Back to basics for Joyce & Co

Release date: 13/03/2012

Could that solitary figure rummaging through the used parachutes at Sydney Airport really be our very own Qantas boss Alan Joyce?

The Sydney Morning Herald

After his spectacular flame-out over Kuala Lumpur last week, the airline tentatively under his command has been left rudderless while those running it seem desperately short of ideas on how to repair the damage.

That has placed Joyce in an extremely vulnerable position, and the obvious victim should institutional investors demand retribution for a much-vaunted policy and plan that seemed, at best, fanciful and has now been abandoned altogether.

Since June last year, Joyce and his senior executives have spent every spare minute banging on about setting up a new premium Asian-based airline, all of which was endorsed by the Qantas board and chairman Leigh Clifford.

But it was a plan that was never going to fly. For it was first and foremost a threat - and a hollow one at that - to its own workforce rather than a legitimate blueprint to turn around the company's fortunes.

If there was any strategy involved in the plan, it was purely as part of an ideological battle over trade unionism in general and Fair Work Australia in particular, which culminated in management shutting down operations for almost three days last November.

There is no denying the challenges confronting Qantas.

Soaring fuel prices, competition from subsidised government-owned carriers, global economic upheaval, topped off by natural disasters in key markets Queensland, New Zealand and Japan.

But the Asian option addressed none of those factors and Joyce now presides over an organisation where industrial relations could best be described as toxic while his customers, disillusioned and jaded, have begun walking across the terminal to rival Virgin Australia.

Qantas has also had to embark on an expensive campaign to compensate those inconvenienced by the grounding of its fleet last year. Sadly, shareholders are footing the bill.

It would be unfair to label the abandoned Asian plan as half-baked for it never reached that stage. There was no oven, no cake tin and certainly no ingredients.

You don't need to be an aviation expert to realise the problem facing the industry is overcapacity. So how on earth does establishing a new airline solve that? And wouldn't it merely cannibalise your existing business?

Initially it was to be based in Singapore, then Kuala Lumpur, except there were no agreements with anyone in those centres.

The original plan was to employ 11 Airbus A320s, a small aircraft that does not lend itself easily to upscale service. And with such a small fleet, it could never provide the frequency business travellers require.

And what about the years of losses involved in establishing a new brand? Even Jetstar, the discount tail that now wags the Qantas dog, took years to turn a buck.

But all is not lost. There is a way out for Joyce, a means by which he could salvage something from the wreckage. Rather than partner an Asian carrier such as Malaysia Airlines or Singapore Airlines, perhaps the Irishman could convince the board to go it alone, and establish its own premium international carrier.

And a brand? Why not call it Qantas? You could promote it to business travellers throughout the region, offering an upscale service, with an impeccable safety record and employing the most highly skilled staff, the kind of pilots who can safely navigate an A380 back to earth with a Rolls-Royce engine spewing flames.

Passengers may even pay a premium for it. Use fuel-efficient jets and you could cut down on the cost.

Joyce certainly needs to come up with something. For the momentum is building at Virgin, the once-deflated rival now headed by the very person Joyce beat for the top spot at Qantas. At every turn, the Qantas chief has been outsmarted and outmanoeuvred by John Borghetti. Where Joyce has focused on cost cutting and discount service, Borghetti has targeted a premium offering, moving Virgin up the scale.

Discount airlines are a commoditised business. Borghetti, realising its limitations as a business model, has focused on yield. In a nutshell, that means business travellers.

Australian corporations spend up to $6 billion annually on air travel. And every corporate dollar Borghetti attracts to Virgin, comes straight from the revenue at Qantas.

Virgin now has around 17 per cent of the local corporate market, well above the target Borghetti set when he was appointed to Virgin.

Joyce aided that quest last November, when Virgin leapt in to pick up the slack, conveying thousands of stranded Qantas passengers on the weekend before the Melbourne Cup, allowing Borghetti to showcase his new offering to a wider audience.

But his biggest coup has been in building an international offering through codeshare arrangements. With Etihad, Singapore Airlines, Air New Zealand and Delta in tow, Virgin now offers a vast international network, built at minimum cost.

Qantas, meanwhile, continues to shrink its international service. Its European destinations have been whittled back to London and Frankfurt and it recently dropped half its European flights from Singapore and Bangkok, offloading customers on to British Airways. The Mumbai service was dropped altogether.

That shrinkage has made it less attractive to customers and to potential partners. The good news at least is with the Asian option now consigned to the dustbin, Qantas management can focus on running Qantas.

Click here to read the story on SMH website


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