Tired Excuses Ring Hollow As Qantas Loses Billions

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.

Further reading from the day’s press can be accessed for those who wish to do so here, here, here and here.

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.

 

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.

 

 

Surely, Qantas Is Better Alive And Shared Than Extinct?

TIME HAS PROVEN the Qantas Sale Act to be a red herring; rather than a protection for an Australian airline in Australian ownership, headquartered and managed in Australia, this well-intentioned but misguided legislative time bomb now threatens to detonate, wiping out the airline and tens of thousands of jobs with it. The cavalier attitude of those able to help is astonishing. Surely a partly foreign-owned Qantas is preferable to an extinct one?

Once again, Qantas is in the news; not for the right reasons, and not (directly) of its own making.

Before we get started I want to make it clear that the renationalisation of Qantas, government guarantees of its debt, and other silliness publicly indulged in by those who should know better are the last things I would ever advocate: maybe, maybe, if it ever came down to Qantas folding or not, there could be a case for the government taking it over, restructuring the living daylights out of it, then privatising it again. But that time is not now, and there remains a number of other options to try before anything so drastic is even contemplated.

I read an article in The Australian yesterday that had me shaking my head, ruling out as it does the prospect of either relaxing or abolishing altogether the provisions of the Qantas Sale Act that prohibit majority foreign ownership of the airline, and place restrictions on the size of the shareholding individual foreign investors are able to take in it.

At the time the Keating government privatised Qantas in 1995, the Qantas Sale Act was in some respects justifiable, if not a textbook case of hypocrisy. That sale followed the privatisation of the Commonwealth Bank, an institution not subjected to the same market-distorting restrictions that Qantas was encumbered with.

But Qantas held (and I contend, still holds) a unique place in the modern Australian psyche, and even those who openly refuse to ever fly on it still confess to feeling some kind of affection when they see Qantas planes on airport tarmacs thousands of miles from home. This is what Keating sought to safeguard: the legend of the flying kangaroo, the spirit of Australia, with its fearsome reputation for safety, reliability, and service. And so dreaded foreigners were prohibited by law from owning more than 49% of it, foreign airlines investing in Qantas no more than 35% in total, and no single foreign investor or entity more than 25%.

Admirable, but utterly misguided.

An early warning of the pointlessness of the Qantas Sale Act came in late 2006, when a quaintly named consortium known as Airline Partners Australia — cleverly structured to comply with the Qantas Sale Act despite a significant shareholding by US private equity funds — narrowly failed to win the required 50% acceptance rate needed for its takeover attempt to succeed, despite carrying the endorsement of the Qantas board of the day. It was widely speculated  at the time that the primary objective of the takeover, had it been successful, was to siphon out about $3 billion in cash Qantas continues to hold on its books even now before disposing of the airline in a fire sale.

(The bulk of the money held as cash by Qantas is to fund accrued workers’ entitlements, just in case anyone thinks it’s crying poor whilst sitting on a war chest).

It showed that compliance with the Qantas Sale Act did not equate to the longevity or prosperity of the airline itself. It would almost certainly have been fatal to Qantas’ business had it proceeded, just 18 months out from a savage global downturn that hit aviation businesses disproportionately hard, and robbing Qantas as it would have of the very liquidity that had made it an attractive target to begin with.

It is instructive to revisit the episode given the supposedly competitive environment Qantas now finds itself operating in. But first, I want — very openly — to kick the anti-union can around a bit, for reasons that will become obvious a little later.

Longstanding readers will recall that back in 2011 when Qantas CEO Alan Joyce grounded the airline in response to militant union bastardry and rampant industrial action over a series of ambit pay demands, I came down in this column very firmly on the side of the airline and its management and against the unions. Most will find such a judgement to be of no surprise. The management, however, happened to be right.

More recently, I shared this little gem, which provides a salutary insight into just how mad, bad and dangerous the unions in this country really are to business and to jobs (and jobs at Qantas especially), despite their grandiose but empty rhetoric about the rights and conditions of the worker: the end destination of this madness is to drive the companies to the wall, and the people they employ onto the scrap heap. So much for constructive workplace relations, union-style.

There are two reasons I bring this up.

