Abbott’s Qantas dilemma

February 28th, 2014 at 12:00 pm by David Farrar

The Herald reports:

The disastrous results and huge job-shedding announced by yesterday is battering at the door of Australian Prime Minister Tony Abbott, who must decide what the Government will do for the ailing national airline.

The decision will test his resolve and the Government’s mantra that “the age of entitlement is over” as he comes under furious fire from Labor, the Greens and unions, which have accused him of plans to tie federal assistance to an attack on wages and awards.

I guess they just think taxpayers should subsidise Qantas.

The airline’s A$252 million ($270.5 million) pre-tax half-year loss, and its plans to shed the equivalent of 5000 jobs – meaning the final tally of sacked employees will be even higher – add to the series of Australian corporate icons hammered since Abbott won power in September last year.

These include the end of the local automotive industry with the loss of Holden, Ford and Toyota. The Government has repeatedly said companies must stand or fall on their own.

He’s right.

“We’re determined to help Qantas,” Abbott told Parliament. “We’ll help Qantas by guaranteeing a level playing field [and] by saving Qantas some A$270 million in carbon tax costs over two years … This is a Government which is determined to keep faith with businesses which have made investment decisions honestly and fairly on the basis of government policy. Second, this is a Government which will do its best to ensure, as far as is humanly possible, a level playing field between the domestically produced and the imported product.”

Transport Minister Warren Truss blamed much of the airline’s problems on the carbon and mining taxes, high wages and award conditions, and said fewer jobs were needed with new technology.

uses technology well. The check in system is almost entirely automated, and the number of staff they have there now is probably 20% of what it used to be – and with far fewer queues.

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31 Responses to “Abbott’s Qantas dilemma”

  1. big bruv (13,689 comments) says:

    There is something afoot in the airline industry. I know that over the last few months the number of Pilots hired by Air NZ has increased dramatically. Unless Air NZ plan to grow and grow quickly I cannot see any reason for such a large increase in Pilots.

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  2. peterwn (3,239 comments) says:

    Aussie taxpayers used to subsidise Qantas until AFAIK the government cracked down on the number of bureaucrats who could use business class on domestic flights.

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  3. Lance (2,629 comments) says:

    @big bruv
    If pilots are not in short supply then wages need not be astronomical.
    This is meant as a simple statement of fact.

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  4. gazzmaniac (2,307 comments) says:

    Air New Zealand uses technology well. The check in system is almost entirely automated, and the number of staff they have there now is probably 20% of what it used to be – and with far fewer queues.

    Same with QANTAS. It is great, you don’t have to deal with QANTAS staff when you check in for a domestic flight.

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  5. thedavincimode (6,648 comments) says:

    Hopefully Cullen won’t see this storey and get any ideas for NZ Post. We don’t want Qantas and Kiwirail.

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  6. Harriet (4,800 comments) says:

    “…..a level playing field between the domestically produced and the imported product….”

    Air NZ Emirates and one other own Virgin Australia, but qantas is not allowed such ownership structures.

    The matter is about the 49% cap on foreign ownership, whereby qantas has to borrow money instead of having funds made available by new owners. Qantas is currently valued as ‘junk’ and borrowing costs are high. Labor won’t shift on that foreign ownership cap, but they are prepared to shift on qantas being further sold down to ‘Australians’.

    The current rubbish is just Labor’s unionists trying to look tuff. It’s not the main game.

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  7. gazzmaniac (2,307 comments) says:

    Air NZ Emirates and one other own Virgin Australia, but qantas is not allowed such ownership structures.

    Actually Air NZ, Singapore Airways, and Etihad. Etihad are a bit out of the loop, since Air NZ and Singapore gang up on Etihad (I am pretty sure any two of the major airlines can form a majority between them, and given Air NZ is partially owned by and allied with Singapore they are essentially the same team). Virgin Australia have the luxury of the deep pockets of Singapore Airways, who keep lending them money to keep them afloat while they take on QANTAS, whereas QANTAS does not have that luxury.

    One point to make is that QANTAS needs to remain 51% Aussie owned to retain foreign landing rights. It is likely that it will have to split into two carriers, a foreign owned domestic one that competes with Virgin and the Aussie owned “national carrier” that flies the Aussie flag internationally.

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  8. Manolo (13,522 comments) says:

    Let’s apply market principles: if it cannot stand on its own, it should not be propped by the government.

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  9. PaulL (5,954 comments) says:

    @gazzmaniac: I’m not sure the landing rights is quite as clear as it used to be. I think there are ways to engineer it.

    @DPF: I think the Herald article is a little unfair to Abbot, Holden and Ford were decisions essentially under Gillard/Rudd. Rudd in particular screwed them with the changes to the FBT regime.

