas” (or something similarly phrased), with ongoing restructuring and “stripping costs” from Qantas, have become a familiar — and tired — formula; for three years now Joyce has been holding out bad news sweetened with the prospect of a land of milk and honey within sight, and if readers look at the March article and go back through the link in it to something I published the day he grounded the Qantas fleet in October 2011, it will become readily apparent that the story and its tantalisingly close happy ending have remained virtually identical throughout.
But yesterday’s result — even focused purely on the underlying pre-tax loss of $646 million — is unacceptable on any criteria, the depressed state of the global aviation industry notwithstanding, and is inexcusable in the context of a CEO who has now had almost seven years at the helm of Qantas.
In that time, the Flying Kangaroo has gone from posting annual profits of close to a billion dollars to now losing money hand over fist; if we again focus only on the underlying figure it is clear that Qantas’ losses are accelerating once the abnormals and one-offs are discounted, and that the airline in fact lost close to twice as much money in the second half of the financial year as it did in the first. That alone was widely regarded as scandalous at the time.
For all of the cuts that have been made to its cost base on Joyce’s watch — firing staff, terminating parts of its route network, abandoning its “line in the sand” capacity war with rival Virgin, and finally (and belatedly) retiring some of its most antiquated aircraft — Qantas has still proven unable to turn a profit, and despite the little Irishman’s latest solemn assurances that a return to profitability is near, such promises are impossible to take seriously: they have been offered too many times, and for too long.
Almost every division in the Qantas Group went backwards and/or posted hefty losses in the year to June: even supposed low-cost cash cow Jetstar, which lost $116 million, and even the traditional profit machine that is Qantas Domestic, which went backwards by $335 million to post a pre-tax profit of just $30 million.
Qantas International — which the travelling public has been conditioned by Joyce and his spin team to regard as its only seriously weak link — doubled its losses to half a billion dollars in spite of the tough medicine it has already been forced to ingest.
The only exception of consequence was the frequent flyer program (or “Qantas Loyalty,” as the division is now somewhat euphemistically known); this is hardly surprising given Qantas points can be earned on just about anything if you plan what you buy with a bit of forethought, and can be redeemed on just about anything too (my wife and I converted a stack of them to David Jones vouchers and went berserk in the Food Hall in Melbourne earlier this year, stocking the freezers with more than a thousand dollars’ worth of premium, dinner party quality items that kept us supplied for months for absolutely nothing).
Whilst I digress a little in retelling the anecdote, it’s instructive: Qantas makes money from all of those transactions that are embedded in the true value of the points, and “Qantas Loyalty” made a $286 million profit, up 10% from the previous year. Most telling, however, is the fact that once you’re a member of the program, you don’t even have to set foot on a Qantas aircraft at all, if disinclined to do so, in order to play it for everything you can get.
As has become par for the course, Joyce blamed everything for the abysmal result he delivered yesterday: the Australian dollar, the price of oil, the global financial crisis, old aircraft, competition, you name it.
What was glaringly absent, however — despite the ongoing references to job cuts arising from his years-old restructuring effort — was any meaningful attempt to address the fact, as one comment piece observed, that 39% of Qantas’ outgoings are taken up by labour costs: even accounting for the rigidity of the labour market in Australia (for which the ALP should hang its head in shame) and the excessively unionised culture of enterprise bargaining with which the airline continues to saddle itself, that figure is an obscenity.
But nobody should be too perturbed by the horror story announced yesterday; according to Joyce, the airline is “heading in the right direction” and all the benefits from its restructuring activities — that have been repackaged, re-announced, and have been going on for years — will shortly become evident as Qantas emerges from this most difficult period as a “leaner, more focused and sustainable” company.
Joyce’s story, like his excuses for failure, have been wheeled out so many times that no-one ought to believe a word of them. Actions and results are what matter, not artful spin and PR babble.
The one heartening aspect of yesterday’s announcement is that in writing down the value of much of its fleet, Qantas should be in a position (I emphasise, should) to more or less replicate the structural model utilised by Virgin to circumvent foreign ownership restrictions, and should this actually happen it will fortify Qantas far beyond the same set of meaningless promises Joyce has been peddling for at least three years now, and for longer than that if we’re going to dig further back in time than the grounding of the fleet three years ago.
Readers know I love Qantas dearly and I’m very loyal to it, but no friendship is all that authentic if predicated solely on the positive virtues of the friend; the poorer aspects of the relationship can’t be ignored, and in the case of Qantas (and of Alan Joyce and the board he reports to in particular), it has been excruciating to watch what has been done to a once-great airline on their watch in the name of “improving” Qantas.
I reiterate the call I made in March: should he be available and willing to serve, Sir Rod Eddington — a hardened and proven fixer in the global airline community — ought to be offered Joyce’s job, provided with a clean sheet of paper and a big new broom, and given the brief to do whatever he has to do to fix Qantas, and possibly under a new board if shareholders are so inclined.
Joyce and his guarantees, whilst apparently receiving some favourable press and coinciding with a mild improvement yesterday in the Qantas share price, are devoid of any credibility; that assessment is solidly based on the complete emptiness of similar utterances in the past, and the inability or refusal of the Joyce management team to deliver on any of them.
Significantly, a number of timelines nominated by Joyce over the past three years — three years from October 2011 being one of them, which means now — have come and gone with none of the promised outcomes having materialised.
I think independent South Australian Senator Nick Xenophon has it about right; his quip that “Alan Joyce is to Qantas what Caligula was to the Roman Empire” pretty much sums it up.
I think the quirky little Irishman should go to Sydney Airport, hop on one of his A380s to London whilst the route still appears on the Qantas network (via Dubai, of course; who’d want to fly through Hong Kong or Singapore?) and catch a connecting flight back to Ireland from Heathrow on Aer Lingus, the airline he began his career at.
Qantas, for so many reasons — logistical necessity, history, brand loyalty — is too important to be weakened to a point of unviability, and arguably already too badly damaged to continue to be the subject of oft-touted schemes that repeatedly promise the world, but invariably leave the airline in progressively worse shape.
Perhaps this time, the Joyce regime really does stand on the cusp of turning a profit at Qantas; or perhaps, as has been the case too many times in the past few years, the imminent sunny future he forecasts will prove to be yet another false dawn.
Simply stated, Joyce has had his go. His stories and excuses and spin no longer cut ice. He has presided over a debacle. And he must be replaced.
The alternative, to the extent it should even be contemplated, would be too expensive to entertain in the name of one more chance to prove himself right: the costs to this country of Qantas collapsing would make yesterday’s numbers look like small change. The risks of Qantas persisting with Alan Joyce are now too substantial to justify.
AND ANOTHER THING: With the horrific Qantas result posted yesterday — and with Labor “leader” Bill Shorten throwing accusations around earlier in the week that Prime Minister Tony Abbott is not fit to govern — it’s timely to provide the Shortens of the world with a mirror; to this end, I post here and here articles published in the wake of the March half-year result at Qantas.
There is an almost inexhaustible catalogue of reasons Bill Shorten is unfit to serve as Prime Minister.
Today, they derive from aviation policy; his union-obsessed, anti-business, xenophobic diatribes six months ago and the power-at-all-costs mentality of modern Labor they were infused with neatly illustrate the point.
Tomorrow, it will likely be a different area of focus. As sure as night follows day, Shorten — and his fitness to serve in office — will be found wanting there, too.
As opposition “leader,” Bill Shorten sits in a glass house. It would not be inadvisable for him to refrain from throwing stones.