Is Qantas so broken it can’t afford to sack the unwanted?

The downside of downsizing is gripping Qantas.  The intrinsic value of the enterprise is being run down by its dropping of under utilized pilotsand the shrinkage of its network to the point where half of the country no longer has Qantas international services.

The prevaricating over a sale of the Qantas loyalty program coincides with the diminished value of a rewards scheme for an airline which flies to fewer places, and less frequently, than ever.

What point is a loyalty program that hasn’t got anything to reward people with?

We’ll soon find out. There are signs that pressure is on the group CEO Alan Joyce, to tell the market what the airline can realistically get from a full or partial sale of the frequent flyer program, as well as to indicate exactly how much the group will lose for the full financial year, instead of leaving the market trading in the dark six weeks from the end of the financial year.

Corporate paralysis is apparent at a number of levels, made worse by the fear in its managerial ranks of the slaughter promised at the end of February but only being rolled out in installments, which are costly, since whether by termination or voluntary redundancy, removing employees involves massive sums.

The money Qantas could be spending on more capable versions of the A380 and converting the incredibly cheap options it has for Boeing 787-9 Dreamliners, is instead being spent seeing off the talents and experience, and the brand value they brought to Qantas, in order to shrink the airline when international traffic to Australia is consistently strongly growing.

Qantas is a bit like Fairfax. It is in some cases ridding itself of irreplaceable talents and experience that can no longer be usefully retained in a diminished trading environment, yet in so doing further reduces the value it offers to its customers, and reduces the appetite for the risk it presents to its investors and financiers.

In popular parlance this is called a ‘death spiral’.  It is definitely a downwards spiral, and after more than five years of the Leigh Clifford/Alan Joyce management, is abundantly obvious that neither has any answers, ideas, or capability, to deliver Qantas from the mess into which they have put it.

In the mythology or otherwise of many Qantas employees, the company has been deliberately weakened in order to prop up the almost ten years old Jetstar franchise operations, that began with domestic Jetstar using the work place arrangements and initial fleet of Boeing 717s that Qantas bought from Impulse Airlines in May 2001, in the tumultuous year that included the collapse of Ansett Airlines, which handed Qantas a 90 percent plus market share and an escape from the impact 9/11 had on international operations.

But Jetstar is ‘on hold’ in Asia. It asked Hong Kong for permission to operate a Jetstar franchise based in the SAR that was crafted in an act of inspired genius to offend all of the foreign investment rules of  its Basic Law. It blew every dollar it invested in Jetstar Japan, and despite recapitalizing its reduced stake in the carrier, Qantas hasn’t been able to get permission to expand that operation.

The Singapore based Jetstar Asia venture is struggling to break even, the Jetstar Pacific venture in Vietnam has been in effect put in a box by the authorities, and Jetstar international has lost traction on key routes and reduced its 787 fleet commitment.

These are developments that support the view that Alan Joyce has lost control over some of the policy settings in Qantas, given his championing of the business model that has consumed extensive Qantas assets since 2004, as does the abrupt end to his botched attempts to split Qantas into independently run divisions with separate AOCs (air operator certificates).

If Jetstar was to be the answer to Qantas’s challenges under Alan Joyce that answer is that it has been a serious failure. Jetstar has a fleet of newly delivered but idle A320s as large as the Tigerair fleet in Australia, and all of them are bleeding cash out of Qantas to the value of millions of dollars per month in lease, finance and support costs.

Qantas as a brand now has a much diminished market share in the Australia-World connections,  has been well and truly beaten across the Tasman by Air New Zealand (in association with its Virgin Australia investment) and has lost its investment grade ratings for unsecured debt.

It is in a place from which it cannot return under its current management.

This article originally appeared on Crikey.


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