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Qantas Results Commentary – is it time for Joyce to go to give someone else a go?

March 1, 2014 Aviation, Headline News 7 Comments Email Email

egtmedia59With Qantas’ current CEO Alan Joyce announcing what appears to be another and perhaps heading for the final nail in the coffin blow of what was once the pride and joy of Australia and Australian aviation, surely investors and financial analysts must be asking if it is time for him to go, allowing someone else more capable have the chance of rescuing the flying kangaroo from drowning in a sea of slashing and reportedly average management.

EventsWithout doubt and to be fair to Joyce, he did inherit a rather poisoned chalice from previous CEO Geoff Dixon, who must take some responsibility for Qantas’ current disastrous situation, subsequently trying to further feather his own salubrious nest by an equity takeover that would have bankrupted Qantas. 

But hang on, Joyce was supposed to be the knight in shining armour, given the top Qantas job from his role as CEO of Jetstar, over Peter Gregg and John Borghetti, who now runs Virgin Australia, with Joyce charged with sorting out Qantas’ woes, but sadly, that does not appear to have happened. 

His announcement today says that $2 billion of costs will be slashed, including 5,000 jobs, something Joyce initially denied, then subsequently would not comment on, but has turned out to be true, with 50 aircraft to be deferred or sold and a $1 billion reduction in capital expenditure … but oh, they add in at the bottom of the list that their core investment in customer service to continue!

So what do I think all this means between now and 2017 to you and me and hey, I could be right or I could be wrong, but I one thing is certain, Qantas has to change as never before. 

Joyce said today, “It’s clear that the market Qantas operates in has changed, with structural economic shifts exacerbated by an uneven playing field in Australian aviation policy,” adding, “This situation is reflected in the financial result Qantas announces today, an Underlying PBT1 loss of $252 million for the half-year.” 

He adds, “This is an unacceptable and unsustainable result”, and “Comprehensive action is needed in response.”

Yes indeed Mr Joyce, that is unacceptable, not only for you as CEO of Qantas, but for any CEO, with this result with you at the helm, so perhaps someone else should be give the chance to take over.

Perhaps the Board should ask Emirates CEO Tim Clark, although I do not think he would ever do it, to pop down to Australia to give the Qantas Board his views and advice on how to really run an airline profitably. 

I imagine Mr Clark would soon sort out the unions and what appears to be Qantas’ rather lack luster senior management, who along with Joyce all seem to blame every factor possible … except themselves!

Come on guys, it is time to take responsibility for your failure and time to fall all on all you swords, getting in a new broom to sweep it all clean.

That is simply the only way Qantas can survive and by that I also mean breaking the grip of the unions and the unrealistically high wages paid and unsustainable working condition that Qantas staff have enjoyed for years … sorry, guys, the party is over! 

I have to say that I found it amazing that Joyce said that Qantas’ core investment in customer service is to continue, yet 5,000 jobs are to go, with while some of those jobs are not related to customer delivery, such a large further slashing of jobs does suggest that Qantas is still way over staffed.

So, the time may have come for those left in Qantas to work longer hours and a lot harder and perhaps expect less pay and not as attractive working conditions … to survive!

Why? Because if those left want to keep their jobs, Qantas simple cannot any longer afford to pay the big bucks for short hours and flashy perks!

In addition, Qantas will need to change one of its core management styles and ethos which is decision making by consensus with anyone, who has tried to work with Qantas will tell you, decisions are made by consensus and at several levels, slowing down, bureaucratizing and complicating, or even killing any decision that needs to be made, with the normal answer from Qantas these days being a big loud NO!

Many industry colleagues say that that Qantas is now simply too hard to work with, saying that as a result they do not bother and simply go to other airlines.

