Poor old Qantas. A once great airline is about to get into bed with Emirates, a strong and powerful competitor which has shown Qantas a thing or two about successfully running an airline.

Look who's hangin' out in the hangar together. Pic: AFP

For some, it’s a case of the old saying “if you can’t beat them, join them”. For others, it’s just the end result of a repeated failure by Qantas to respond in a smart and timely manner to the ever-changing international aviation market.

So how did Qantas get into its current state? Well, it’s a long story but there are a number of recurring themes. First, Qantas has repeatedly failed to respond to the international aviation market in a manner that allows it to get ahead of its competitors. While the emergence of Emirates and Etihad was changing the landscape, Qantas didn’t really know how to respond. For years Qantas was happy to stick by its “oneworld” alliance anchored by British Airways and American Airlines.

The problem was that British Airways and American Airlines have been in decline, or perhaps as Qantas would call it “terminal decline” for years. How many people know what the oneworld alliance actually means? When’s the last time someone flew British Airways and American Airlines? All those things should have been obvious to Qantas management for years, including the steady decline in Qantas’ market share in the international market.

How did Qantas management respond to the changing international landscape? Well, it did the obvious things like cutting back on unprofitable routes and tried to reduce its costs. Sadly, these are defensive responses and called into question management’s judgment in the first place. How did they allow Qantas to fly unprofitable routes in the first place given that you can quickly burn up money on those flights?

How did Qantas allow its costs to blow out? It’s too easy to say that the old government ownership or unions are to blame. Bringing costs into line is not just about confronting the unions. It’s also about self restraint on the part of management. Management staffing levels need to be looked at as closely as engineering or operational staffing levels. Given that safety is paramount you would think that cuts in management staffing levels should occur in preference to engineering or operational staffing levels.

Given that management salaries are generally larger than wages and salaries of engineering and operational staffing you could actually save much more money by cutting management staff and salaries. The problem is that management staff makes the decisions and they are likely to look after themselves and each other. That’s why leadership by the CEO is critical.

The problem here is that it takes a brave CEO to suggest cutting management staffing levels and salaries. It’s always going to be tough to cut management staff and their salaries for the simple reason that not only is the CEO part of the management team, but the CEO would need to take a big pay cut if the CEO was going to have the moral authority to cut management staff and salaries.

It’s always a challenge to get past self interest. Not surprisingly, the Board, CEO and management could always be relied upon to roll out the so-called ‘salary benchmarking studies’. Naturally, these studies will show that management is being paid at comparable levels to international companies. The old international comparisons are always good for showing that Australian management should be paid more and that operational staff should be paid less. Funny that!

The point is simple. Wage and salary costs, as well as corporate overheads, need to be brought under control at Qantas. This should be from the CEO right through to all operational staff. The burden needs to be shared fairly across the whole of Qantas or you will find that morale will fall and staff absenteeism levels with rise. Go have a look at the staff absenteeism levels on page 144 of Qantas’ 2012 Annual Report and you will know what we are talking about. It’s amazing what you can find out about an organisation in those back pages of an Annual Report.

Interestingly, those absenteeism levels appear to be rising in those parts of Qantas that are seemingly under pressure and falling in those parts which are doing well. Indeed, in 2012 absenteeism fell at both Jetstar and Qantas Frequent flyer. These two areas have undoubtedly been the two success stories. Why? Well, despite what faults they may have, they generally offer something that customers want.

Ultimately, that’s the key message in any form of retailing or service industry. Give the customer what they want and they will come. With Jetstar it’s clearly the price of the airfare. Jetastar airfares are ‘competitive’ in the customer’s mind. That’s a big hint as to why Qantas International is struggling. Qantas international airfares are ‘uncompetitive’ in the customer’s mind.

When is the last time you heard anyone say to you that they were flying Qantas International because it had the cheapest airfares? Your mates will probably tell you they flew Jetstar or some other airline offering a cheap international airfare. Qantas International may not always be the most expensive airline when searching for an international airfare, but in the customer’s mind Qantas international airfares are ‘expensive’. That’s a marketing and branding challenge for Qantas International.

While it’s certainly a challenge that Jetstar has successfully taken up by positioning itself through competitive pricing, Qantas International needs to do much better in the way it positions its product. It is price or service? For some, Qantas International can certainly do much better in both areas. Qantas International can no longer just rely on those of us who are ‘rusted-on’ Qantas customers, it needs to reach out more to those ‘swinging voters’ who are voting every time they fly overseas.