    I think Abbott is doing the right thing, but he must be sweating bullets. But he’s got Labor very wedged on it – he’s saying “no subsidy, remove the Qantas Sale Act restrictions.” It’s good a commercial position, but it really hurts Labor because part of those conditions require maintenance and other things to be done in Australia. I.e. changing that Act helps Qantas because it lets them offshore lots of stuff. The unions are furious, so they’re threatening to strike. Which wouldn’t help Qantas’ future any.

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  10. Harriet (4,800 comments) says:

    Gazz#

    Yeah your’re right about the owners, I heard several nights ago on talkback but couldn’t exactly remember who they were – Emirates/Etihad is a resonable mistake.

    What you wrote is very informatiuve, thanks. I also heard that by having foreign owners it also gives qantas better access to other profitable routes.

    I think because of the ownership cap it also hinders qantas on co-sharing flights as Air NZ, Singapore, Etihad and Virgin do. I notice that when I fly Virgin the planes are always full and half the passengers get free meals because they book with the other 3 carriers – and sometimes that’s half the plane. I then hear from others that qantas is not always full – but qantas is not that more expensive to fly with – but the flight is – with less passengers on board. Hence why they are bleeding money.

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  11. big bruv (13,689 comments) says:

    Lance

    Not sure what you are driving at. I did not mention wages at all. What is the point you are trying to make?

    As an aside, if there is one industry where I want there to be bloody high wages then it is the wages paid to Pilots, I don’t know about you but I want to be in the hands of somebody who had to go through vigorous training to achieve their high wages. I am not sure I want to get into a plane where the pilot is on the minimum wage.

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  12. All_on_Red (1,560 comments) says:

    A very good summary here
    http://www.airlineratings.com/news/184/what-is-wrong-with-qantas-and-australia

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  13. Camryn (538 comments) says:

    Every country that has foreign ownership restrictions on their airlines is nuts, because it always ends up meaning that the airline gets into trouble (can’t raise capital easily enough) and only locals end up paying for that trouble (rock bottom share price, eventual sale of assets to foreign interests at bargain prices, political bailout expenses, etc).

    Landing rights based on nationality are also nonsense. Every airport should sell landing spaces to the highest bidders. In an open market, the bids will be a good signal e.g. of the need to expand airports, of the performance and strategies of airlines. A reasonable chunk of the times that airlines get into trouble it is because their perception of a landing right is that it is an asset rather than a variable expense. They come up with strategies that are otherwise untenable to use these “assets”.

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  14. infused (652 comments) says:

    They should copy Labour. “AussieFlight”

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  15. Kimble (4,428 comments) says:

    This isnt about Qantas. It is about Qantas Unions.

    The Unions wont do anything to save their own jobs, and Labor wont support anything that the Unions dont give them the OK to support.

    If it was really about Qantas then there wouldnt be any restriction on where their maintenance can be done. But there is, so it isn’t.

    Unionists may cite any number of reasons why the airline is struggling, but there are only a couple of reasons why they are unable to react to save themselves.

    Labor; 100% Union owned.

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  16. All_on_Red (1,560 comments) says:

    Kimble
    Australia’s economic woes can be summed up with that word “unions”!

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  17. Kimble (4,428 comments) says:

    Here is a question I dont see that has been answered yet:

    What happens to the Union officials that kill their own industry?

    I wouldn’t be surprised if there was some cushy office job, or guaranteed position somewhere else, set up as a fall back by the Union head office for their shop floor mates.

    Certainly the Union leaders in the Aussie car industry and in the Qantas Unions aren’t behaving as if they have any skin in the game.

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  18. All_on_Red (1,560 comments) says:

    What happens to the Union officials that kill their own industry?

    They become MPs or get a nice cushy job as a Director of a Superannuation Fund…

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  19. gazzmaniac (2,307 comments) says:

    I think because of the ownership cap it also hinders qantas on co-sharing flights as Air NZ, Singapore, Etihad and Virgin do.

    QANTAS have agreements with British Airways, Emirates, and various other members of the One World alliance. Air NZ and Virgin are part owned by Singapore, which makes them more than just an alliance – they are a team.

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  20. PaulL (5,954 comments) says:

    @All_on_Red: great summary, and matches my experience. I actually like flying Qantas, because I’m a frequent flyer with good status. Their lounges are great and they treat me well. My partner, who has little status, gets treated like trash. She likes Qantas much less, unless she’s flying with me, in which case she’s over the moon. But I guess there’s a business in treating your premium passengers well.

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  21. gazzmaniac (2,307 comments) says:

    I used to travel on QANTAS link to and from work every second week, and they still treated us like cattle.

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  22. Bob (496 comments) says:

    It does puzzle me why Air New Zealand can do so well while QANTAS is struggling. Perhaps QANTAS management should invite Air NZ executives over to give them advice.

