Qantas suffers loss and questions of competence
Release date: 23/08/2012
Qantas today posted its first annual loss since it was fully privatised prompting questions about the company's management and accounting.
Greg Hoy, Australian Broadcasting Corporation
LEIGH SALES, PRESENTER: For most of its history, Qantas has been unassailable, one of those iconic and much loved Australian companies. But it's going through a tough time, with bitter industrial disputes last year causing management to briefly ground the airline.
In the four years that Alan Joyce has been the CEO, the Qantas share price has halved. Today the bad news continued, with the national carrier posting its first annual loss since it was fully privatised in the mid-‘90s. Qantas management is confident its strategy to get Qantas back in the black is on track and shortly Alan Joyce will join me, but first this report from Greg Hoy.
GREG HOY, REPORTER: Even announcing a 90 per cent fall in net profit today and the first statutory loss for Qantas in 17 years, Alan Joyce was endeavouring to look on the bright side.
ALAN JOYCE, CEO, QANTAS: We are financially strong, profitable at an underlying level.
GREG HOY: He blamed the large losses on the soaring dollar, fuel prices and the drag on profits of Qantas International. But Alan Joyce claims the airline is slowly turning the corner.
ALAN JOYCE: The benefits of our transformation program have started to come through.
GREG HOY: So is the Qantas chief's air defence a fair defence?
TONY SHELDON, NATIONAL SECRETARY, TWU: We've got the first loss in 17 years from a management who’s completely lost their way.
VAS KOLESNIKOFF, CEO, AUST. SHAREHOLDERS ASSN: The reality is it is a statutory loss. That is the true result of the company and we believe the management and board should be clearly accountable for the company's performance and its result.
GREG HOY: But it’s not just shareholders it seems concerned how Qantas portrays its profit and loss. Former senior Qantas executives have also voiced their concern to 7.30 about the credibility and transparency of Qantas accounts endorsing the protests of others.
NEIL HANSFORD, STRATEGIC AVIATION SOLUTIONS: Why has it taken so long for everybody to realise that the international business of Qantas could well lose $500 million this year? It was two or three years ago they were saying it was losing $120 million. And, really, no one really knows where the costs were being allocated.
VAS KOLESNIKOFF: We know that there are quite a few organisations and quite a few accountants going through the Qantas results and it does appear that the disclosure is very difficult to understand.
GREG HOY: There is also strong concern, including amongst former executives, that the airline tries to shift as many costs as it can away from its low cost carrier Jetstar and on to the books of Qantas. The aim, the critics claim, is to bolster Qantas' campaign to slash labour costs and to boost that side of the business with the least government regulation.
BRAD HODSON, AUST. PILOTS ASSN: They'll do pretty much whatever it is they have to can to keep Jetstar looking as profitable as it possibly can.
GREG HOY: Aviation unions also claim Qantas cooks the books to enhance Jetstar and justify cutting staff or their conditions at Qantas. Qantas pilot Captain Brad Hodson:
BRAD HODSON: The law does require them to really be transparent and really I think we’d say at this particular point in time that's not the case.
TONY SHELDON: They've put all these costs on their Jetstar expansion, operations that aren't successful overseas, onto their International Qantas arm and they're trying to say that it’s everybody's fault other than the executives who have paid themselves an 82 per cent increase in executive pay in the last three years.
GREG HOY: Dr Tony Webber was chief economist at the Qantas group from 2004 until last year.
TONY WEBBER, FMR QANTAS CHIEF ECONOMIST: What I do think has happened is that Jetstar enjoys a number of services that they don't actually pay for, such as the legal department, corporate communications, investor relations - all of those overheads, back office overheads.
GREG HOY: Dr Webber believes this is for accounting convenience rather than deliberate deception. Qantas now says it will split its domestic and international arms into separate management teams, but under one corporate umbrella, leaving many suspicious about the transparency of Qantas accounts.
NEIL HANSFORD: Until Qantas is split into two separate companies with two air operator’s certificates, just like Virgin is today, the Australian investment public will never know how the business is travelling.
GREG HOY: With industrial tensions still simmering, Alan Joyce has just offered to forgo his bonuses that last year lifted his remuneration by around $2 million to almost $5 million, salting the wounds of Q Catering staff in Adelaide, who say they've been in limbo for six months waiting to hear when their jobs will be axed.
TONY SHELDON: Many have been there for decades finding their wages job, their security being slashed and burned, and to find Alan Joyce saying that he may forgo a bonus, now he should be handing that $2 million back and he should taking a 62 per cent decrease in income, in line with what the shareholder value drop has been in the last three years.
GREG HOY: Who would want to be the head of Qantas? Well actually, while Qantas remains on the defensive, its key competitor, Virgin Australia, is on the attack. Qantas defector John Borghetti, who was overlooked for the chief executive's job that went to Alan Joyce, has now turned on his former employer with a vengeance as Virgin's chief, dragging the budget carrier upmarket.
TONY WEBBER: He seems like he's doing a number on his good mate, Alan Joyce, at the moment. He's taking some market share away from him. He's expanding very, very quickly.
BRAD HODSON: Qantas has pursued what we'd term risky ventures into Asia, Red Q, Jetstar Pacific. Pretty much those things, they've spent a lot of money, but there's no return on capital there.
GREG HOY: Aviation unions recently surveyed staff at Virgin and Qantas to ask if the right management was running the airline.
TONY SHELDON: 85 per cent of employees do not have confidence in the direction that Qantas is taking. And when you compare that with their major competitor in the domestic market, Virgin, there's only 1.5 per cent of employees at Virgin do not have confidence in their management.
GREG HOY: But it's not just unions beginning to ask if Qantas should remain in the hands of current management.
BRAD HODSON: Management have failed to a articulate a clear path into the future.
VAS KOLESNIKOFF: Unfortunately, it appears the current management doesn't seem to have an answer for what's going on.
TONY WEBBER: Private equity guys out there are looking at the numbers very, very closely. There might be an opportunity to buy and carve up Qantas, as they attempted to do a few years back.
Please click this link to read the orginal article on the ABC website.
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