When the Coalition partyroom in Canberra discussed Qantas yesterday the Member for Brisbane, Teresa Gambaro, had a weird analogy on the prospect of a government assistance for the airline. “Qantas is an 800 pound gorilla and if we do this we will turn it into a Godzilla,” she said.
It’s a headline-grabber, but it’s a weak misappropriation of a good metaphor. For one thing, a corporation most people would class as an “800-pound gorilla” wouldn’t usually be turning to the government for help. Nor would it head into the half-year reporting season with the market bracing for a loss somewhere in the region of $300 million.
It’s a horrible week to be one of Qantas’s 33,000-plus employees. The stark problem for the airline is asset sales will not be enough to make the savings it needs from its $16 billion cost base. It will need to lay off people, and probably significantly more than the 1,000 it has already flagged.
Some of those who will be affected are the same people chief executive Alan Joyce was enlisting at the end of last year, when he sent a company-wide email asking staff to help drum up public backing for its campaign for government support.
The build-up to Qantas unveiling its plan for turning around the business in its half-year results presentation tomorrow has become feverish. Transport minister Warren Truss yesterday confirmed the government was drafting changes to the foreign ownership limitations governing the airline. The company has been handling reports that it’s planning to announce 5000 job cuts and sell the lease on Melbourne Airport and today there are reports the company will get a limited debt guarantee, seen by many as taxpayers acting as guarantors for the airline while it prepares for a foreign takeover.
As all this swirls there’s one rumour about an administrative department offering voluntary redundancies to staff this week. Isolated rounds of redundancies in a company the size and nature of Qantas are not unusual, but in the current atmosphere they are morale-crushing.
The public’s assumed ownership of the Qantas brand and the current politics of government support for industry complicate it further. The company’s strategy is inevitably influenced in part by how its proposals will be received politically, and the politics are exceptionally cloudy. The government has said any support will be contingent on the company showing it is prepared to make its own tough decisions. But it’s unclear how tough those decisions need to be. The Senate arithmetic is uncertain, and there’s open hostility from some MPs to certain scenarios.
The titans of the modern airline industry are the mind-bogglingly wealthy players that can bend markets to their will. The real leaders in the sector thrive on global networks.
In this world, it’s the likes of Emirates that are the 800-pound gorillas. Qantas is more like an elderly chimp.
Gambaro’s view that Qantas is a disagreeable behemoth is not uncommon. Many people in politics and business openly hate the airline and its management. South Australian Senator Nick Xenophon has repeatedly called for Joyce’s sacking.
Qantas might seem like a bit of a hulk to Australian eyes but any reasonable appraisal of its quandary needs to be seen in terms of its global operating environment, which is what the government is recognising with its moves to change the Qantas Sale Act.
Remember, the current crisis has been precipitated by the competitive straitjacket imposed by the well-intentioned but now anachronistic rules drawn up in 1992. The Act means the airline cannot access capital or make intelligent use of global partnerships, as Virgin can through its partners and shareholders, Etihad and Singapore. And the restrictions on keeping various parts of its operations in Australia also mean its labour costs are always going to be higher than for competitors without changes to how Qantas can organise itself.
It’s quite possible tomorrow’s job cuts won’t be as bad as some of the numbers suggested so far. Qantas has other options available to recalibrate its operations and improve its margins. They include whole or partial asset sales and taking the opportunity to start making itself attractive to potential overseas investors when changes to the Qantas Sale Act finally materialise.
Tomorrow is a huge day in the history of the airline. Everyone will have a view on whether Alan Joyce is making the right calls. The market will deliver judgement immediately and the all-important government reaction will start to emerge pretty quickly too.
It’s also a day of reckoning for Joyce, who has stuck doggedly by his strategy of retaining a two-thirds share of the domestic market in Australia as it has been warped by the aggressive capacity addition from Virgin Australia. The rules around Qantas investment may have been drawn up more than 20 years ago but the act doesn’t force the airline to keep competing in loss-making routes just to retain market share, something that has been exacerbated with Virgin’s capital-raising last year.
For Qantas employees, though, not everything will be settled immediately on tomorrow’s announcements. Depending on where the axe falls, many will know the writing is on the wall; for others it might mean a long period of further uncertainty about their future.
What is certain is that they can’t be reassured by talk of the difference between a gorilla and Godzilla, when the reasonable amongst them realise their company is fighting for survival.
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