Firstly, Qantas — like the car manufacturing companies and a number of other Australian “legacy” brands — has reached a tipping point with its labour costs; simply stated, that point lies where the continuing perpetuation of enterprise bargaining agreements that secure rolling wage rises year in, year out and usually well above the rate of inflation has become unsustainable. It is no secret that in spite of the billions of dollars in taxpayer monies thrown at car makers for years, labour costs lie at the heart of the decisions of Nissan, and Mitsubishi, and Ford, and now Holden to stop making vehicles in this country. And for that, the unions must take their share of the blame.

Qantas, along with Victorian food processing firm SPC Ardmona, seem to be the next cabs off the rank when it comes to this insidious cancer of union-inflicted insolvency and the mortal threat it poses to the viability of those businesses.

But the case of Qantas is different when it comes to the consideration of factors arising from its unionised labour costs; this is the second reason for belting the unions, culpable as they are on this point as well.

The same unions that tried to cripple Qantas in 2011 with ridiculous claims on pay and conditions (but have already done more than enough damage, thanks to the legacy of historical EBAs) strike deals for the same work to be done by an equivalent workforce at Virgin at rates of pay 16% less than they received at Qantas prior to that year’s round of wage claims. As readers will see, this is even more pertinent when it comes to cabin crew, one of whom on a “legacy” agreement at Qantas can earn roughly double what the union-struck deal at Virgin would allow them to.

It not only smells of hypocrisy — nay, stinks of it — but it also points to an agenda within the unions affected of preferment, of trying to set one company up to fail and another as an industry “winner,” which has not only contributed to the unsustainable and unrealistic levels of wages Qantas is forced to shell out, but is an object lesson in why, even with coverage of just 16% of the Australian workforce, the union movement still has far too much influence and clout in this country.

My point is that even before we get to the other factors that have put Qantas in the situation it finds itself struggling to survive in, the odds were already stacked against it by those sections of its workforce represented by trade unions. As I said, this will become important later on.

Now, it seems the pleas from Qantas for the Abbott government to do something to help it will go unheeded, with the article from yesterday’s issue of The Australian showing that deputy Prime Minister Warren Truss has effectively conceded there is nothing it can do on account of the numbers in the Senate — even after the new Senate, friendlier to the government than its present incarnation, is constituted in July.

I don’t think nationalising Qantas is in anyone’s interests: airlines are businesses governments have no place in running, and before anyone starts talking about the likes of Emirates, Qatar, or even Singapore Airlines, it should be noted that these and others like them are mostly countries ruled by one-party states and/or dictatorships, and far from primarily serving a commercial purpose, their airlines also fulfil political functions that can also become military functions under certain circumstances as well.

Either way — and certainly when it comes to the likes of the Middle Eastern carriers, and perhaps some of the Chinese airlines now expanding rapidly — their airlines seek to eke out market share to the destruction of other airlines, not to co-exist with them.

I think the Rudd government made the gravest mistake back in 2009, when it made what was basically a politically motivated decision to block a proposed merger of Qantas with British Airways. The resulting entity would have been majority-owned by Australian interests, controlled by Qantas, based in Sydney, and run by a management populated with a majority of Australian personnel. Qantas and British Airways would have continued to operate as separate brands within a common ownership structure.

But it would also have been a truly global business: and in the modern world of aviation, scalable businesses are the ultimate objective for an industry beset by rising costs and in an environment where travellers want service and standards of safety, certainly — but on a cost-effective basis, which also means lower fares overall.

This is the reason the larger state-run carriers are almost predatory in their expansion plans. It is also why, for example, airlines in the US that are already huge in their own right, such as United and Continental, are merging to form mega-airlines. It is all about scale.

In the aftermath of the Rudd government decision, BA merged instead with Iberia, and later divested itself of its stake in Qantas. And now, the chickens come home to roost.

Qantas competitor Virgin has got around the requirements for 51% of its international operations to be Australian-owned very easily: excluding its piecemeal business to New Zealand and the Pacific Islands, Virgin operates just five (5) truly long-haul aircraft, the 777-300ERs I still contend Qantas should have bought, and flies them to Fiji and the USA. For everything else it has built a so-called “virtual airline” based on codeshares with other airlines (Singapore Airlines, Air New Zealand and Etihad chief among them) to provide its customers with access to a route network of international destinations.

Virgin’s domestic airline business — operated by a separate legal entity to its 777s — faces no restrictions on foreign ownership; it just happens to be 77% owned by — you guessed it — Singapore Airlines, Air New Zealand, and Etihad.

