Wednesday, August 31, 2011


This should have been posted on Saturday.

Most Australian's have a love/hate relationship with Qantas . . . as you do with relations you can't get rid of.

The time has again come to ask some serious questions about the airline, and what we expect from it . . .


Business is not a social service; it's not about making people happy. Business is about making money.

This urge doesn't necessarily align with other interests. That’s fine. But it’s important to understand what’s motivating individuals, particularly when they’re benefiting from some particular government policies.

It helps to explain where Qantas chief executive Alan Joyce is coming from when he dismisses a $550 million profit (on a $15 billion business) as representing “less than 4 percent return". As a result he wants to double the number of chips he's got on the table to play in the big game offshore, in the hope of winning big-time.

But his interests don't coincide with those of ordinary Australians. Transport is vital and, in a big country, we require an airline. It's a public service. Qantas domestic is making a big profit – it’s being held down by losses on the overseas sectors. Now Joyce wants to pour good money after bad.

Qantas was sold off at $1.90 a share in 1995. Today its share price languishes below $1.60. Anyone who left their “investment" just sitting passively was a mug, because there are always going to be better returns elsewhere. Now an Irish-Australian who's kissed the Blarney Stone is telling shareholders he's got a great idea to take their money and funnel it into a couple of ventures offshore because that's where he thinks there's a pot of gold. Just at the end of the rainbow.

Focused entirely on the bottom line he wants to risk the domestic business to grow the overseas one. And the government dithers; trying to work out where everything went wrong and why the airlines shareholders aren't happy with their measly 4% and why the company's management wants to move offshore to take advantage of cheaper staff.

Just a few years ago a “private equity consortium", the grandly named Airline Partners Australia, made a bid for the airline at $5.45 a share. This included people who had grown fat pretending they understood the industry who thought they could make it pay. With the confident assurance of snake-oil salesmen they blithely asserted that they'd done due diligence and the numbers stacked up. Well, for them anyway, and their own personal remuneration packets. The then chief executive Geoff Dixon stood on the podium with his Chair, Margaret Jackson. Together they happily presented the supposedly “marvelous deal", fuelled by debt, that would've make them enormously rich. This attempt at an internal takeover was put together utilising the supposed expertise of executives who were actually meant to be working for the shareholders at the time. If it had been successful there can be little doubt Qantas would be in bankruptcy today. The burden of debt would have been too great to service.

Someone would have lost money, somewhere, eventually . . . but that didn't mean the deal didn't stack up for individuals or that, even if the airline had gone bust in the wake of the global financial crisis, that APA would have picked up the bill. In the end the tab would have been sent to taxpayers, because of the vital necessity of maintaining air transport links. In other words having an airline is, in fact, a requirement of government after all.

Which takes us back to Labor's original decision – on supposedly unimpeachable economic grounds – to unite Qantas and the old TAA, Trans Australia Airlines. This weeks financial results demonstrate the domestic routes are the cash cow that is financing the offshore expansion dreams. Last year the company made $444 million running the routes within Australia – Qantas International lost $216 million. That's why it's difficult to believe the airline's new five-year-plan for a massive overseas expansion stacks up. In war you'd call it “reinforcing defeat". It’s as odd as spending millions advertising at the same time as sacking 1000 staff. It's as stupid as casually throwing away the “still call Australia home" branding that's taken decades to build up and still provides a warm glow when you hear the children’s choir singing on the big screen. Somehow the prospect of having subsidiary airlines “creating exciting business opportunities [for] premium business travelers" while operating from foreign hubs doesn't engender quite the same spirit.

The blatant deception of the recent full-page advertisements, pretending that somehow the overseas expansion dreams will “bring revenue and profits back to support Qantas jobs and tourism and business in Australia" is as outrageous as it is fanciful. Perhaps Joyce didn't adequately read his own financial statement, because he seems to have missed the fact that the domestic business is thriving. If he were only worried about strengthening the balance sheet he'd be cutting overseas operations – not trying to expand them.

That's because international competitors, like Singapore Airlines and Emirates, operate on a different playing field. They're supported by government. Their home bases are better positioned to take advantage of international travel routes. It’s basic geography. But the competition extends to the age, attractiveness and wages his competitors pay staff. Are the overseas subsidiaries going to get rid of any attendants who fall pregnant, just as their rivals do? The downwards spiral is unrelenting. Why would anyone want to join the race to the bottom?

The new business ‘opportunities’ certainly wouldn't be being considered if government was running the airline. When you change the ownership you change the company objectives. Investors want to make money. They’re not trying to provide a public service. It’s about gouging what you can get. At one time public ownership of airports was considered as obvious as the idea that government should provide roads. Today airports are run by private companies who demand an economic return. This explains why it costs more to park a car for an hour at Melbourne ($12) or Sydney ($15) than in Paris ($4.97) or New York ($5.76). Leaving a car for an hour at Singapore's Changi Airport is just $1.92. Even here in Canberra it’s only $4.40.

In the enthusiasm for privatisation in the 1990’s, selling-off assets was all the go. Unfortunately those in charge of the process – the politicians – didn’t seem to understand the need to align the interests of the newly minted companies with those of the nation. No-one can blame Joyce for his dreams of expansion, just as no-one can accuse shareholders of casting around desperately in the hope something, anything, might make sense of their investment in airlines.

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