While like others, I am critical of Joyce’s management of Qantas, to be fair, he has been able to bring in some changes, with the best thing he ever did was closing the airline down, but since then it does not appear that he has been strong enough to tell the unions to get lost, as even though the airline is hemorrhaging, they continue to demand high wages and better conditions … are they actually dreaming or just delusional, as they must have realised by now that the current cost model is clearly unsustainable!

If a Tim Clark type solution meant outsourcing to Emirates in Dubai heaps of Qantas’ cost base to achieve lower costs and provide massive savings and by that read survival for Qantas, then I reckon most Australians would say, so be it, because running Qantas in Australia, partly because of Australia’s location and definitely because of Australia’s and Qantas’ very high union driven costs is unsustainable.

Joyce says that over the next 12 months, Qantas will exit underperforming routes and make aircraft changes on certain routes to better match capacity to demand, he only quotes a few, including, Qantas International withdrawing from the Perth-Singapore route, Qantas’ Brisbane-Singapore and Sydney-Singapore services will be operated by A330s, replacing B747s, Qantas services between Melbourne and London re-timed in November 2014 to reduce A380 ground time in Heathrow, with no changes to overall capacity on London flights and the Melbourne-London service change freeing up an A380 for additional flying, and Qantas will evaluate opportunities to use the aircraft on other routes. 

I reckon that we should also watch out for a heap more route changes and chopping, with a further significant “Jetstarisation” of Qantas taking place, as that is the only part of the business that makes money, with an estimated 40% lower operating cost base. 

If I was on Qantas’ Board who along with the CEO are charged with maximizing shareholder investment, then what other options, except the current cuts would any CEO of Qantas, be it Joyce or anyone else have except operate increasingly under the Jetstar model?

So, what else do I think will happen in the massive, multi billion dollar crystal ball which is Qantas’ future?

  • The further significant “Jetstarisation” with not only domestic, but also further international routes being handed over to Jetstar.
  • In the next three years or less, it will make no commercial or viability sense for Qantas to operate its 12 A380’s past Dubai.
  • Emirates offers a significant and comprehensive route network into Europe, including to both London airports, with Qantas being forced financially to pull out of LHR and if it is allowed to, Emirates taking over Qantas’ LHR slots.
  • Not long after that Qantas will stop operating to Dubai, with the three A380 flights daily becoming even more unviable, allowing Emirates to dominate the route and slots in Australian cities being provided to Emirates.
  • I do not think the Government will provide the required financial guarantee to Qantas, as it opens the door to other airlines, especially Virgin Australia and Rex and it also begs the question why the Government has recently let two regional airlines hit the wall. 
  • I believe that the Government will amend the Qantas Sales Act, albeit with a mass of conditions, to allow Qantas to attract international investors, but except for the attraction of the large cash reserves Qantas has in the bank, it is not really a very attractive investment. 

Also, the alliance with Emirates could make Qantas a rather unattractive investment to other airlines, with Qantas not able to afford losing the alliance with Emirates. 

  • Qantas A380’s and other aircraft will be maintained by Emirates and wide range of other services will be provided to Qantas by Emirates, including training, reservations, engineering, catering, frequent flyer, lounges, etc. 
  • Within five years or earlier Qantas will reconfigure at least two if not four or more of its A380-800 into a 95%+ economy and 5%- premium economy configuration operating for Jetstar, offering a one stop route to Europe via Asia, that is the old kangaroo route, which may mean Qantas may have to hold on to some of its LHR slots or acquire some London Gatwick slots. 

The Jetstar A380’s will also operate non stop to Los Angeles and other key volume leisure routes, with the A380 certified for up to 853 pax, that is 538 pax on the main deck and 315 pax on the upper), achievable with a one-class configuration. 

With the world now one of a continuum of change, one thing is certain, in that this is full on change time at Qantas as we have never seen before … and to achieve a rescue, that may have begin right at the very top.

Please let me have your views. 