Like Qantas, Virgin also lost several hundred million dollars last year, but unlike Qantas, it was able to undertake a capital raising exercise, reaping some $350 million in cash, from its foreign owners.

In other words (and given the bottomless pockets at SIA and Etihad), Virgin has one huge competitive advantage over Qantas in terms of labour costs. It has a second in terms of ready and limitless access to cash, courtesy of its ownership structure.

And it goes without saying, to put it bluntly, that Virgin is a foreign airline operating in Australia on domestic and international routes.

Unable to compete on the same basis and with one wing effectively hooked behind its famous tail, it doesn’t take an economics professor to see that Qantas is boxed in. Unless someone kicks one of the walls out, the building will collapse, crushing the airline as it does.

I don’t know if repealing the Qantas Sale Act will enable the airline to fight its way back onto a competitive footing or not; I really don’t. But it seems logical that as that Act places Qantas at a severe competitive disadvantage to Virgin that is slowly suffocating it, that disadvantage should be removed.

The alternative — perhaps not now, perhaps not in the next two or three years, but certainly in the foreseeable future — is for Qantas to collapse.

It is locked in a battle for domestic market share with Virgin that it can neither win without access to investor capital, yet cannot cease to fight: Qantas’ domestic business is highly profitable, for now, and built on decades of loyalty from high-yield customers. But Virgin will continue to be unrelenting in adding capacity (extra plane seats in layman’s terms) into the domestic market to push Qantas to breaking point, funded by foreign interests, and when Qantas’ domestic business breaks, that’s it: the international arm of Qantas is already haemorrhaging red ink and has done for years. There is nothing left to prop the edifice up if its strongest turret is destroyed. The whole thing will come crashing down.

Game over.

Those disinclined to repeal the Qantas Sale Act (or to support its abolition) should carefully consider what the collapse of Qantas would mean.

The foreigners who own Virgin will be disinclined to keep air travel for Australians affordable in a monopoly market, and even if such a scenario generated a terrific surge of public anger, it would take months — if not years — for a viable competitor to be planned, established, and then grown to the point it represented any meaningful replacement for Qantas or any realistic sort of threat to Virgin’s market position.

In turn, the economic damage would be incalculable.

Qantas and its subsidiaries operate roughly four times the number of aircraft Virgin does; it services the travel requirements of an exponentially wider number of locations across the country than Virgin, and its importance to Australia’s economy cannot be understated. Travel, tourism, freight, communications and other logistics are heavily reliant on Qantas continuing to operate, irrespective of whatever Virgin does, and once the breach exists it will take many years for any competitor to fill.

I’m loyal to Qantas but I’m no sycophant; it’s done many great things over many years, but it has made its mistakes too. Nobody would deny that.

But the gross errors that were Airline Partners Australia and the Rudd government’s torpedoing of the Qantas-BA merger were, for different reasons, mistakes that could have been terminal for Qantas: the first for breaking it up and selling it for the higher value of its parts, if that had been the end result. The latter might have wrecked the opportunity for Qantas to secure its long-term survival. That could well still be the final result of that incompetent, stupid, ideologically driven Labor Party decision.

Very simply, what is worse: a Qantas owned by offshore investors, subject to some stringently legislated conditions such as being headquartered in Australia, managed by Australians, and mandated by law in areas such as the standard of maintenance its planes receive — wherever that occurs?

To say nothing of the bulk of its workforce remaining employed, and a cherished Australian icon enjoying a stable, secure, long-term future.

Or a Qantas forced to close, when the pressures of an uncompetitive commercial environment and a labour movement hellbent on driving it out of existence finally succeed in doing so?

If you’re still not convinced that abolishing the Qantas Sale Act is the right thing to do, then consider this.

Whether you like or hate Qantas CEO Alan Joyce, and irrespective of what you might think of the merits or otherwise of the management regime he is pursuing at Qantas, his grounding of the Qantas fleet in 2011 was a masterstroke: had he not done so, shutting off the right of the Qantas unions to engage in industrial activity over wages for three years, the higher wage outcomes the unions would probably have extracted from Qantas management at that time — in light of what we now know of the airline’s predicament — could well have already put Qantas out of business by now.

Just remember, the three-year prohibition on the unions taking aim at Qantas, in yet another round of thuggery and bastardry designed to extract yet more extortionate pay rises, expires in October.

