Severe turbulence ahead on the radar for Qantas
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.
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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