Written by John Alwyn-Jones

Currently there are "7 comments" on this Article:

  1. ozrail says:

    To begin with, I agree with you that Joyce is past his “best enjoyed by” date. He and his colleagues on the Qantas Board have had their time and the results of their incompetence are now there for all to see.
    As we have all seen, on-board comfort and service have been fading for some time [no “Dinner” on the 5.45pm service from Sydney to Melbourne, scheduled to arrive at 7.20pm, meager though that meal might be and, a far better example, the gradual reduction of seat pitch to Jetstar standards in the Boeing 737-800’s, on top of which – and totally unnecessarily – the retention of seat-recline allows the person in front of you to take over a goodly portion of your feeble entitlement]. Of course, absolutely essential expenditures, such as new uniforms, have not been denied.
    Route reduction means that Perth will join Adelaide in having NO International Qantas service, so and yet again, the “Spirit of Australia” redefines its boundaries more and more to the Sydney metropolitan area.
    Naturally a double daily Dubai-Heathrow makes little sense, just as a Dubai terminator is equally absurd and the way ahead is clearly that Qantas will become Emirates Pacific – but hopefully with vastly improved service standards.
    Fleet choices – another jurisdiction of the Board – have been abysmal indeed with no attempt to pick up on the 777 with all its technical capabilities, a drastic reduction in the 787 delivery programme and deferment of the remaining 3870’s.

  2. >> ‘further significant “Jetstarisation” of Qantas taking place, as that is the only part of the business that makes money’

    Even Jetstar is now losing money http://www.qantasnewsroom.com.au/media-releases/qantas-group-financial-results

  3. Andrew says:

    Seems like everything is nicely on track for Alan to kill Qantas so that his CEO mate at Emirates can have Qantas at a fire sale price.

    How come nobody points out that Air New Zealand is running quite profitably in the same area as Qantas?

    Lots of excuses why Qantas can’t succeed, or should I say their CEO and board can’t succeed. But Air New
    Zealand can in the same market.

    Hmm, something fishy.

  4. Jim says:

    So John, you think its such high wages of the average worker and flashy perks. I suppose when you travel on company business you travel down in economy? You seem to be so critical of the worker, show us what your wage structure is and see if it matches the average person doing the job you do. Its all about getting rid of the CEO and other top management as well as the Board of Directors, who few have any idea about airline or how to run it. With respect, what was Peter Cosgrove doing on as a director of the Board for an airline. Like most others there they have little or no aviation experience. Blind Freddie can see you need people in that position that have an interest in more than being well paid to be on the Board.

  5. Thx for your comments guys.

    Hey Jim my wage structure is pretty simple, as I work very hard for every penny I make – I have no guaranteed hourly rates, no leave loading, no penalty rates, no fixed hours of work, no holiday pay, no long service leave etc, etc, like so may Aussie workers that are living a model that is firmly in the past that Australia cannot any longer afford.

    You see Jim, I am self employed and my income is the direct result of my hard work, with no income guarantees whatsoever

    What about you Jim? Do you get all the wages and perks listed above?

    QF’s workers were amazingly until recently still trying to get more money and improved conditions, when clearly QF cannot afford the current pay and conditions.

    If I fly Business, it is because I pay for it myself or the airline puts me there for commercial or media reasons!

    J

  6. Andrew says:

    I have this theory.

    Alan J is out to kill off Qantas by shifting as much of the business over to Jetstar as he can. It also gets around having to honour the QFF points, eventually there will be no way of using them for flights, initially on Qantas, but later not even on Emirates as there will be no Qantas so no OneWorld rights. Great if you want to buy an iPhone, a BBQ or donate to save the trees etc. Bad if you think your accumulated points will get you in an aeroplane.
    If you want to fly to London, you will have to do it on Emirates as Qantas will no longer fly westwards.
    Oh so convenient that Alan’s best mate is CEO of Emirates!

  7. Jim says:

    Alan Joyce is just doing what he was set up to do by Geoff Dixon, to destroy Qantas and then step back in. He is still hanging about.

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