The Qantas headline loss of $2.8 billion announced today is sobering but necessary as the airline strives to clear the deck to restructure for today’s much tougher operating environment.
While it is the worst result in Australian aviation history it appears that the worst is over and clearer skies are ahead for the Australian icon.
And the airline is forecasting that it will return to profit in the current financial year!
The good news for the staff is that there will be no new job losses above the 5,000 announced earlier this year.
While many will be screaming for Qantas chief executive Alan Joyce’s head analysts appear to be supporting the airline’s strategy.
Besides, anyone delivering the tough medicine that Mr Joyce has to would be extremely unpopular.
Qantas has been battling many problems – mostly the result of previous management errors.
Australian travellers have been deserting the airline for years.
Initially it was because of cabin offerings. Malaysia Singapore Airlines and Cathay Pacific started the rot offering free drinks way back in the late 1960s. Qantas and other airlines reluctantly followed.
Fast forward to the early 1990s and Singapore Airlines led the way with seatback videos for economy passengers. Emirates and Virgin Atlantic were also early adopters of entertainment for all. Inextricably, Qantas was stoic in its resistance.
The airline also turned its back on premium economy with Qantas saying the airline could not “make the business case”, despite the fact that Australians are the second tallest people in the world behind the Dutch and fly the longest distances after the Kiwis.
Premium economy is a no-brainer, as the airline has now discovered, just as Business Class was when Qantas was first to introduce it in 1979.
In the international space Qantas faces unprecedented competition from a host of airlines such as AirAsia, Etihad Airways, Cathay Pacific Airways, Singapore Airlines and Air New Zealand which have lower costs and/or better products for passengers.
For years Qantas has traded on – and charged a premium for – its superb safety record. In the movie Rain Man, Dustin Hoffman, playing Raymond Babbitt, uttered the now famous words that “Qantas never crashes”.
The movie came out in 1988 at a time when Qantas was at the top of its game with well over 40 per cent of the traffic into and out of Australia.
Government policy was to protect the national carrier from foreign competition; an airline which taxpayers owned and which was selling tickets at a premium to adoring travellers at a time when well-known airlines like Pan Am, Alitalia, Korean Air, and Continental Airlines were having many accidents. In 1989 there were 231 accidents and incidents, which made Qantas’ unblemished record shine.
The landscape is starkly different today with most of its competitors boasting fatality free records over the past 20 years.
However Qantas’ immediate clear and present danger is the emergence of rival Virgin Australia, with lower staff costs and greater productivity, into the premium domestic market, an area in which it has enjoyed a monopoly for the past 10 years.
Much has been said about Qantas’s staff efficiency but the debate must also be a debate about all of Australia’s work practices and salary perks such as weekend and penalty pay rates, 17.5 per cent leave loading and such anachronistic institutions as long service leave.
Many reading this would not even understand the origins of long service leave which began in South Australia and Victoria in the 1860s as a scheme that allowed civil servants three months or more leave to go home to Britain after 10 years’ service in the colonies. The lengthy time off was dictated by the long ship journey to and from Australia. Long service leave became widespread in the 1950s and no other country incorporates such a right into their labour market regulations.
Holiday leave loading’s origins are just as bizarre relating to the fact that employees cannot earn overtime while they are on leave.
But changing work practices and increasing efficiency will only come if Qantas can change its culture and that is a far bigger task. Charles Darwin wrote that “it is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” This idea was alluded to by former British Airways and Ansett CEO Rod Eddington when he warned in a 2004 interview with the author that achieving that responsiveness is extremely difficult.
“Changing airline culture is like trying to perform an engine change in-flight,” Eddington said at the time. When Mr Eddington arrived at British Airways in 2000 he found that the staff did not perceive the need to change because the airline had a low cost airline called Go. He found that staff believed that Go mitigated or even eliminated the need for further adjustments at the mainline airline.
He noted that it was difficult to change this mindset until Go was sold off to easyJet. “Once we sold Go, the staff at BA really focused on making the changes necessary to make BA itself competitive,” said Mr Eddington.
Similarly with Qantas it can possibly be argued that the success of Jetstar is having a negative impact on the need for change at the mainline operation.
Surveys have shown that another reason for the resistance to change is that although employees agree change is needed, they do not believe they themselves need to change.
For example, at an American Airlines management conference in the late 1990s, all participants were polled on a series of questions. More than 90 per cent responded positively to the proposition that management, colleagues and subordinates needed to change, but 90 per cent responded in the negative to the item “I need to change.”
Qantas like so many legacy carriers has evolved out of a military base and much of the management style, marketplace orientation and paraphernalia of culture still reflect an authoritarian, hierarchical and command-and-control worldview.
Successive management teams have sidestepped taking on the more militant unions to address gross inefficiencies and ludicrous perks which dog the airline. Over the past 10 years, the launch of low cost Jetstar and a monopoly in the domestic business class market courtesy of the demise of Ansett, have masked the need for massive restructure.
But that has all changed!
And it now appears that Qantas is changing and that change is gaining momentum.
New products will soon be rolled out, the fleet has been streamlined and over 250 separate projects are underway to cut out $2 billion from its cost base.
It appears that blue skies may be returning to the flying kangaroo but the staff must get behind and support Mr Joyce.
