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.