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Qantas

What is going on at Qantas? Is it just that high Australian costs are driving Qantas international broke so that it must move offshore? No management failures with respect to fleet management?

A bit of decent information about the extent of cross-subsidisation of JetStar from Qantas international would help.

” This morning’s media, like yesterday’s supposedly learned commentary from some financial analysts, is crammed full of claims that the full service Qantas international operation is going broke.

It is time for Qantas CEO Alan Joyce to prove it.

Bring on the forensic accountants with power to fully inquire into how much those losses come from gifting assets and continuing cost support from the rest of Qantas to Jetstar.

There are glaringly obvious management failures at Qantas in terms of fleet planning and networks. Why should the investors and customers accept at face value that the fading fortunes of Qantas compared to other international competitors are due to government support or trade liberalisation when in fact they may substantially reflect inadequate management, or, as seen in the failed private equity bid, perhaps an underlying obsession with pocketing the true value of the business.

No-one should be in any doubt that the once low fare franchise of Jetstar (which is now sometimes more costly to use than Qantas) can make excellent returns and grow the Qantas group business, and in a much overdue way given the current investment in Jetstar Asia and Jetstar Pacific, actually generate new investor wealth on an attractive scale from participation in the Asia markets for air travel.

But if the full service business internationally is to pilloried as not making money, and used as an excuse for cutting the Qantas standards of in-house excellence,  there are some very serious matters to be examined, especially concerning a management that hasn’t paid a dividend for more than two years and despite Jetstar has seen its domestic market share remain essentially static and its international share continue to shrink.”

8 comments to Qantas

  • conrad

    I thought it was obvious what the problem was at Qantas — they’ve had bad management for so long they’ve basically gone from a premium airline to a not-so-premium airline, and as far as I can tell, almost the only airlines that make money are premium ones or ultra-cheap ones, and they’re also in region with ultra good competitors. They’ve also lost their reputation for having better serviced planes, which I guess was a problem of outsourcing everything which would have given them the same reliability as everyone else.

    At least for people like me, it’s obvious — I can pay $50 more and get either Singapore or Cathay for my flights, both of which never go on strike, have reliable planes, have better service (including at the turnstiles where there are always long lines at Qantas), have vastly better food, and actually have things like newspapers now and then (I’m also now a higher up member of Cathay so I get access to all the other things like the lounge, so going back to Qantas would be even harder ). Alternatively, if I want the cheapest ticket, I can get Thai, Malaysia, or UAE, all of which are no worse than Qantas.

  • Fxh

    Conrad , I haven’t flown qantas for years but if you reckon they are worse than Malaysia then I’m worried. I’m off to Taiwan again in a month or so and will go Cathay as years of experience says they are best at cost, value, on time, service etc.

    Harry, the word from inside Qantas Jetsatr is that all or most costs are loaded to Qantas and not billed accurately or at all to jetstar and thus distorting costs and profits on both sides.

  • Fxh

    I forgot to add that last time I flew bloody Qantas I spent about 8!hours in Oz Inc
    Including 5 at Sydney airport

  • conrad

    Fxh — I’ve only taken Malaysia once, but Qantas isn’t much better — it used to be (I remember going through the years when they were getting worse and worse. You can use the salad as an analogy. Once upon a time you could eat it and you got a poor quality olive and some dressing. Then the olive disappeared and then the dressing. Now only a rabbit could like it). Alternatively, I was being nice in comparison with UAE — most people think they are really good. The main reason I don’t take them is that I don’t take airlines owned by countries with governments I don’t like for one reason or another (when I go to Europe, it would in fact decrease my trip by 2-3 hours I think too compared to Cathay).

    Incidentally, the worst thing about Cathay is that I find they always cool their planes down too much, so take a jacket onto the plane.

  • via collins

    FxH,

    I seem to have miraculously escaped the “bad qantas” issues over the years, but i fly SIA as a matter of preference, and have done for 15 years now. Late planes? Never. Poor service? Never. Economy class that matches some airlines business? Check.

    Their air miles programme is a nasty gouging beast, but the service they offer is ticketty boo for mine.

    FWIW.