If all hell breaks loose at that time, the consequences for Qantas, quite literally, could be anything.

In fact, it could get very ugly indeed.

Teaser Alert: Two Views of QANTAS; Spot The Difference

WITH QANTAS seemingly in existential trouble, I will be posting in the next couple of days with thoughts and analysis of the situation the Flying Kangaroo finds itself in, and where it might go from here; for now — and at the cost of five minutes — I wanted to share a compare and contrast exercise with readers that pretty much sums it up.

Like a lot of Australians, I love Qantas; I really love Qantas. Nobody can really sum it up, but millions of us feel the same way about the big red and white bird with the kangaroo on the tail that — in its own quirky, quixotic way — says “we’re home” wherever we find it, even if it’s (literally) a half a world away.

I am aghast at the headlines in recent months about the state of Qantas and the hole it no longer attempts to hide the fact it’s fallen into; for now I am still thinking through the events of the past 36 hours — the $300 million first-half loss likely to balloon to $1bn for the year, the job cuts and cost reductions it has announced, and the increasingly desperate pleas of its CEO Alan Joyce for help — but be assured, I will be publishing on this subject and at length within the next couple of days.

We’ve talked about Qantas before, when issues in aviation policy have conspired to make it the frontline issue of political news; it’s unfortunate we will shortly need to do so again.

And in the interests of disclosure, I should admit my company has commercial discussions on foot with Qantas at present — and leave it at that.

But I would also emphasise in the strongest possible terms that I would never do anything to damage that fine institution, and any comment I make should be regarded as being underpinned by that single, simple sentiment.

That said, two pieces from YouTube have presented themselves, and I simply can’t shake the contrasts.

Two views of the same beast, and in its own words, quite literally: it will cost you less than five minutes to do so, but watch both of these items.

Now, wind the clock forward, and watch this little gem:

I think it’s a bit of a no-brainer as to what I might be readying to say on this issue, but seriously, if a picture tells a thousand words — what the hell is wrong here?

I don’t think it’s just me either; the earlier story was far more engaging than the latter.

And those two clips — especially on account of them being advertising collateral commissioned and approved by Qantas — are a metaphor for what has happened to this airline, and which now threatens to destroy it.

I’m not going to do my media industry colleagues the disrespect of tearing that second advertisement to shreds, in this column, deconstructing every last flaw it contains in an execution so wildly off-target as to beggar belief. But, perversely, they could not have summed up what’s wrong with Qantas better if they had tried — however inadvertent that effort might have been in doing so.

Like the headline says, this post is simply a teaser; as soon as I’ve thought this all through properly I will be posting an article on the problems facing Qantas, and I won’t be pulling any punches: I want to see that airline not just survive, but thrive — like it always has, and as I am certain it will do again.

In the meantime, those who wish to comment below should feel free to do so.

Historic Loss At Qantas: Bad Result, Bad News, Bad Bums

QANTAS this morning posted a nett full-year loss of $245 million; its first loss since it was privatised in 1995, and its largest loss ever. This is a bad result that heralds further bad news at the Flying Kangaroo, and reflects on the federal government, Qantas management, and its unions alike.

The thing striking about this result, no pun intended, is that nobody is particularly surprised; Qantas management has been softening the market up for a result like this since well before last year’s industrial machinations. Indeed, the result is actually better than most forecasters and analysts had predicted.

Yet let there be no doubt: this is a bad result, irrespective of what profit the Qantas domestic business and the frequent flyer program contributed.

Not only have losses in the international division blown out from $2oo million a year ago to almost half a billion dollars today, but one-off costs of $194 million attributed to  industrial action and grounding the fleet in October, if removed, still see the airline’s full-year figures some $60 million in the red.

The figures include $400 million of one-off restructuring costs, but it remains to be seen how much of this figure is recouped against the Qantas Group’s bottom line over the next year in the face of a fuel bill sitting at a record high ($4.4 billion), industry rumours of a failure to fully hedge against rising fuel costs, inefficient structural wage costs, the ongoing need to retain ageing and increasingly ancient components of its fleet, and rampant and increasing competition.

There are many parties to blame for what, to use the vernacular, is an absolute shocker; and — in turn — a thickening band of ominous black clouds on the horizon of the Qantas sky.

