National carrier, national identity
It is a great time to be back here at the National Press Club – and an exciting time to be talking about our national carrier.
We are currently in the middle of our $2 billion Qantas Transformation program – the biggest single change for our company since it was privatised two decades ago.
It has contributed to one of the most dramatic turnarounds in Australian corporate history.
Just last week, I was in Helsinki to accept a global aviation award that named Qantas as the turnaround airline of 2015 – which is a fantastic tribute to our people, who have been key to delivering the changes we needed.
But we are acutely aware that the job of transformation is far from over.
Qantas was built on the principle of being bold in the face of change. And aviation, like many others, is not an industry that rewards standing still.
Next month we will mark the 95th anniversary of this remarkable airline that I am honoured to lead.
Milestones like that are a good opportunity to take stock.
Not just about what’s happening at Qantas, but also what’s happening in our nation more broadly.
Because the challenges and opportunities facing Qantas, and the nation, have often overlapped.
What Qantas represents to Australia
Both Qantas and modern Australia are built on a pioneering spirit.
For Qantas, it was three entrepreneurs and World War One veterans: Hudson Fysh, Paul McGinness and Fergus McMaster who were the driving force.
Literally, the driving force.
In 1919 they surveyed a potential air route across northern Australia in a Model T Ford.
In November 1920, they formed the Queensland and Northern Territory Aerial Services Limited – later known just by its acronym, QANTAS.
The airline’s first flights carried one pilot, two passengers and some mail.
Its operations gradually evolved along with developments in aviation, but its watershed moment came in 1933.
British Imperial Airways – the precursor to British Airways and by far the largest airline in the world at the time – wanted an Australian partner to connect with in Darwin, and deliver mail down the east coast of Australia.
Fysh submitted what in Canberra terms would be called a “non-conforming tender”, suggesting that Qantas would fly to Singapore instead of Darwin, and collect the mail there.
And so, Qantas graduated to an international airline.
In the decades that followed, Qantas carved out a reputation of serving Australia – particularly in times of need.
During World War Two with record-breaking flights around enemy airspace.
After the devastation of Cyclone Tracy.
After the Bali bombing.
After the recent revolution in Egypt.
Getting Australians out of harms way and bringing them home.
Qantas has also been defined by a series of aviation firsts that lead us through to today.
The first to take passengers across the Pacific by jet.
The first to offer a round the world service.
The first to pioneer inflatable escape slides.
The first to offer business class.
Eleven years ago, Qantas became the first full service airline to successfully launch a low cost carrier in its own market with Jetstar. Others airlines that had tried this previously, failed.
And last month we announced Qantas would be beginning a new chapter by adding the latest generation aircraft, the 787 Dreamliner, to our fleet.
All of this adds up to more than a warm fuzzy feeling, about a company that has been around a long time.
A report by Deloitte found that last year, the Qantas Group contributed almost $11 billion to the Australian economy. $11 billion.
That’s almost 1% of the total economic activity in this country.
We carry more international traffic to-and-from Australia than any other single airline – and more than Singapore, Etihad, Cathay Pacific and Air New Zealand combined.
We are the biggest private investor in marketing Australia.
And we remain one of the biggest employers in the nation.
The pace of change
It would be easy to suggest that if the founders of Qantas were here today they would be bowled over by what Qantas has become.
And it’s a nice idea.
But I suspect it might not be true.
Instead, I suspect the primary reaction of a man like Hudson Fysh if he could see Qantas today, would be looking at how to take it further.
Qantas’s founders understood the basic Darwinian principle that survival isn’t about brute strength; it’s about being able to adapt.
According to McKinsey’s book ‘No Ordinary Disruption’, economic change today is happening at 10 times the speed, on 300 times the scale, and with 3,000 times the impact of the Industrial Revolution.
That kind of pace helps explain the sudden rise of Uber and AirBnB.
There has been a lot of change at Qantas, too.
Much has been written about our $2 billion transformation program and the difficult decisions that helped get Qantas back into profit.
But this transformation has been all about getting our foundations right.
Being smarter with our costs; faster with our decisions; more productive with our assets.
It has been about creating a Qantas that is fighting fit and ready for the future.
The logic from the beginning was to front-end the tough decisions, so the Group could reshape its operations as rapidly as possible for long-term, sustainable growth.
