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From the kangaroo leaping across the tail of its aircraft to its sponsorship of our globetrotting sports teams, Qantas has long been a proudly Australian business, so proud it even called itself ‘the spirit of Australia’ for a time.
It was the national carrier, founded in outback Queensland in the 1920s and owned by the Australian people. It was the first Australian airline to fly overseas, it operated unarmed missions during World War II on behalf of the government and over the decades after the war it became one of the most globally identifiable Australian brands.
Qantas 707, circa 1959. Photo: AAP
But in the 1990s things changed – drastically.
In 1993, the Australian government sold a 25 per cent stake to British Airways and two years later listed the remaining 75 per cent on the stock market. Now, Australians who owned Qantas through the government could buy a little piece of it for themselves.
But it has been a tumultuous two decades since Qantas went public. In 2007, Qantas management was offered $5.60 a share for the business but they said no. The shares closed on Wednesday at $1.27.
The next chapter was written on Thursday when the carrier announced 5000 jobs would be axed and a loss of $252 milion. So how did we get here?
The New Daily asked aviation experts to pinpoint the causes of Qantas’ desperate position and how the company can turn itself around.
What went wrong
Increased competition
A number of international airlines have found ways to “step into the breach” of Qantas’ patchy coverage across Australia and erode its profits, according to managing director of Pacific Aviation Consulting Oliver Lamb.
Current Qantas CEO Alan Joyce. Photo: Alan Joyce
Overreach
Mr Lamb said the company’s management has had its attention “diverted” and “diluted” by trying to run both Qantas and Jetstar in several markets.
“I would say Qantas has been juggling too many balls, and not too many of those balls have really fallen on the profitable side of the ledger,” said Mr Lamb.
Overly generous working conditions
While aviation analyst Neil Hansford thought the Qantas workforce was reasonably paid, he thought other generous conditions enjoyed by its employees were a significant drain on the bottom line.
CEO of Australian Shareholders’ Association Ian Curry agreed, saying Qantas is “carrying the burden of past generous arrangements for its workforce”.
Management misdirection
The Board is also not leading the company effectively, according to Mr Curry.
“[The Board] seems to chop and change whether it’s going to order aircraft or it cancels orders, whether it’s going to move heavy maintenance from one place to another. It gives the impression, from the outside, that its strategy is not well thought through,” he said.
Too much focus on cost cutting
Mr Curry also said the company has become too caught up with cost-cutting and was not giving enough attention to improving its profitability.
“You can’t cost-cut your way to profitability. You only make money if you’ve got revenue which gives you the margins to absorb the costs you should incur,” he said.
Lack of foreign investment
The industry experts all agreed that the Qantas Sales Act, which limits foreign ownership of the company to 49 per cent, prevents Qantas from obtaining much-needed overseas investment, which is available to Virgin, its main rival.
How to make Qantas great again
Focus on Asia
Neil Hansford said Qantas needed to redirect its attention, and its flight paths, in order to capitalise on the most profitable routes.
“Qantas has to accept that it’s an Asian airline that possibly needs to have an extension to London and to the United States,” said Mr Hansford. “As for all the other routes, the sooner we walk away the better.”
Qantas ambassador, John Travolta
Get a guarantee from the government
Mr Hansford said Qantas would greatly benefit from a guarantee from the government that it will back the company’s loans, but acknowledged it is unlikely.
“If they went to the government and said, ‘We are prepared to do a share split so that whatever happens the domestic business, which is essential to Australia, is not put under threat,’ I think there’s more reason for the government to give them support.”
Keep wages, but reduce benefits
Mr Hansford said the unions should offer to reduce benefits like travel allowances for pilots, in exchange for keeping wages stable.
Split the shares
Qantas split its international and domestic operations into separate businesses in 2012, both of which remain under the same share price.
Given that Qantas’ international division has consistently failed to be profitable, Neil Hansford argued Qantas shares should be split, as were the shares of Virgin and, historically, Ansett. Such a split would syphon off the unprofitable international portion.
Keeping the two sections of the business lashed together by the share price is “slaughtering a very, very good domestic business”, he said.
“Basically, do a share split and put it into a separate business that rises and falls based on its own merits, and that doesn’t drag down the good business. Because if it was a coal mine you’d close it.”
But this solution would require changes to the Qantas Sale Act, which is unlikely in the current Parliament.
