ARMCHAIR EXPERTS IN THE COCKPIT

24 January 2014

It’s been said that for every complex problem there is an answer that is clear, simple, and wrong.

There is a never a shortage of armchair experts with theories on how to run Qantas, and the cabin has been especially crowded recently.

Over the past five years, Qantas has been navigating through a complex and cutthroat environment. Oil prices have reached record levels. The world economy has been subdued.  We’ve seen Asian and Middle Eastern carriers, who can do things a lot cheaper, expand aggressively into our markets.

We’ve plotted a course through these challenges and we’ve adjusted it as circumstances shifted. But the reality is that the airline our passengers experience is one of the best in the world and we have a strategy to keep it that way.

For many on the sidelines, it seems few businesses are easier to run than the national carrier.

They include Tony Webber, a former Qantas finance employee, who was retrenched several years ago. His comments on the aviation world come from a one dimensional view of supply and demand that ignore how a multifaceted market actually works.

One of his recommendations during his time at Qantas was to significantly shrink our regional operations so prices and profits would rise. Apart from ignoring our role in the community such a move would also have rolled out the red carpet for our competitors to fill the space.

Commentators are, of course, welcome to their views.  But their more serious claims cannot go unchallenged, because they are based on a fundamental misunderstanding of the aviation market and Qantas itself.

The first claim is that Qantas is a ‘lazy’ company seeking a government handout, to be categorised with Holden.

This could not be further from the truth.

The Qantas Group has reduced unit costs by almost 20 per cent over five years, renewed its fleet with 130 new aircraft, innovated with technology, and lifted customer satisfaction to record levels.

Few Australian business have done more in the post-GFC period to reform in the face of permanent, structural economic change.

We acknowledge that there is more work to do.  In December, we announced the acceleration of this program to deliver a further $2 billion of savings over three years.

We are not asking for government subsidy.  We simply argue that action is needed to level what all sides of politics agree is a distorted playing field.

The second myth is that Qantas and Jetstar should stop targeting a combined, profit-maximising 65 per cent share of the Australian domestic market.

The 65 per cent strategy is about giving our customers a market-leading choice of destinations, frequencies and seats at the times they want to travel.  That scale is part of the premium service we offer and the fares we sell, and it reflects the investment we have made over many years in our regional operations and in building a national low-fares network with Jetstar.  It is prized by our customers and it is a very real competitive advantage that allows us to maximise earnings in even the toughest market conditions.

Stepping back from the 65 per cent would effectively be waving the white flag, not to mention abandoning our role in regional Australia and betraying the loyalty of our frequent flyers.  Imagine someone saying Woolworths should start closing stores in response to the threat from Coles.  Anyone who advocates this kind of approach simply does not understand the way business works.  We plan to keep improving and strengthening our competitive advantages, not walking away from them.

The third myth is that Jetstar has somehow ‘hurt’ Qantas.

Jetstar Australia is a business that has been profitable in every year of its existence, opening up low cost air travel for Australians and creating a new market alongside Qantas as part of a uniquely successful two-brand strategy.  We coordinate which brand flies which route to best serve our customers and to maximise the return for the Qantas Group.  If Qantas hadn’t created Jetstar, someone else would have – and Qantas would have been the loser.

Many Australian businesses would love to have Jetstar’s profile in Asia.  Our total equity investment in these businesses has been less than the outlay on a single A380.  That’s far less than the inflated figures tossed around by those who would rather scapegoat Jetstar – the same people who seize on any setback experienced by these start-up ventures as the ‘real issue’ facing Qantas.

In truth, the value of these airlines is already significantly more than their foundation capital, and it will increase as the Asian middle class drives nearly half the world’s air traffic growth over the next 20 years.  It takes breathtaking small-mindedness to dismiss this growth as an ‘Asian distraction’.

The final myth is about Qantas employees being disengaged.

No-one is more passionate about Qantas than its people.  Engagement levels are up across the business and at record levels in some areas.  The transformation of Qantas is being led by employees, and they are the reason for the record customer satisfaction scores we’re earning and the awards we’re winning.

But it is true that change is never easy. Our people have seen the aviation market change first hand, and to them, it is barely recognisable from ten or even five years ago.

Aviation is a difficult business and the challenges facing Qantas are anything but straightforward. Some of them have been around for decades. We have a strategy to build a stronger Qantas Group for the long term – but the reality is more complex than the armchair experts sitting next to you will let on.

Gareth Evans
Chief Financial Officer, Qantas Group