Four key opportunities in common
So today, I believe we have a national carrier and a nation with a set of common challenges and opportunities in front of them:
• managing the economic transition, particularly from mining to other areas of the economy;
• embracing and managing engagement with Asia;
• finding new ways to engage our people and embrace diversity;
• and seizing the opportunities in technology and innovation.
Today, I’d like to touch on each of these briefly.
An economy in transition
Firstly to the economic transition.
According to the RBA, mining investment has declined from $30 billion per quarter in 2012 to $20 billion today.
They believe it will bottom out at $10 billion in 2017.
This indicates that we are around halfway through the decline in resources-related investment. We now need to diversify the economy and build resilience.
So where are the green shoots?
Well in the past 12 months, about 7 million tourists visited Australia, up six per cent on the prior year.
Even better, those visitors spent a record $33 billion, up 10 per cent.
This is the biggest year-on-year growth in expenditure since the Sydney Olympics.
And it’s worth highlighting the importance of domestic tourism. We’re always captivated by who is coming to see us, but Australians seeing their own country account for 70 per cent of the total tourism economy.
When we look at the regions most impacted by structural changes in the mining industry – particularly Queensland and Western Australia – boosting domestic tourism deserves to be a high priority for Government.
For that reason, it’s great to see the appointment of Richard Colbeck (who is here today) into a dedicated federal portfolio for tourism.
Now, I’m not putting the responsibility for converting the mining boom into the tourism boom at Richard’s feet. At least, not entirely…
But there is a lot government (and opposition) can do with the tourism sector and the economy more broadly to make sure we can make the most of the opportunity.
First, on the tourism front.
We need to continue to invest in tourism development, including infrastructure and marketing, however at a micro level we need to also address a few pain points for customers.
For instance, I recently got off a flight from Hong Kong to Sydney, and a whole host of people told me the same story: they had a great Qantas experience in the Hong Kong lounge and in-flight, only to be confronted with a monstrous customs and immigration queue at Sydney Airport.
Compare this to the US or Singapore, who have invested heavily in automation to cut down queues, and make sure first experience of their country is a more positive one.
This is part of a recent broader agenda for the Obama Administration, which has made tourism a priority.
It’s seen policies to reduce queue times, reduce visa costs, and invest more heavily in global marketing.
With a dedicated Tourism Minister appointed here, and an Opposition that also understands the value of the sector, we’re hopeful Australia will make similar moves with bipartisan support.
Airport infrastructure is something that the government is uniquely placed, to improve for the good of the national economy.
And our airports show there are some eye watering returns from investing in the right infrastructure.
Both government and the infrastructure sector have good easy access to cheap capital.
Investment in airports is an ideal way to boost economic growth.
The alternative, of asking airlines to pre-fund infrastructure, would simply mean costs being passed on to passengers for services, they won’t receive for years.
It’s a bizarre kind of lay-by program for infrastructure.
And it can have a significant, unintended consequence on tourism – by adding incremental costs to people’s journey, that eventually reaches a tipping point.
And then, those tourists simply choose to go to another country instead.
We – governments, airlines, airports, tourism bodies, everyone – need to work together to ensure that we are making the right decisions to strengthen the tourism sector.
Secondly, the broader economy.
I sit on the board of the Business Council and there is strong consensus on the need for macroeconomic reform.
Reform to make Australia a more flexible, innovative and nimble place that can make the most of opportunities.
Reform in areas like our tax system and our industrial relations system.
There’s also a consensus that these reforms are complicated. With strong views on all sides.
But that’s not a good reason to kick the can down the road.
We need to engage and resolve.
As a first principle, no one wants anyone to be worse off. Reform should be geared towards making us a more prosperous nation overall.
At the aviation conference I attended last week in Europe, one of the speakers was a British pilot who heads up an international pilot’s union. His view was that industrial relations frameworks have to be balanced – because tipping it too far either way, becomes a formula for disputes and discord.
Reform is about finding a workable middle ground, to get you from where you stand to where you need to be.
The discussions that Prime Minister Turnbull has started with different groups, including the BCA and ACTU, on tax reform, is a very welcome step towards finding this kind of macroeconomic middle ground.
