Place in a blender, one Kangaroo, one Irishman and three unions!

December 9, 2011 Leave a comment

Qantas shakes the status quo

by Stephen Bartholomeusz

Politicians and union leaders searching for a context in which to place the damaging confrontation with Qantas could do a lot worse than looking at the latest International Air Transport Association forecasts for the airline industry and some of the comments of its chief executive, Tony Tyler, in particular.

At the moment IATA, which tends to be consistently over-optimistic, is keeping to its forecast of a $US6.9 billion profit for the industry in 2011 and has only modestly revised down its 2012 forecast, from $US4.9 billion of profit to $US3.5 billion. At that level the industry would be generating a profit margin of only 0.6 per cent.

Should the eurozone crisis deepen, a banking crisis develop and Europe fall into recession, however, IATA would expect all regions to fall into losses and the industry overall to lose about $US8.3 billion. As it stands, that looks the more likely scenario than the more benign outcome in the eurozone that underpins the central forecast.

The Qantas group, of course, is profitable. Even after absorbing around $100 million of losses as a result of the disputes with three of its unions that led to the grounding of its fleet, it still expects to generate underlying earnings before tax of between $140 million and $190 million in the December half.

That profit, however, is based on the strength of its domestic franchise, its frequent flyer business, its Jetstar brand and its other non-aviation operations. Its international operations, it has said, are losing $200 million a year.

If IATA’s view of what 2012 might look like in the event that the eurozone authorities can’t finesse a positive and stabilising outcome imminently, the outlook for Qantas’ international business – in which it has $5 billion of capital tied up – would look even less palatable.

Even on IATA’s more sanguine outlook for 2012, the industry would have lost more than $US26 billion over the past decade despite generating revenue of $US5.5 trillion. It is a terrible industry, not helped by the interventions of government or the lack of comprehension of its inherent vulnerability by unions.

‘’You might say that the normal state of aviation is crisis and once in a while we have a few consecutive months of benign conditions – the danger of which is that everyone from suppliers to unions to governments think that airlines are fat cash cows ready for milking in one way or another,’’ Tyler said.

It is the denial of the reality of the international aviation industry and its impact on Qantas’ business that underpins union attempts to freeze those operations in a 1960s status quo and the government’s inability to comprehend why Alan Joyce took that very difficult and financially painful decision to ground the fleet.

If IATA’s fears about the eurozone were borne out, the Asia-Pacific region, generally the most profitable in the globe, would, with the rest of the world, lose money – more than $US1 billion – rather than the $US2.1 billion profit IATA’s central forecast anticipates.

For Qantas , flying point-to-point long haul routes against Asian and Middle Eastern hub carriers with far more modern and efficient products, even the less threatening outcome isn’t going to materially reduce the tide of red ink flowing through its international business. A European meltdown would be very unpleasant.

International aviation isn’t, and never has been, a good business. Over the past 40 years, according to Tyler, the industry has actually made money – but generated an abysmal profit margin of only 0.3 per cent.

In the past decade the emergence of new carriers out of the Middle East and Asia has meant that despite relatively strong growth in passenger numbers, yields have been squashed by the torrent of new capacity pouring into the industry.

Qantas’ international operations need to be radically restructured, their cost base lowered and its configuration re-shaped. Joyce’s strategy of launching a new premium carrier within Asia alongside the rapidly-growing Jetstar business – one of the reasons for the union hostility – might be risky but the status quo isn’t an option.

Even if Qantas could wear the losses, while there is no prospect of generating a return from those operations it isn’t possible for the Qantas board to justify the massive investment required to completely overhaul and upgrade the international product to make it more competitive. That’s why the timetable for the fleet renewal program has been continually pushed out into the future.

Whether or not IATA’s more pessimistic outlook for 2012 is confirmed, the actions taken by Joyce and his board this year to try to do something about the uneconomic structure of their international business are validated by the continuing sub-economic state of the international industry

via Qantas shakes the status quo | Stephen Bartholomeusz | Commentary | Business Spectator.

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Qantas, private equity? chaos? QRed just went nowhere!

November 28, 2011 Leave a comment

The upheaval in global aviation left Qantas boss Alan Joyce with little choice but to propose a subsidiary Asian carrier, which infuriated the unions. Now the upheaval in global markets, courtesy of Europe’s problems, has reportedly forced him to abandon those plans in favour of an alliance with Malaysia Airlines. And all the while those private equity rumours just won’t go away, such is the state of things at Qantas these days – chaotic.

The European debt crisis looks to have scuttled the controversial plans of Qantas Airways boss Alan Joyce for a separate Asian-based carrier, but it can’t squash rumours of a private equity tilt at the flying kangaroo. According to the Australian Financial Review, the turmoil in Europe has spooked Qantas management and they’re preparing to dump a planned multi-million dollar investment in a subsidiary Asian airline in favour of a less risky alliance with Malaysia Airlines. While unions might claim this as a victory, the paper says Qantas is firm in its stance on the job security claims of the unions.

