Leigh Clifford – Opinion Piece

Sydney | Published on 3rd March 2014 at 9:47

Australians have a deep affection for Qantas.  Over more than 90 years, Qantas has served the Australian community proudly as national carrier.

But Qantas must change to ensure that it can continue serving Australia for many more decades to come.

Companies that fail to respond to a changing world risk terminal decline. Those that move decisively have an opportunity to build a profitable future.

On Thursday Qantas detailed a plan to cut costs by $2 billion over the next three years. The actions announced will accelerate the transformation of Qantas under Alan Joyce’s leadership, with the full support of the Qantas board.

Hard decisions have been needed to reduce Qantas’ cost base and improve productivity relative to its major competitors. More hard decisions will be needed in future.

The rise of government-owned Asian and Middle Eastern carriers has put intense pressure on the Australian aviation market.  In the four years to 2012, Qantas’ competitors increased capacity into Australia by 46 per cent – more than twice the global average.

This deluge of capacity has combined with record jet fuel costs and weak economic conditions in the years following the Global Financial Crisis.

Such conditions demand realistic, reform-focused leadership.

In the benign economic conditions of the mid-2000s, when competition was limited, there was little appetite for serious reform at Qantas.

Over the past four years, by contrast, Qantas has carried out significant reform and made the tough decisions that are an unavoidable part of it.

Costs excluding fuel have been reduced by around 20 per cent. Heavy maintenance bases have been reduced from three to one. Work practices have been updated.

Change has benefitted Qantas customers, bringing new aircraft and technology, more destinations and better service. Alliances have opened up new markets without the need for risky levels of capital investment. Customer satisfaction is at record levels.

Yet as well as fixing its own challenges, Qantas needs a fair go in the form of a level playing field.

Qantas is not afraid of competition.  We welcome it.  But current government policy does not allow fair competition.

The Qantas Sale Act places restrictions on Qantas that do not apply to any other Australian airline. And over the past two years, any illusion of a free market in Australian aviation has been shattered. Aviation policy has allowed Virgin Australia to become majority-owned by three foreign airlines that are themselves majority- or wholly-owned by their governments.

Last November, these airlines injected around $300 million into Virgin’s strategy to flood the domestic market with seats while incurring losses, collapsing the domestic revenue base.

For two years Qantas has raised the uneven playing with the Australian Government of the day. The current Government and all sides of politics acknowledge the distortion and the need to address it – but we hope there is sufficient understanding of the urgency of the situation. This is not an issue that should be used a political football.  A swift resolution is needed to end the inequity that has been allowed to develop.

At the same time, we should make clear again that regardless of government policy, Qantas must continue to change.  The company must move faster, do more and reform more deeply to modernise its cost base and build a competitive future.

Howling at management is the easy thing to do for the many commentators and others who fail to understand or choose to ignore the reality of global aviation, the particular circumstances of Australian aviation and the disadvantages created by government policy settings in this country.

For management itself, the task is to get on with the job. Alan Joyce (opens in new window) (opens in new window) is the right man to lead the change Qantas needs. As CEO he has already taken on many of the big challenges facing Qantas.  This week he outlined a clear plan to address the challenges that remain.  The priority now is to deliver that plan.

Leigh Clifford is the Chairman of Qantas