Urgent action to create and promote increased brand loyalty which translates into strong and repeated business lies at the heart of what’s need to bring about a significant turnaround at Qantas International. Customers need to be quickly made to feel ‘good’ about flying Qantas International or that they are getting a ‘bargain’ when they fly Qantas International.

Simply getting into bed with Emirates, while seductively appealing to Qantas management, is not a definitive or everlasting solution. In fact, it’s very dangerous letting your most formidable competitor into your organisation. They get to know how you tick and they may end up taking you over.

Will Emirates ever think about taking over Qantas? Well, at the moment there’s a limit on the amount of foreign ownership there can be in Qantas. Funnily enough Qantas has long pushed for the removal of that foreign ownership limit. What an interesting coincidence.

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38 comments

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    • SAm says:

      06:09am | 23/01/13

      Managers and CEO’s being asked to sacrifice? NOOOO!
      Never seen it in my life and doubt I ever will. It will always be the workers who bear the brunt of their stupid decisions

    • acotrel says:

      09:18am | 23/01/13

      There is such a thing as ‘productivity gain’.  You can achieve it two ways.  You can cut the wages bill, or you can improve the process and provide the quality which meets the customers expectations when they pay the higher price. While Quantas management are squabbling with their unions, they are losing the plot.  They should pay Australian wages, but insist on their staff providing the best customer serrvice in the world.

    • AdamC says:

      09:33am | 23/01/13

      Acotrel, I am breaking my long-standing rule of not responding to you. This is because I wanted to explain that cutting wages is not the same as improving productivity.

      You can improve productivity in a number of ways. One is by changing processes to create more output with less labour, such as by incorporating new technology or eliminating process inefficiencies. Another is to phase out poor worl practices. An example of poor practice at Qantas is senior pilots being paid lots of money for very little work. Alan Joyve has mentioned before that, even as CEO, his effective hourly rate of pay is lower than a senior Qantas Captain’s.

      Unions typically oppose productivity improvements because they normally involve either job cuts or roles becoming less cushy.

    • NESLIHAN KUROSAWA says:

      06:20am | 23/01/13

      Hi Frank,

      I am sorry to remind you but it was more Qantas needing the Emirates financially and not the other way around.  Most of my friends and family members say that Sydney- Dubai -Europe just seems to be the most popular international route right now! Instead of thinking Qantas as being a great airline once upon a time, I would like to think that it can be great once again.  Lets also not forget that major international airlines run on the same theory just like any other business with great marketing techniques!

      I believe that those happen to be actually increasing the passenger capacity, flight frequencies as well as customer satisfaction when it comes to in flight service and attractive airline ticket prices. When we all know and realize that most Australians are already flying the Emirates or some other Asian airline, is it any wonder that Qantas has fallen way behind some other international airlines?  It is not so much who is going to take over whom, but by working together how we can improve customer satisfaction that more Australians and Europeans will choose Qantas over any other major airline, just like before, I only presume.  Kind regards.

    • A Concerned Citizen says:

      08:34am | 23/01/13

      I think the only way Qantas will be ‘great’ again is by getting the following.
      A competent government buys Qantas back (given that the company is worth absolutely nothing now, we could probably offer less than the price we sold it for originally).
      From there we immediately restore all previous management practices and company policies pre-privatization, possibly taking a note from the national airlines that seem to be outcompeting Qantas;
      While we cannot compete for lower prices, we can compete for quality (perhaps apply a few subsidies where necessary).

    • acotrel says:

      06:38am | 23/01/13

      ‘Qantas International may not always be the most expensive airline when searching for an international airfare, but in the customer’s mind Qantas international airfares are ‘expensive’. That’s a marketing and branding challenge for Qantas International.

      Quality doesn’t cost - it pays !
      I used to fly QANTAS because it was Australian owned, used Australian pilots and maintenance facilities, and ‘shit did not happen’.  Now they offer no better value for money than any other third world airline. So I base my choice solely on price.

    • marley says:

      07:47am | 23/01/13

      @acotrel - it is still Australian-owned, so far as I know, it is still piloted by Aussies, and most of its maintenance is still done in Australia.  Don’t kid yourself.  Like most Australians, you’ve simply decided you’ll forego all that for a cheaper flight.

    • A Concerned Citizen says:

      08:09am | 23/01/13

      Acotrel is right- being largely privatized, exported its workforce, and is now dependent on a foreign airline to survive, the idea that it is still ‘Australian owned’ is a joke.