The news comes after speculation re-emerged over the weekend of a private equity bidder for Qantas . According to The Weekend Australian, former Qantas boss Geoff Dixon and John Singleton considered taking a strategic stake in Qantas three months ago, but were turned off by a darkening outlook for equity markets. The theory is that someone with greater capital firepower might still be hanging around. The indicative $700 million bid by Private Equity Partners for Spotless Group has fuelled rumours of increased private equity activity in the Australian market, despite the obvious turmoil in Europe, and much of it has centred on Qantas . While Dixon wasn’t ready to ride the current market waves with his own money – the paper says investment banker Mark Carnegie, Singleton and Dixon are set to launch a $200 million pub fund instead, which could list on the ASX – in Qantas he said it would not be surprising if other players were taking a look at his former employer.

via BREAKFAST DEALS: Qantas chaos | Alexander Liddington-Cox | Wheels and Deals | Business Spectator.

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In war,the first casualty is the truth….

November 17, 2011 3 Comments

Conservative commentators on the Qantas grounding are playing loose with the truth.

In grounding the entire domestic and international Qantas fleet last month, the firm’s chief executive, Alan Joyce, claimed the action was the only way to stop the unions’ industrial campaign. The implication was that grounding the planes was the only way to have Fair Work Australia (FWA) intervene and order a stop to all industrial action.

In the weeks since, a number of anti-union ”cold war” industrial relations warriors, including Peter Reith, Chris Corrigan, economist Judith Sloan and coalition politicians, have thrown themselves into the debate, questioning the efficacy of the Labor government’s Fair Work Act. The common theme is that the grounding of the Qantas fleet demonstrated the weakness of the act, because the company had no other way to get FWA to order a cessation of all industrial action other than by grounding its entire fleet. This is patently untrue.

To understand the massive hoax being played on the Australian community by both Qantas management and numerous conservative commentators, it is necessary to distinguish between Joyce’s notice of an intention to lock out his employees from 8pm on Monday, October 31, and his grounding of the entire Qantas fleet two days before that date. Of these two steps, only the first was ”protected” industrial action. There was no need for the grounding of the Qantas fleet to have FWA order a stop to all industrial action. Simply announcing in advance that a lockout was to occur would have been sufficient to invite FWA to issue orders stopping all industrial action.

Under section 424(1) of the Fair Work Act, “FWA must make an order suspending or terminating protected industrial action that . . . is threatened, impending or probable” where it is likely ”to cause significant damage to the Australian economy or an important part of it”. In other words, the industrial action did not need to occur, but rather it only had to be “threatened, impending or probable”.

Let’s be clear here. Qantas only had to announce its intention to initiate a planned lockout of its employees to invite FWA to suspend or terminate all industrial action. Once convinced of the impending damage to the economy, FWA had no discretion under the act other than to suspend or terminate protected industrial action. So the claim that Qantas had no option but to lock out its employees in order to get all industrial action stopped is nonsense. But there is more subterfuge by Qantas management here.

Having announced on Saturday afternoon that a lockout was to be enforced as of Monday at 8pm, why did Qantas ground its entire fleet on the Saturday, before FWA could possibly hold a hearing and stop all industrial action? Why indeed?

The explanation offered by Joyce was that ”individual reactions to this lockout decision may be unpredictable . . . for this reason, as a precautionary measure, we have decided to ground the Qantas international and domestic fleet immediately”. Qantas grounded its fleet because it apparently had no faith in the professionalism of its own pilots and ground staff.

If Qantas management genuinely thought that the worry, stress and distractions to their pilots caused by the impending lockout could jeopardise passenger safety, then presumably management’s current plans for outsourcing and staff cuts would equally pose a safety risk.

Following the logic of Qantas’ ”risk assessment”, it should ground all its flights until the company’s planned restructuring is fully completed.

In the hearing before FWA, there was no indication from members of the full bench that they agreed with Joyce’s odd rationale. In any case, FWA was concerned with preventing the airline’s planned lockout of its staff. Ultimately, the Fair Work Act worked smoothly, with FWA holding a full bench hearing and then ordering a stop to Qantas’ planned lockout. In the end, there was no lockout and not a single worker lost a day’s pay.

So, what does this episode tell us about Qantas and the current state of industrial relations in Australia? It exposes a senior management team willing to trash its own company’s brand, cause irreparable harm to the Australian economy as well as inconvenience its customers for stated reasons that defy logic.

It is worth noting that FWA found that the unions’ industrial campaign had not caused significant economic harm, as Qantas pilots had not taken any strike action, instead restricting their campaign to making in-flight announcements airing their grievances to passengers. The only factor causing significant economic damage was management’s grounding of the fleet.

There was nothing about the events of that weekend that call into question the efficacy of the Fair Work Act. Ultimately, the government intervened when it received notification of the Qantas decision and a full-bench hearing of FWA took place, leading to the termination of all industrial action, well in advance of the planned commencement of the lockout. By any measure, the Fair Work Act came out smelling of roses. Qantas, on the other hand, has a rather different odour about it.

Bruce Hearn Mackinnon is a senior lecturer in human resource management at Deakin University.

This was originally posted by The Age at the following URL  http://www.theage.com.au/opinion/politics/facts-fly-under-the-radar-20111116-1nj57.html#ixzz1dvfff3nt

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