At Qantas, we are dealing with the changing economy in realtime. We’re seeing it on our aircraft, and have worked hard to create a Group structure that can respond quickly.
When mining routes are less busy in Western Australia and Queensland, we have the flexibility in our fleet to use smaller aircraft to reduce capacity, while still maintaining frequency and serving the needs of our resources customers.
At the same time, we can analyse our customer segmentation data and understand there is enough demand from premium travelers for Qantas to fly alongside Jetstar in taking tourists to places like Hamilton Island, the Gold Coast and Hobart.
There are other sectors in the economy – including financial and professional services – that are doing well, and we need to ensure that we meet their demands for growth.
And we also understand that although opportunities will come in all shapes and sizes, many will lead straight to Asia.
Embracing Asia and the importance of entrepreneurialism
It is clear that Asia is a major source of long-term growth, for both Qantas and Australia.
Looking at just tourism again: China was the biggest growth market, with 21 per cent growth in visitors, to around 950,000 in the 12 months to August.
Chinese visitors now account for $1 in every $5 spent by international visitors to Australia.
Our deal with Emirates was a key part of serving Asia better. By re-routing our European flights via the Middle East, we could focus on flying to Asia rather than through Asia on our way to Europe. This meant more capacity, tailored schedules and a more relevant product.
The Emirates relationship is one that continues to deliver for Qantas and its customers.
With Jetstar, we have investments in a network of low-cost carriers across the Asian region with massive long-term potential.
We’ve formed partnerships with some of the region’s strongest airlines, like China Eastern and China Southern.
That three-pillar approach – Qantas, Jetstar and partnerships – gives us significant scale to grow with the region over the long term.
Between the two brands, we now directly serve more than 50 ports in Asia from Australia.
The Qantas Group has never been bigger in Asia and our growth opportunities have never been better.
If there is a key lesson I think we have learnt through the Qantas Group’s efforts in Asia – and that other Australian businesses have learnt – is that some things won’t meet the mark.
This is simply the nature of operating in what is an extremely dynamic – and extremely complex – region.
But if you are willing to learn, if you are willing to engage and adapt, then your successes will outnumber your failures.
We need to accept this, and broaden our appetite for calculated risk, if we want to embrace the opportunities on offer.
We need to be bold.
Jetstar is a classic example.
The way it’s often reported in the media, you’d think there was only bad news and setbacks for Jetstar in Asia – like the recent one in Hong Kong.
Admittedly, that was an extremely frustrating decision for all of the shareholders involved. And the level of hypocrisy involved is worth reiterating.
Here you have a locally owned airline, in Jetstar Hong Kong, which had a larger proportion of local ownership than Cathay Pacific, being told it wasn’t local enough.
Compare this to the Australian market, where an entirely foreign owned airline can operate domestically.
But for everything written about knockbacks in Hong Kong, far less is said about the successes.
Like Japan, where Jetstar is now the biggest low-cost carrier in the world’s third largest economy.
And in Singapore and Vietnam, where it has become a very well-respected brand and secured significant market share.
Jetstar is a great Australian idea, that has significant long term potential in Asia.
I think we need a culture in this country where we encourage businesses to take risks by celebrating entrepreneurialism and not circling when there is a whiff of failure.
Because if we don’t take risks and pursue opportunities, we’re going to fall behind our competitors – in Asia and elsewhere – and our future will become less secure.
And the opportunities that we are pursuing in Asia are benefiting Australia.
Let me give you an example.
A few weeks ago, about 300 tourists from the Chinese city of Wuhan landed in the Gold Coast. Minister Colbeck was there to greet the inaugural flight.
This new service from Gold Coast to Wuhan is a partnership between Jetstar and the Wanda Group, a major Chinese tour company (among other things).
This deal will deliver up to 35,000 tourists a year from a province of 60 million people.
It also has support from government and the local airport – making it a good example of what we can achieve together.
Soon, these and other Chinese visitors can apply for a 10 year multiple entry visa to Australia.
This is a great initiative that is perfect for business people, people with family here or very enthusiastic tourists.
But we risk missing an opportunity by charging $1000 for the privilege.
The US recently introduced a similar visa for just $215, and the number issued jumped by 68 per cent in two months .