      For me, it was simple- the airline was partially sold (which seemingly is enough for the private-owners to change the whole approach of the company), that its new management (Joyce) got greedy and took some approaches that made the airline completely unbearable for customers. While cutting staff costs and quality of service, he granted himself a gigantic payrise- ensuring that prices would remain the same despite competition being far cheaper.

      Quite frankly this airline is more of a burden upon Australia than an asset, and the sooner it folds and gets replaced, the better.

    • Daniel says:

      07:09am | 23/01/13

      I have really given up worrying about QANTAS now. Its been years since I have been on one of their flights as well. They continue to deny and lie about maintenance overseas and also that they are looking after their workers. They dont give a damn about Australia. So I have given up worrying about QANTAS.

    • A Concerned Citizen says:

      08:21am | 23/01/13

      Exactly- I had long since terminated my membership with the company due to their deteriorated service and gladly fly whichever foreign airline gives the best value.

      I definitely don’t owe any loyalty to a privatized company; and given its poor record of self-inflicted problems and corruption, it deserves no support from Australians.
      Ironically, it would serve Australia best by either being sold back, or simply folding entirely and being replaced.

    • Nathan says:

      08:25am | 23/01/13

      I think that sums up nicely my thoughts and those of many others i have spoken to. Specially when the customer service is rubbish

    • ramases says:

      07:52am | 23/01/13

      I flew QANTAS once on an international flight but never again. I always fly Etihad, the worlds best airline five years in a row and cheaper than it competitors over most routes. There planes are clean, the food is always great, the in-flight service is second to none and they treat the passenger like a welcome guest.
        Even if QANTAS teams with Emirates their prices will still be high, their service questionable and the way passengers are treated wont change.
        As for cutting prices, Emirates and Etihad planes are serviced overseas and i see no problem with their planes so why does QANTAS insist on using overpaid Australian workers to service theirs. Oh of course people will go on and on about the safety record but in reality planes are safer than motor vehicles to use day in and day out. Tough times demand tough decisions and either QANTAS bites the bullet or goes under and just becomes a feeder service for Emirates and a poor one at that.

    • Philosopher says:

      08:25am | 23/01/13

      of course Etihad is cheaper - it’s probably subsidised by opium, arms dealing and Saudi oil cartels.

    • lostinperth says:

      08:28am | 23/01/13

      “As for cutting prices, Emirates and Etihad planes are serviced overseas and i see no problem with their planes so why does QANTAS insist on using overpaid Australian workers to service theirs”

      Unions.
      Not only do they insist on Qantas using Australian workers when equal work can be done cheaper overseas, they also refuse to allow negotiations concerning the flexibility of Qantas’ workforce. That is why Emirates and Etihad are doing so much better. Their workforce is paid less and is more flexible leading to huge savings in their costs.
      If the unions were fair dinkum about Aussie jobs they would insist that all members fly Qantas or Jetstar to support local jobs.
      Wonder how many do?

    • Jim Moriarty says:

      08:38am | 23/01/13

      “I flew QANTAS once on an international flight but never again.”

      Oh god, I completley agree. Melbourne to Heathrow in a Qantas plane, one of the most miserable times in my life.  Plus it took them half an hour to bring a drink.

    • acotrel says:

      09:11am | 23/01/13

      It is still about quality.  If you pay more, you expect value for money.

    • stephen says:

      07:56am | 23/01/13

      The CEO of QANTAS is an Irishman and he would have no more feeling for the brand being an Australian one than he would have for, say, Air France.
      (The way to complete globally is to compete with cultural integrity.)

      Most travellers I know of began to utilize overseas airlines well before our own carrier outsourced its maintenance and crews, (I’ll laugh, and say that that’s because the hostesses wear what looks like shower curtains at work) ; the reason they did this, I think, is because once they stepped on the plane whether it be Emirates, Alitalia, Lufthansa - or whatever - they were already ‘there’, like as in that country : the plane was like an Embassy, and everything a passenger wanted to feel about another country was right in front of them.
      Not so now.
      A plane’s interior looks like and feels like a bus stop in downtown, well, anywhere.

      ps It’s Oz day on the weekend. It’s amazing how many oz flags are sticking out of cars that are made in France, or Germany, or Taiwan, or Korea ...

    • AdamC says:

      08:52am | 23/01/13

      The success of Jetstar shows Qantas management can effectively run an airline when they are doing it without a legacy cost base that renders them uncompetitive.

      Qantas management have made some mistakes, including cost-cutting initiatives that have left the mainline carrier decidedly middle-market at a time when the airline sector is dividing into luxury and budget segments. However, what could the management do instead? Qantas hosties are notoriously ordinary. There is no point trying to compete with Emirates and Etihad on service when your job-for-life cabin staff seem to see customers as an inconvenience.