  • MH

    HC Qantas’s problems are that the groups is too diversified as a corporate entity and its woes or bad management decisions go back a long time. Qantas as a group has the old state operators such as the former Sunstate Airlines, as well as Victorian and NSW Domestic operators clumped together under the banner of QantasLink, together with the international long haul which is most readily recognised by the travellin public. As air routes were gradually opened up to competition from the mid 1990’s Qantas has had to compete in a variety of markets that has taken it away from its long haul roots and the genesis for that change really occured when Australian Airlines previously TAA was amalgamated into Qantas as Qantas domestic. That merger was never properly completed for a variety of reasons, different fleets, staff unions (domestic v international pilots for e.g), markets etc. The introduction of competion on domestic and international routes has been met by a variety of strategies; strategic buyouts of domestic operators (rationalisation), fleet purchases and outsourcing (for many years QF flights were outsourced domestically by Qantas as QantasLink via National Jet who were able to do the work for Qantas at a lower cost than Qantas could and now more recently by Jetstar (which has led to National Jet being quietly pushed out and back to mining charter and other work). Qantas’s fleet is now a complex mix of old and new, pure jets and turboprop aircraft and the overheads from maintaing this plant (fleet) is crippling Qantas. They tried outsourcing maintenance but have met with local union problems and quality control issues, simply it has been death by a thousand cuts. Attempts at strategic alliances overseas have met repeatedly with problems, regulatory and simply of incompatible brands, but by and large, mangement has repeatedly wasted time and effort attempting to either merge with or form a strategic alliance internationally with other legacy carriers that were themselves financial basket cases (Remember the ill fated British Airways dalliance?). For a variety of reasons Qantas’s technical expertise has led them to become overeliant on one supplier, Boeing, and changing markets and world economic developments have turned what seemed good fleet decisions into dubious if not bad ones. Qantas hoped to get the B787 or Dreamliner to replace its ageing 747’s and 767’s but Boeings leap of faith into composite construction has been a disaster and it is now quite likely it will never meet it’s design specifications and delivery is now so far down the track that you might as well forget about it, Boeing has to survive the 787 debacle as company itself. So Qantas is stuck with an ageing fleet of aircraft while its international competitors have neatly lept into more fuel efficient and newer types, such as the B777 and A320/A330 family. Dixon and company were correct in trying to sell Qantas and nearly offloaded the lot to private equity sharks who by now would have gone broke along with Qantas international and some other interested party would have picked up the only valuable part of the group, QF domestic and QantasLink. Qantas’s days of being able to run an international airline service clear across the world and back again are well and truly over, it cannot compete against other airlines close to major trading nations with easy and by comparison medium to short distance routes with high passenger densities operating new, fuel effienet and less maintenace demanding aircraft and can only lose money trying, it may be (or may have been) the world’s best airlines in terms of safety and professional image but it is being squeezed hard by its competitors and this will only intensify. Qantas as a group day by day more closely resembles Ansett before time and regulatory scrutiny finally brought Ansett to an end, too many different aeroplanes, too many different routes and poor strategic management. I hold little hope for the Japanese venture, JAL itself once one of the world’s great airlines is now a basket case for the same sort of reasons. Sad as it may be, Jetstar and Virgin represent the best hope for Australian Airline businesses, not Qantas and if the politicians get involved they will only prolong and intensify the downward spiral. Time to break it up and let the various arms stand alone again.

  • MH

    HC I should make clear I do not work for Qantas and never have nor any other airline. Regarding your request for info about Jetstar/Qantas I am not sure if cross-subsidisation is the critical issue. Fleet age, diversity and complexity is the major problem together with competion espcially internationally. Jetstar has all relatively new aircraft compared to QF mainline (domestic and international)and of the Airbus type A320/A330. Qantas international was until recently operating the B747-200/300/400, the B767-300, the A330 and the A380. QF domestic operates the B737-300/400/800. QantasLink has the Bombadier Dash 8-200/300/400. So until recently that amounts to effectively 12 different types of aeroplane. While there are some commonalities for spares, especially in the 747 and 737 class of aircraft, they are not as interchangeable as it would at first appear. They all have different engines and electronics and avionics. So not only do you have to train and type-rate each crew, pilots and cabin crew for each type, you also have to do the same with your engineers who are further broken up into different categories of engineers; engines, airframe, electronics, avionics etc. You then need different training and maintenance facilities for these aircraft. As aircraft age the frequency and complexity of the overhaul checks and reviews increases further adding to costs and problems. To some extent QF has integrated its operations and derived some flexibility by being able to use what were ostenbily aircraft for international routes domestically, e.g. 767 and 747.

    Trying to find appropriate markets for the various seat and distance capacities of the aircraft is a continuing problem for the company and its serious competitors have by and large shifted into more modern aircraft such as the Boeing 777, Airbus A330. A340 and have better route structures which are more suitable for the A380. Workforce adaptability is problematic due to regulatory requirements for currency on type and appropriate qualifications other than the basic license.

    As is well known the return on capital invested in the airline business is dreadful and legacy carrier after legacy carrier has hit the wall overseas as Governments who were the major owners have realised that the costs of national pride and prestige are very high indeed when it comes to air transport in a deregulated environment which low cost startups. All the new start ups have been low cost and I do not think there has been a successful premium product startup (similar to say QF international) in the past decade and a half.

    The elephant in the room is however fuel costs which have risen inexorably especially from about 2000 and this is the major cost impost for any airline that is inescapable, except to use less of the stuff. I understand some middle eastern based carriers effectively get their fuel free from their own production sources. Hedge contracts are basically unavailable and are a guaranteed loss for the contract offerers which is why hedging has virtually dissappeared for fuel. In such an environment to have to continue to operate aircraft designed in the cheap fuel eras of the 1960’s (B747) and 1970’s (B767) is very difficult indeed.

    These and the change in market dynamics for inbound and outbound traffic to Australia with rising exchange rate makes Qantas’s problems very difficult indeed, I for one would not be interested in buying shares in the company nor do I have much faith it can survive especially with the current Board and CEO in its present form.

  • hc

    Thanks for your comments MH. You have raised many valuable points. I always thought the move with British Airways was dumb. I Guess the too many routes problem is an issue associated with the small Australian customer base and our location at close to the end of the earth.