Singapore has gone even further – earlier this year they doubled the duration of their multiple entry visa for Chinese nationals from five to ten years but left the price the same, at about $30. That’s $30 compared to $1000 dollars.
These are small examples in a much bigger picture of opening up a deeper level of engagement with Asia.
The Free Trade Agreements with China, Japan and Korea are great breakthroughs, and so is the Trans Pacific Partnership.
The Government – particularly Trade Minister Andrew Robb – should be congratulated for them.
And we would call on Canberra to pass the China agreement, in particular. The news yesterday of Labor’s support of the agreement is a great step forward.
Free trade does not, of course, mean being passive about the national interest.
Quite the opposite.
The government must always be conscious of ensuring Australian companies are operating on a level playing field.
Opportunity must be reciprocal.
For instance, it would be misguided to allow foreign carriers to fly in from overseas and operate as de-facto domestic airlines in Northern Australia, which was an idea floated recently, and thankfully rejected.
In other words, to let Air Asia fly a route like KL to Darwin, and then pick up domestic passengers on route from Darwin to Cairns.
Allowing foreign carriers to operate as de-facto domestic airlines is an opportunity that would never be extended to Australian airlines in other countries in exchange.
Can you imagine the domestic leg of the Qantas-LA-New York route getting past regulators in the US?
If this idea became a reality here, overseas carriers would cherry-pick key trunk routes to and from Northern Australia. Australia’s carriers would, of course, be expected to still fly less profitable regional and remote routes.
The reality is this policy would profoundly distort the investment decisions of Australian carriers and the routes they could fly. And it would seriously impact local jobs and regional connectivity.
Instead, there is an opportunity for airlines like Qantas to be part of the solution for unlocking the economic potential in Northern Australia – something we’re very excited about.
Some in this debate will accuse the aviation sector of being scared of competition. But that’s a hard charge to make stick. Just go to any major airport and see the number of airlines listed on the departures board.
In fact, a recent study by the OECD ranked Australia’s air services industry as the most liberalised of all 34 OECD nations and six major emerging economies.
So, there’s always a careful balance required between liberalisation and ensuring Australian businesses are given a fair go to compete.
That’s why we support the gateway strategy and capacity settings championed by Anthony Albanese when he was Transport Minister, and carried over by the new Coalition Government. It’s a great example of bi-partisanship and sound economic policy.
Because we need to ensure that profitable, innovative Australian industries have the opportunity to succeed.
It’s these industries that will generate the jobs of the future.
It is these industries that will ensure Australians are given the best opportunities to forge fulfilling and prosperous careers.
Engaging our people and embracing diversity
For Qantas, and for the nation more broadly, it will be our capacity to get the very best from our people, that will determine our success.
This has been a real priority at Qantas.
We have been acutely aware that the transformation process has been disruptive, and has been accompanied by real sacrifice.
We’ve had management pay freezes that lasted three years. And freezes of 18 months, for more than 10,000 EBA employees.
That’s why it was so pleasing to announce in July that we would be able to reward that sacrifice with a $90 million one-off bonus for those EBA employees.
Despite all the challenges, we’ve seen our employee engagement reach record levels. We’d still like it to be higher, but it’s an amazing tribute to our people through a period of major change. Their professionalism and passion for Qantas has helped drive our customer satisfaction to record levels during our transformation – and that is a very unusual thing for any business.
A key purpose of leadership, I think, is to ensure you can inspire people to feel engaged with the direction you have mapped out. Especially where reform is needed.
This lies in carefully considering a path of action, front-footing the tough decisions, and ensuring you are doing your very best to explain your course of action as you go.
I think people will come with you if they have faith that your actions are considered, and that they match your words.
They may not necessarily understand or agree with your whole plan.
But constant explanation is critical.
We were very clear with our people about the need for reform at Qantas. We stepped out why change was needed, how we would do it, and the risks of doing nothing.
And we were very clear – vocal, even – with government about the need for reform, when it came to levelling the playing field in the aviation market.
I note that since Qantas’ turnaround this year, there have been attempts to re-write history on this front.
A version of events has sprung up that Qantas was appealing for a hand out from government in 2013. And our subsequent turnaround is proof that we were crying wolf.
I don’t intend to re-litigate our case here, but it’s important to set the record straight.