Union leaders — with Transport Workers Union national secretary Tony Sheldon blaming the loss on “disastrous management” — have been quick to hit out at Qantas management, with Mr Sheldon saying “It’s devastating…at the hands of very poor management decisions that we have seen over the last two years.”

Australian and International Pilots Association president Captain Barry Jackson spoke of an “unnecessarily militant approach” to industrial relations on the part of Qantas management during last year’s industrial turmoil which he says “continued to do damage to the Qantas brand.”

I was quick to support Qantas management over the unions last year, and I stand by that judgement; not least in view of the ridiculous wage claims the TWU and other unions were determined to pursue against the company.

At the very minimum, those unions collectively wear egg on their faces today: the hard figures of the Qantas annual result prove that its management was not bluffing when it said the pay claims of the unions were unaffordable and, if realised, could send the airline broke.

The cost to Qantas of the dispute — $194 million, on its own figures — is far less than the residual increase to its wage bill would have been if the union pay claims were achieved. Nonetheless, even in putting down the industrial action taken by its unions, it’s clear Qantas is in no position to be doling out wage rises to any component of its workforce.

This brings me to the big pay rise the Qantas board approved for CEO Alan Joyce at the height of last year’s industrial action; at the time, I said it was not a good look, not smart timing, and damned silly tactically.

As fate would have it, these were prophetic words, in light of the fact Joyce has just presided over the biggest loss in the airline’s history. Perhaps — and I say this wryly — it’s a good thing he recently declined to accept his annual bonus.

What many of us suspected 12 months ago, as Joyce was announcing the restructure that would “build the new Qantas” and trigger unprecedented industrial strife — that the airline was in poor shape — emerged with crystal clarity from this morning’s figures.

Exactly what happens from here is, to some extent, anyone’s guess.

This column gave its support to the company over the unions at the time of the dispute last year, and that support remains behind Qantas, Joyce and his management. However, in light of the annual result posted today, that support now comes with a couple of hefty qualifications.

The first is that Joyce has been talking of restructures and painful adjustments for the better part of two years now; having booked $400 million in abnormals attributed to restructuring it is, quite literally, time for a return on those monies to be achieved.

Should Qantas report a similar result in another year from now, serious questions will be asked of Joyce, and his tenure — rightly — will be called into question and reviewed.

Joyce has made too much noise for too long now about “fixing” Qantas: he is entitled to the time for the results of his changes to become evident, but there won’t — and shouldn’t — be any extra chances if he fails.

The second qualification I place on my support of airline management speaks to two dreadful decisions it has taken since the end of the industrial dispute; specifically, in terms of fleet management and brand strategy.

Why — why — Qantas has seen fit, in the wake of the events of the past nine months, to completely trash its entire brand strategy is unfathomable; the long-running “I Still Call Australia Home” campaign is more critically important to the airline now than at any other time, with its underlying themes of familiarity, continuity and stability.

Switching to an obscure strategy based on a focus group-driven faux pas (“We Fly For You,” backed by an odd instrumental composition by Daniel Johns that amounts to nothing to most consumers) is a ridiculous and almost suicidal step to take, given the turmoil and upheaval the airline has faced in recent times.

At a time of falling yields, rocketing costs, rampant competition and diminishing consumer confidence, continuity and a “business as usual” approach are precisely what should be emphasised — not a complete change of direction when the airline faces enough uncertainty as it is.

Management decisions, as much as financial outcomes, are going to be scrutinised more rigorously by commentators and industry analysts alike over the coming year.

The decision by Joyce to defer another order for new aircraft — this time, for 85 new Boeing 787s — is of more concern than the changes in brand management and marketing strategy.

Whilst it is true that some of Qantas’ oldest planes have been retired in the past couple of years, the airline nonetheless retains a sizeable number of aircraft at or very close to the point at which they really should be replaced on the grounds of reliability, fuel efficiency and cost effectiveness to operate.

The Qantas mainline fleet — that is, excluding Jetstar — retains 10 Boeing 747-400s that are 20 years or more old; these include four (VH-OJA, VH-OJC, VH-OJD and VH-OJE) that are 23 years old, and one — VH-OJH — which is the 22-year-old jumbo that skidded off a runway in Bangkok whilst landing during a severe storm in 1999 that was repaired and returned to service.

8 of the 12 Boeing 737-400s it retains are 20 years or more old, with four of them 22 years old.

