A Wild Union Appears! QANTAS Uses Selfdestruct!
- Thread starter Tee Kay
- Start date
I don't blame them. But I don't think they are doing it for the future of the company. They probably really wanted no more than what they are asking , keeping jobs and pay raises. Which is fine too. That's what they are for.
Going back to the Slashdot post, you said it had a lot of disinformation. I assume you meant that the difficulty of international business came from bad management, rather than geography / open skies policy as stated in that post? Care to elaborate on that? And maybe you also mean that cost cutting is not the right solution. What do you think would work?
Going back to the Slashdot post, you said it had a lot of disinformation. I assume you meant that the difficulty of international business came from bad management, rather than geography / open skies policy as stated in that post? Care to elaborate on that? And maybe you also mean that cost cutting is not the right solution. What do you think would work?
I've already talked about some of the bad decisions a couple of times.
The thing is, fuel and the Australian dollar are far larger and less controllable variables in Qantas' affordability. Fuel last year was as big a cost for Qantas as labour (about 3 or 4 billion dollars each, if I remember). If a long-haul Qantas flight was, currently, 20% more expensive than its competitors overseas, then given the size of the need for fuel to run a long-haul flight, it wouldn't take a terribly large drop in the current record high Australian dollar to eliminate any cost differential (we're above parity with the US dollar, historically 60-80 US cents per dollar has been the norm).
By contrast, labour costs are predictable and only change very slowly. As has been pointed out, the costs of the unions pre-negotiation labour demands are only 165 million dollars.
But in terms of actual strategy, Qantas is currently withdrawing from long distance links (only 18% of outbound traffic in Australia is Qantas currently) and instead trying to set up a subsidiary airline in Asia using Asian engineering and safety standards and Asian labour costs. Additionally it is shrinking actual Qantas services in favour of sham entities like Jetconnect. The overall aim of the current management is to turn Qantas itself into a shell, an icon without assets, whilst various other flags do the actual flying.
It appears the intention is to be a premium airline, with small planes, doing intra-Asian services. The intention also appears to be to transfer assets into this new venture from the existing mainline carrier. It's a risky plan given they're trying to muscle into an arena packed with competitive, government-supported operators like Cathay, Asiana, Korean, Singapore, etc. And if the plan depends, as it seemingly does judging by the lengths Qantas have gone to here, on transferring existing assets to the new entity, and replacing the Qantas pilots and engineers with cheaper Asian ones, then clearly it suggests the whole venture will have pretty tight margins. My guess is the business case rests heavily on the whole OMG FUTURE GROWTH angle.
But meanwhile, this effort to focus on the new starry-eyed Asian venture has resulted in handing over routes and flight codes to other airlines, cutting back on their orders for A380s (the most fuel efficient for long-haul because they're so large and therefore carry more passengers per litre). The contrast is that Virgin's long distance airline is growing with its 777s. Could Qantas be profitable on more long distance routes if it had purchased more big or fuel efficient aircraft? Probably. But we may never know. The only European destinations Qantas now flies to are London and Frankfurt and it's rolling back its involvement there (although I've just read that traffic on the London route is growing).
Is it any wonder it has such a low share of the tourism market with decisions like that? It seems silly for a premium operator which trades primarily on its history of excellence, its reputation for safety, and its reliability to just withdraw from all these routes.
Edit: and another howler - doing most of its international flights out of Sydney, meaning that Emirates, Etihad and Thai have muscled in to become big operators of international flights directly out of Melbourne. Open skies doesn't by itself wreck an airline.
So, to conclude, of course Qantas is crying poor and crying unreasonable unions, that's what mediocre, ideologically anti-union managers do. But the problem for Qantas is not unreasonable unions, it's that any union agreement involving on keeping stuff under the Qantas flag and in Australia is an obstacle to a fairly speculative attempt to transfer assets and resources into a new overseas venture. If it was just building the new venture, that'd be another issue, but it's the intention to shrink Qantas itself which is the obstacle.
It's important to be careful not to take the current Qantas management at face value. For example, you often see Qantas claiming they pay their staff more than Virgin staff, but at the AGM:
The thing is, fuel and the Australian dollar are far larger and less controllable variables in Qantas' affordability. Fuel last year was as big a cost for Qantas as labour (about 3 or 4 billion dollars each, if I remember). If a long-haul Qantas flight was, currently, 20% more expensive than its competitors overseas, then given the size of the need for fuel to run a long-haul flight, it wouldn't take a terribly large drop in the current record high Australian dollar to eliminate any cost differential (we're above parity with the US dollar, historically 60-80 US cents per dollar has been the norm).
By contrast, labour costs are predictable and only change very slowly. As has been pointed out, the costs of the unions pre-negotiation labour demands are only 165 million dollars.
But in terms of actual strategy, Qantas is currently withdrawing from long distance links (only 18% of outbound traffic in Australia is Qantas currently) and instead trying to set up a subsidiary airline in Asia using Asian engineering and safety standards and Asian labour costs. Additionally it is shrinking actual Qantas services in favour of sham entities like Jetconnect. The overall aim of the current management is to turn Qantas itself into a shell, an icon without assets, whilst various other flags do the actual flying.
It appears the intention is to be a premium airline, with small planes, doing intra-Asian services. The intention also appears to be to transfer assets into this new venture from the existing mainline carrier. It's a risky plan given they're trying to muscle into an arena packed with competitive, government-supported operators like Cathay, Asiana, Korean, Singapore, etc. And if the plan depends, as it seemingly does judging by the lengths Qantas have gone to here, on transferring existing assets to the new entity, and replacing the Qantas pilots and engineers with cheaper Asian ones, then clearly it suggests the whole venture will have pretty tight margins. My guess is the business case rests heavily on the whole OMG FUTURE GROWTH angle.
But meanwhile, this effort to focus on the new starry-eyed Asian venture has resulted in handing over routes and flight codes to other airlines, cutting back on their orders for A380s (the most fuel efficient for long-haul because they're so large and therefore carry more passengers per litre). The contrast is that Virgin's long distance airline is growing with its 777s. Could Qantas be profitable on more long distance routes if it had purchased more big or fuel efficient aircraft? Probably. But we may never know. The only European destinations Qantas now flies to are London and Frankfurt and it's rolling back its involvement there (although I've just read that traffic on the London route is growing).
Is it any wonder it has such a low share of the tourism market with decisions like that? It seems silly for a premium operator which trades primarily on its history of excellence, its reputation for safety, and its reliability to just withdraw from all these routes.
Edit: and another howler - doing most of its international flights out of Sydney, meaning that Emirates, Etihad and Thai have muscled in to become big operators of international flights directly out of Melbourne. Open skies doesn't by itself wreck an airline.
So, to conclude, of course Qantas is crying poor and crying unreasonable unions, that's what mediocre, ideologically anti-union managers do. But the problem for Qantas is not unreasonable unions, it's that any union agreement involving on keeping stuff under the Qantas flag and in Australia is an obstacle to a fairly speculative attempt to transfer assets and resources into a new overseas venture. If it was just building the new venture, that'd be another issue, but it's the intention to shrink Qantas itself which is the obstacle.
It's important to be careful not to take the current Qantas management at face value. For example, you often see Qantas claiming they pay their staff more than Virgin staff, but at the AGM:
Actually this is probably a better summary, from a week or two before the grounding:
http://blogs.crikey.com.au/planetalking/2011/10/14/qantas-how-did-it-get-to-this/
And the author, in the comments:
http://blogs.crikey.com.au/planetalking/2011/10/14/qantas-how-did-it-get-to-this/
And the author, in the comments:
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