Qantas never approached the government for a hand out.
Our ‘ask’ was to ensure that our competitor did not receive an unfair advantage through apparently unlimited injections of cash from its foreign, government-owned shareholders.
For weeks government considered a range of options, including a debt guarantee, similar to what the banks received during the GFC.
In the end, there was bipartisan agreement for changes to the Qantas Sale Act – the first time the Act had been changed in
Handouts and anti-competitive subsidies are self-defeating, and Qantas will not seek them.
But it is absolutely right for companies to engage with government and to appeal for a level playing field.
At Qantas, our belief in a fair go, extends beyond economic policy to social policy.
Qantas has recently been publicly supportive of the Recognise campaign to include the First Australians in our constitution.
We have spoken up in support of Marriage Equality.
We have participated in the Male Champions of Change program, which aims to increase the number of women in senior leadership roles.
Many companies represented in this room support these causes, as well.
These are important social debates for business to engage in, because they go to the heart of diversity and inclusion in our workplaces.
The more ‘pro-diversity’ a workplace is, the more likely it is they can attract a wider range of talent. And the more they can benefit from a plurality of views.
This is something we need our national Parliament to champion as well.
The role of technology
This brings us to the fourth area of opportunity and challenge that I believe unites Qantas and the nation: the rapid and accelerating march of technology.
Technological innovation – our capacity to lead it, and our capacity to embrace it even when it’s disruptive – will be the primary driver of long-term growth.
I come back to a piece of innovation like the Boeing 787 Dreamliner, on order for Qantas International and already flown by Jetstar.
This is a game-changing aircraft with a whole new set of route economics that get airline network planners excited.
It will burn a third less fuel per passenger than the 747 it replaces, and cut noise; carbon emissions will be reduced by about 20 per cent.
It has technology to dampen turbulence.
And it has a cleaner cabin air that also helps cut jetlag.
The point is that people will increasingly, and rightly, expect their companies and their governments to use technology to do more for them.
The wealth of data that is being created creates near infinite opportunity to find solutions where once there was chaos.
And this is the remarkable thing about technological advancement.
Contrary to common 20th century ideas about the future of digital technology being isolating and impersonal, what we have learned at Qantas is that data is, in fact, giving us the capacity to deliver far more personalised service to our customers.
We are able to serve our customers in ways that would have been unimaginable just a matter of years ago.
Many of our cabin managers are equipped with iPads, and they have a special app with detail on our customer designed to improve their journey.
Everything from their connecting flights, to their birthday, to their Frequent Flyer status.
There was an example recently where a CEO was flying overseas on one of our aircraft. This CEO was midway through the Iron Lady, the bio-pic on Margaret Thatcher, when the
in-flight entertainment broke.
This was obviously very annoying for the customer, who was quite graceful about it, but was really enjoying the movie.
The cabin manager logged it on their iPad and quietly arranged for a DVD copy of the Iron Lady to be sent to this customer’s house.
The app sends data back to Qantas as soon as the aircraft lands, meaning this DVD landed on the customer’s doorstop about a day later.
It doesn’t change the fact their in-flight entertainment broke, but the customer was so genuinely delighted by the thoughtfulness, – it’s a simple example of the new mechanisms we have.
But examples like this also pose questions around how data is managed.
Qantas is a trusted brand, known for having robust processes and procedures.
We have been managing Frequent Flyer data for 27 years and people know we will always manage it responsibly.
For that to be true more broadly, business and government will have to work closely on rules around privacy and security so that there is a modern framework in place.
It’s been very encouraging to see the strong emphasis Prime Minister Turnbull has put on innovation and the importance of the digital economy.
There is huge potential in this area and we encourage government to create the framework for Australia to make the most of it.
As these four examples show, there is a lot of opportunity in front of both the nation and the national carrier.
Reform – however challenging – is key, as the economy shifts gears.
Asia is key as we look for new growth opportunities in a competitive global market.
Embracing diversity is key to unlocking the potential of our people.
And technology – and the disruption it brings – is key to doing more.
These are exciting times – both for Qantas and the nation.
So as we prepare to celebrate 95 years since Qantas was founded in outback Queensland, we want people to feel proud of our great past.
But we also want them to share the excitement we have about its future – and that of Australia.