And 14 of its 22 Boeing 767-300ERs at or above the 20 year mark, including seven purchased second-hand from British Airways in the 1990s. Of the 14, eight of them entered service in 1990.

With the delay of further Airbus A380 deliveries until at least 2014, and the deferral of new Boeing 787 aircraft until at least 2016, it is unclear as to when these ancient aircraft — which comprise almost a quarter of the Qantas mainline fleet — will be retired.

And this, in turn, will inevitably raise questions of safety, and compound the heightened cost imposts these old machines make to the bottom line with delays and other scheduling mishaps on account of the increased rate of technical issues these aircraft face.

It doesn’t help that Qantas made the wrong aircraft selections when it addressed the issue of fleet renewal in 2002, and that the 747 fleet could have been replaced by brand new Boeing 777-300ERs and 777-200LRs five years ago.

There is at least the silver lining of sorts that these old aircraft will keep more aircraft engineers in their jobs for longer when they might otherwise have been restructured out of the Qantas business.

I would very quickly like to make further mention of Qantas’ unions; it is clear that they do not accept the outcome imposed on them late last year by Fair Work Australia; today’s outbursts by Sheldon, Jackson and others are evidence that discontent lingers very close to the surface.

But the unions have abided by the FWA decision, having opted not to pursue prohibited industrial actions, and — at the very least — should be commended for that.

Finally, the federal government must accept some portion of the blame for the state Qantas is in.

It (or its QANGOs, which is the same thing) has allowed an ever-increasing number of foreign airlines open access to Australian airports to carry international traffic; it is one thing to encourage and foster competition, but another altogether to allow capacity to be dumped into the Australian market at the direct expense of the Australian national carrier.

I just think that granting exponentially increasing numbers of landing slots to middle-eastern, state-run airlines probably isn’t the best way to preserve a local aviation industry in this country.

And it is probably time to review the foreign ownership provisions of the Qantas Sale Act; possibly allowing higher levels of overseas investment to allow the airline to raise capital, balanced by rigorous and far tighter restrictions on the concentration of foreign ownership as opposed to the total level allowable under law.

Still, it’s clear that it has taken a long time to produce today’s result; many parties have had a hand in it, and the end product — the largest full-year loss in Qantas’ history — is abysmal.

The bottom line, however, is that Qantas is a mess.

What happens now, and what Alan Joyce and his management do to remedy the situation, will attract critical scrutiny of a kind seldom seen in corporate governance circles in Australia.

Some Final Thoughts — For Now — On The Qantas Dispute

Armed with the day off and the curiosity of a cat, I drove out to Melbourne Airport this afternoon to watch Qantas’ return to the skies, starting with a flight to Sydney — QF438, operated by Boeing 737-800 VH-VXI — which took off a little after 4pm.

Clearly the issues affecting Qantas in its dispute are far from finalised; indeed, there’s life in this story yet. But it seems that with the return to service of the Qantas mainline operation today, at least one chapter in the book draws to a close.

And of course — given The Red And The Blue is primarily concerned with Australian politics, it’s reasonable to assume other issues will present for discussion, although I will certainly be continuing to follow developments at Qantas and discussing these as indicated.

It’s with some apprehension and disappointment that I heard today that the TWU is considering appealing the decision to terminate all industrial action handed down by Fair Work Australia in the small hours of yesterday morning in Melbourne.

Such a move would hardly be made in good faith; whilst I loathe the idea of government intervention in industrial disputes (and said so here on Saturday) this is an exceptional case.

The intervention was warranted (however hamfistedly it was made) and the resulting process should be approached in good faith by all parties — including the TWU.

Grounding the Qantas fleet, quite obviously, was a measure undertaken to engineer (no pun intended) a resolution of the conflict with the three unions involved in this dispute.

I would have thought those unions would have welcomed the opportunity to finally, and belatedly, put these matters to bed.

But it seems the TWU at least isn’t happy that its ability to lead Qantas on a merry dance (and cause all sorts of disruptions in the process) has met with an abrupt end.

It seems the concepts of finally agreeing to a resolution, or of having an independent industrial umpire impose one, are not that union’s cup of tea.

Which is probably not much of a surprise when it is remembered that 20 years ago, the TWU played a pivotal role in the crippling tram strike in Melbourne that, quite literally, brought the city to a standstill, and which at the time was held up by anti-unionists across the country as a festering, rancid example of everything that was wrong with trade unions in Australia.