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  23. PaulL (5,954 comments) says:

    @Bob: remember that Air NZ thought they were really freaking clever in buying Ansett. And ran it into the ground. Running an airline in NZ is not quite the same thing as running an airline in Aus, and my take is that Qantas have some reasonable mgmt skills that are very severely hampered by their unions. They’ve been trying to sort it out for a while, and have failed. They also engender fierce loyalty amongst many Australians, so certainly don’t write them off. Hell, even as a Kiwi I still get a little lump in my throat when they play “I still call Australia home” during boarding. They have an immensely strong brand.

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  24. All_on_Red (1,560 comments) says:

    Paul
    When ANZ bought Ansett, the company was teetering on the brink. Then right on Easter amid full bookings an accusation of a safety breach was made and OZ Civil Aviation grounded the fleet.
    It was the final straw.

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  25. Sponge (157 comments) says:

    @PaulL – Ansett was well buggered by the time ANZ brought it. A stupendously stupid purchase – almost Cullenesque in it stupidity.

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  26. PaulL (5,954 comments) says:

    @All_on_Red: All true. But still an incredibly poor management decision. So I reckon a lot of Australians would have a good hearty laugh at the concept of Air NZ having good management advice for Australian airlines.

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  27. LeftPilot (61 comments) says:

    A combination of factors and poor decision making lead Air New Zealand into the Ansett debacle. Key players among which were BIL, the Australian Government and Qantas. Qantas has played the bully for years and now they are reaping what they sow, contributed to by an inept management and board who have been unable to provide a clear vision of Qantas in the future.

    @Bigbruv. Air New Zealand are indeed ramping up to some extent but they have been for a few years now. Amongst the fleets in the turboprop airlines (Air Nelson and Mt Cook but not Eagle Airways) there has been expansion. Air Nelson used to fly Saab 340 aircraft with 34 seats and switched to Dash 8 Q300 with seat 50 and increased the overall fleet size by 6. Mt Cook who fly the ATR 72 aircraft with 68 seats are presently adding the newer -600 version of which they have ordered 10 I think.

    The 737’s are being retired and they had a lesser seating capacity than the A320’s that are replacing them on domestic flights. The 747’s are being phased out with 2 remaining. They were replaced by the 777-300ER aircraft of which only 5 were taken with a lesser capacity than the 8 747’s. As part of compensation from Boeing for the delayed 787 they are taking another 2 777-300ER aircraft. The planned fleet of 787’s that should start arriving this year will eventually number 10, replacing 5 767-300ER aircraft of lesser capacity.

    So it’s been a kind of gradual increase in capacity over time. But what is now beginning to accelerate this somewhat is the number of retirements – Air New Zealand has a lot of pilots over 60 years of age and a few over 70.

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  28. lolitasbrother (643 comments) says:

    I walked into Sydney airport, it was chaos, nobody especially the french could understand a bloody word the Quantas girls were saying over the speaker.
    Some of the foreigners tried to join the Emirates line, Quantas is dead, My Nephew is a pilot for Quantas,
    he said I
    can not wait to get out of here.

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  29. aquataur (56 comments) says:

    Gazzmaniac – chk your facts – Singapore Airlines does not own any stake in Air NZ

    For the reasons why Air NZ is doing better than Qantas, you should see a good article in today’s NZ Herald (one of the few business stories recently that is accurate – their business reporting is generally rubbish)

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  30. LeftPilot (61 comments) says:

    To be fair to those not up with the play, Singapore Airlines did have up to a 25% shareholding in Air New Zealand prior to the Ansett collapse and subsequent Air New Zealand bankruptcy. Their shareholding was reduced to negligible in the Government bailout and they then sold down their last remaining shares.

    It was a complex interplay that lead them to take a shareholding in Air New Zealand. They would have preferred to have bought the 50% of Ansett that Air New Zealand didn’t own when News Corp (or TNT I forget now) sold out their stake. However, as 50% shareholder Air New Zealand had first option and due to the interplay of the Australian Government and Qantas, they felt, wrongly in hindsight, that they needed to take that share in Ansett to avoid being marginalised. Singapore being pushed out wanted to up their stake in Air New Zealand even as it headed for bankruptcy as all along they’d been eyeing the lucrative Sydney-LA market. However, the New Zealand Government wouldn’t allow and it due to the legislation. There is also the complex situation of billateral agreements for air services which are determined at the State level across the world according to the Chicago Convention of the International Civil Aviation Organisation. Trivial as that may seem it could have put at jeopardy many of Air New Zealand’s international routes and subsequently a lot of the feed for the domestic market etc.

    Singapore Airlines have only now just burried the hatchet with Air New Zealand and gone into an alliance with them on the Auckland-Singapore route which will lead to Air New Zealand putting their own aircraft on the route for the first time since 2006 and Singapore Airlines up gauging their primary daily flight to an Airbus A380 during the peak summer season.

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  31. freethinker (688 comments) says:

    Qantas spouted high profitability some years ago due to lower depreciation and by failing to upgrade to newer more efficient aircraft are now reaping the whirlwind of higher costs in fuel and maintenance – lousy management decisions.

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