Home' Australian Aviation Magazine : April 2011 Contents APRIL 2011 AUSTRALIAN AVIATION
in the 2008 year, prompting a three-year,
$1.5 billion cost-cutting program called
One-time events that also weighed down
the bottom line included industrial action
by the ALAEA (Australian Licensed
Aircraft Engineers Association) which cost
Qantas an estimated $130 million, the im-
pact of the swine u scare estimated at $45
million, and costs associated with introduc-
tion of the A380 at $37 million.
Highly volatile oil prices and a 31 per cent
fall in the Australian dollar relative to its US
counterpart were factors as well, particularly
in the rst half ended December 31 2008.
At that time of greatest stress, the group's
biggest performer was the FF program
with EBIT of $310 million, with Jetstar
contributing $126 million, while Qantas
EBIT was a loss of $77 million.
"From a customer perspective .. . we
are very con dent in the quality of our
international business. But the fact is, in a
nancial sense, we are falling signi cantly
short of where we should be," Joyce con-
ceded in February.
While the mainline airline is now bounc-
ing back the GFC exposed its underbelly as
vulnerable, and one of the major funda-
mentals that have caused that -- greater
liberalisation -- will only get worse.
And the competition from overseas car-
riers is just one problem, with Virgin Blue
set to relaunch itself as a premium airline
on domestic routes where Qantas has en-
joyed a virtual monopoly on business travel.
Qantas's unions need to understand
that some of their angst with the state of
Qantas ought be directed at government
which has set in train the market dynamics
that see the airline under siege, rather than
In fact, Qantas's issues are the same
that have devastated many listed airlines
around the world -- largely a regulated
workforce, competition from government
subsidised or backed airlines or airlines
with lower labour costs, monopoly ser vice
providers such as airports, and a fully or
partially deregulated marketplace.
One of the company's most sobering
numbers is the manpower costs per ASK
at Qantas, which has remained static at
around 2.62 cents over the past ve years
despite a host of cost-cutting exercises, and
the growth of Jetstar.
Since Alan Joyce's appointment as Qan-
tas CEO in July 2008, many aspects of the
airline's operations have changed, and while
that was accelerated by the GFC, Joyce's
appointment over previously anointed suc-
cessors, such as John Borghetti, was a clear
sign that change was needed to meet the
gathering storm clouds.
Joyce's mission was to get the group's
businesses better matched to the market.
" ere are three major stakeholders --
customers, employees and shareholders. We
want to o er the best customer proposition,
engage the sta , and produce shareholder
returns that enable further investment,"
Joyce said at the time.
In an inter view with Australian Avia-
tion just after his appointment, Joyce freely
acknowledged the very real challenges in all
areas, particularly with the sta . Qantas's
industrial relations over the past few years
have been more confrontational, with
devastating e ects on its image where the
airline has become the butt of jokes around
Joyce, unlike his predecessor, also took
mergers and buyouts o the agenda,
preferring where possible to pursue organic
growth or small acquisitions such as the
Network Aviation deal to secure a foot-
hold in the FIFO market, or JVs to extend
Jetstar's reach or leverage on its model such
as the recently mooted deal in Japan.
Another long-standing criticism of
Qantas has been its top heavy manage-
ment which signi cantly hampered
exibility and innovation. Here Joyce took
an axe to the problem, eliminating 90 key
positions and laying o another 500 man-
agers in 2009, after which he promised
that the blood-letting of management "has
nished -- absolutely."
Joyce added perspective at the time,
saying that Qantas was an 88-year-old
company, and it is critical to "regularly
revisit management structures. e years
add layers!" He also conceded to Austral-
ian Aviation that "some departments had
become too bureaucratic."
Many say that the bureaucracy that
Joyce alluded to has hindered Qantas, with
previous CEOs telling Australian Avia-
tion at varying times over the past 13 years
that the airline's middle management
could not make the business case for the
777-200ER, seatback videos for economy
passengers in 1995, premium economy in
1996 or the 777-300ER/200LR in 2005.
In fact, Qantas has knocked back the 777
on many occasions.
Joyce also conceded that the airline has
been too focused on premium classes and
quickly moved to change the con gura-
tions of the Boeing 747-400, with one
layout having only 307 seats -- 14 rst, 66
business, 40 premium economy and 187
economy. " at is just not enough seats,"
said Joyce at the time. And perhaps not
surprisingly, the airline's A380s have the
lowest seat count -- 450 -- of any airline up
until the introduction of Korean Air's rst
A380 which will have just 405.
e question many in the industry, par-
ticularly the tourist industry, ask is -- should
the Australian public support Qantas when
it makes these sorts of errors of judgment,
or is one of the last to market with cus-
tomer innovations such as IFE?
e role of lobbyists for foreign airlines
for greater access to the Australian market
is made easier in Canberra when these mis-
steps are highlighted by consumers and un-
ions, and when the politicians themselves
choose to travel on the foreign airlines
because of better in ight product.
Certainly the airline has been let down
badly by Boeing and Airbus on deliveries
with the 787 and A380 that would have
enabled the retirement of many older 767
Dixon said in 2008 that "nothing can
really compensate" for the delays. "Our
business would be totally di erent if they
TOUGH AT THE TOP? Joyce -- struggling to engage? (AAP Image)
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