I don’t propose to go through the minutiae of the ruling by Fair Work Australia, although I gather there is a spirited debate going on between some of my readers in the “Comments” section of the previous articles I’ve posted regarding this issue.

But I do want, briefly, to talk about the Commission’s point that the industrial action undertaken by the unions, on its own, would have been unlikely to have been grounds for Qantas to obtain termination of those actions on “national interest” grounds.

Clearly, the planes had to be grounded for that to happen.

But virtually nobody involved in this dispute — including most of the union players — denies that Qantas has been losing money as a result of the protracted saga that has been played out.

One of the reasons I’ve been so quick to point the finger at the unions involved as ultimately responsible for the entire fracas is that they seem to think Qantas is a bottomless, endless pit of money.

I have also been emphatic that the pay rise given to Qantas CEO Alan Joyce on Friday was sheer stupidity in the context of everything else that has been going on.

The industrial action that has been undertaken against Qantas over the past nine months has cost it money; its international operation lost some $200 million last financial year; and a hefty portion of its fleet is in urgent and desperate need of replacement at a cost of some $10-$12 billion over the next five years.

Viewed that way, the pre-tax profit Qantas made overall last financial year of $500 million doesn’t look like a mountain of money given the capital expenses and structural problems the airline faces.

It underlines the lunacy of the Joyce pay rise.

And it means there is a limit to what the unions can “get.”

Were Qantas to go broke and follow Ansett into history, there would be no boss to screw, no pay rise to manipulate, no passengers to hold to ransom, no job security for rather obvious reasons, and no airline.

It’s true that Qantas has flagged possible retrenchment of up to 1,000 jobs in its coming restructure.

But the airline must change if it is to survive, and that change, inevitably, will hurt some people. But the overwhelming majority of its operations and staff will remain Australian-based, and whilst nobody likes job losses or firing people (and at times along the journey, in different roles, I’ve both lost my job and had to fire staff in the past), even if 1,000 jobs are lost, 34,000 Qantas jobs will continue.

I’m highly critical of the federal government’s handling of this matter: faced with Qantas’ high-stakes move in the dispute to ground the fleet, its own Fair Work Act equipped it with the power to circumvent the stoppage and issue a ministerial directive terminating all action on both sides and ordering the involved parties to conciliation and — if necessary — arbitration.

Instead, it acted under a different section of the Act, which meant the grounding — and the consequent chaos suffered by passengers around the world — ensued.

Having kicked that colossal own goal, it’s completely unacceptable for Julia Gillard and her ministers to now blame Qantas for causing the disruption in the first place; not least because the same outcome — conciliation and arbitration — has been reached, only with a lot more heartache in the process.

Once again, the incompetence of the federal Labor government has been writ large for all to see; this time, on this issue, it couldn’t even use its own laws properly; and this time, there’s not a Green or an Independent in sight onto whom responsibility can (or ought) be dumped.

And Qantas — a large Australian company and employer of 35,000 people — has endured the industrial mischief of some of its unions for the past nine months and took what it saw as the only measure open to it to resolve matters once and for all.

My hope now is that the four parties involved — Qantas and the three unions involved in the stoush — will recognise that a line needs to be drawn, and that they enter the conciliation process in the next few weeks in good faith and strike what should be a relatively straightforward deal in which everyone gets some of what they want, but nobody gets everything, and in which all parties have to give a little ground to make the whole damned thing go away.

On a final note, during the few hours I was at Tullamarine Airport this afternoon, I left the passenger terminal to have a cigarette; there were two Qantas workers there smoking also who belong to one of the unions involved in the dispute.

Eavesdropping (as you do when people standing right next to you don’t care who hears what they say) I ascertained that their view — and presumably those of their colleagues — was that given Alan Joyce had the termination order he sought, their union bosses would cave in to Qantas management (and sell everyone out).

Is it any wonder each side in the dispute has so little faith in the other, if that’s the way the union workers feel about their own union bosses, let alone about Qantas…

As I said, we’ll follow this and discuss it further as need be.

Keep the comments and opinions coming; and for the (vast, vast) majority of you who haven’t commented, please be assured that posting comments under a pseudonym will keep your privacy — and anonymity — intact.