      However, Qantas’ fundamental problem is that their cost base is too high. Zumbo’s glib suggestion that Qantas cut management perks would not actually do anything to resolve this problem. Just like the Australian car industry, cultural issues and union intransigence will see Qantas continue to decline, with workers milking the remaining economic rents for all they are worth, until there is nothing left.

      Then Jetstar will take over the budget routes and former mainline Qantas hosties and pilots will retire or get jobs with Singapore Airlines or the Middle Eastern carriers.

    • Alex says:

      08:53am | 23/01/13

      This article doesn’t show brilliant knowledge in the airline industry. Firstly AA and British Airways were very strong airlines at the time of the one world alliance was done. Yes now they are in decline, but this is the same for a lot of other major airlines. Actually a lot of major US airlines are in decline or in trouble.
      Qantas offers a premium service, compared to Jetstar, you get food, you don’t need to pay extra hidden fees, and if you are late by 1 min you will not be turned away (this happened on my flight to Cairns with Jetstar).
      A trend in the airlines industry and if you ever bother to fly in the USA you will see that all airlines are no frills, the planes are old, and the interior is ancient. So actually good on Qantas for keeping up some of the old standards.
      Only if you are happy to go to no frills, no service and you bag is an extra $25 to check it in, then so be it. But myself and a lot of other frequent flyers prefer the better quality.
      And as for the comment of cutting executive wages… The problem here is, if you cut them, they will walk to another job, and soon you will end up loosing your management team and no assurance you can replace them with competent people for the lower wage you are offering, it’s simple business.

    • Gordon says:

      09:30am | 23/01/13

      For all the letters after the name I don’t think Frank has much actual business experience…as Alex has identified. The competitor airlines Frank has compared Qantas with are basically pets kept at great expense by governments with oil money.They GIVE them their fuel for crying out loud. If we wanted to fund QANTAS directly out of the treasury we could probably do that, but with what money?

    • Steve says:

      09:04am | 23/01/13

      Qantas’ problem is that it faces competitors (both new and old) that have much greater financial resources (from friendly governments) and more freedom to take advantage of them.  It looks bad in comparison to those new competitors in this part of the world, but it looks OK compared to BA, Air Italia, etc, etc.

      Take Eithad and Emirates for example- newer and more fuel efficient planes, better service and more flixbile crewing because they started from scratch.  Engineering done where it makes sense in terms of efficiency and costs - not where the unions and the Australian government want it to take place.  All enabling cheaper airfares and a better flight experience.

      Qantas’ other huge disadvantage is that Australia is not on the way to anywhere but NZ.  It can’t be a dominant airline with a hub of routes, only flying Australians and tourists out and back.  Its base market is 22m people. 

      Where the unions come in is that they make adapting to these challenges much more difficult and slower.

    • acotrel says:

      09:24am | 23/01/13

      ‘Qantas’ other huge disadvantage is that Australia is not on the way to anywhere but NZ.  It can’t be a dominant airline with a hub of routes, only flying Australians and tourists out and back.  Its base market is 22m people.’

      The free market is globalised, can’t Qantas fly where it likes where we have access ?

    • marley says:

      09:36am | 23/01/13

      @acotrel - do you remember the uproar when Qantas announced it wanted to operate out of Asia?  If you want global routes, they can’t begin and end in Australia - they have to begin and end where the traffic is, Europe and Asia in particular.  No one is going to fly from Singapore to London via Sydney or Perth.  And the people already in Perth or Sydney who want to fly to London aren’t enough to keep Qantas afloat.

    • Harquebus says:

      09:25am | 23/01/13

      The aviation industry’s days are numbered. Peak oil mates, peak oil. Frank’s analysis is just a symptom. WTC today is U$96. In 2001 the average price was $23. It doesn’t take a genius to figure it out.

    • expat says:

      11:05am | 23/01/13

      Peak oil, the ultimate green scaremongering, i’ve noticed that the peak oil scenario has gone a bit quiet now that they have sunk their teeth into global warming..

      That oil was supposed to run out in the 80’s, then the 90’s, then the naughties and probably will be forecast every decade for the next 100 years.

      By the time crude oil is even slightly rare we will be producing synthetic variants in mass quantities.

    • Harquebus says:

      12:52pm | 23/01/13

      Yeah right!

    • DocBud says:

      04:29pm | 23/01/13

      We are not about to run out of oil anytime soon:

      http://www.radford.edu/~wkovarik/oil/

      In addition, we can make oil from coal as South Africa has been doing since 1955 and the aviation industry has successfully trialled biofuels.

      I think it will be a long time until we have to start getting around in sailing ships again.

    • bananbender56 says:

      09:30am | 23/01/13

      If half of the whingers above were Qantas shareholders then maybe they could collectively change the way things happen in qantas by voting at AGM’s etc. Re-nationalising is not the answer.

    • Terence says:

      09:56am | 23/01/13

      Well obviously Emirates are doing something right, so look and learn might be the order of the day! The faithful will only remain that way as long as they are not getting shafted.

    • Art Vandelay says:

      10:38am | 23/01/13

      It’s all good to talk about cutting management wages but you need to consider how much of the total Qantas workforce do managment make up. Without seeing any actual figures, and I’m happy to be corrected, I would asusme that they make up a relatively small percentage of the total employees. Then consider how this saving can be passed onto customers, in the scheme of things how much is this likely to reduce a single airfare by? Presumably not very much and in reality the management wages are probably fairly low when compared to other costs of running an airline. So this sort of savings would propbably only drop fares by a few dollars each when you consider how many fares are purchased each year.

      The next issue is that the people who fill these management positions can get similar positions in almost any industry and therefore what is paid to them by Qantas must be comparable as to what they could be paid elsewhere. If these people can be paid more by a different employer then why would they want to work for Qantas; Qantas would end up having to pay less skilled people to fill these positions and this equates to substandard management, although I suppose what you’re saying is that this is already the case.

      Sadly the reality is that it does come back to the wages paid to the majority of workers. If Emirates can service their planes overseas at a significantly lower rate, or if they are able to pay their hosties less than Qantas then there is no way that Qantas can compete with them. These costs make up the a significant amount of the costs of runing an airline and the fact that Qantas must pay higher rates than others puts them well behind the rest of the pack and makes it far more difficult to offer the same service at the same price and avoid making a loss.

    • John says:

      10:57am | 23/01/13

      Just get rid of that incompetent Irishman.Ever since he took over the drivers seat,we have seen our once great airline go pear shaped.We were once the safest airline in the world,now we are not even in the top twenty.
      Send him back to whence he came,along with a good swift kick in the arse.

    • Freddykaboodle says:

      11:18am | 23/01/13

      You fail to point out that Emirates and Etihad have TOTALl Govt. backing, from their OIL rich masters. How can you compete, check it out, you can bet everything you own, they will never show a true balance sheet. NEVER. They are answerable to no one, and of course they have the best planes, and the best fuel deals, and great Airport Gate deals….because they have the money to buy it, or the fuel to trade it. Anyone know of a Union fighting for workers rights in the Arab world,NO. Industrial relations are a joke there, Cabin staff will be paid nothing in comparison to Qantas.
      I fly Qantas all the time, no problem at all. I hate all you whingers, especially the ignorant ones.

    • Steve says:

      12:12pm | 23/01/13

      I fly Qantas when I have no other option, and I pay a lot more for their flight than on other airlines.

    • Expat says:

      05:26pm | 23/01/13

      I think that you will find that many of the cabin crew and pilots are imports and they are paying as much if not more than the likes of the red roo. Add the fact that the staff pay minimal if not no tax and for years they have been taking the best crews from Aus, those that could fathom living in the sand pit anyway.

    • Colin says:

      11:19am | 23/01/13

      “Will Emirates ever think about taking over Qantas? “

      Well, maybe that would be for the best in the long run; that way terrorists may think twice about blowing up UAE plane over an ‘Evil Western infidel pig-dog’ one…

    • P. Darvio says:

      11:26am | 23/01/13

      Qurantas…...

    • MK says:

      01:32pm | 23/01/13

      When Stewards and stewrdesses, become too old to work at other airlines,
      and become bitter about it,
      the ‘retire’ to Qantas to exact the bitterness on the customers

    • Sherlock says:

      04:27pm | 23/01/13

      I recently did Sydney/Shanghai with Qantas. On the return leg, it seemed as if they hired their staff at the local retirement village. If the head steward wasn’t 65 he sure looked it and I think his assistant may have been his wife.

      The woman in business class was so huge it was a wonder she could fit in the aisles. I wouldn’t want to be behind her in an emergency.

      The service was terrible. I asked an attendant if their was some place they could store my jacket apart from the overhead locker and the response was too dreadful for words.

      Sorry but from now on I’m back flying with Cathay. Better planes and the staff will go out of their way to do almost anything to make your flight as pleasant as possible.

 

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