Qantas Lays Out Its Conflicting Plans to Fix Itself

If you’ll be near LAX this Saturday, mark your calendar to celebrate 5 Cranky years. Join me and Johnny Jet at In ‘n Out for a little plane spotting between 11a and 1p.

So I thought that Qantas was going to roll out its big plans to transform itself on August 24. There’s apparently still something in the works that day, but CEO Alan Joyce jumped the gun with a wide-ranging speech this week that gave us a look at the high level architecture of how Qantas will try to right the ship. I found it confusing to say the least, and really contradictory. I like half the plan, but I fear the other half will doom the airline.

Qantas Forgets It's Australian

Qantas has said that its biggest problems are on long haul international flying. Domestic is doing well (even if it is under attack from Virgin Australia) and Jetstar is theoretically doing well too. The problem according to Qantas is competition – there’s a lot of it. And Qantas is having trouble competing with the Middle Eastern and Asian airlines that are picking up traffic at an alarming rate. It also doesn’t help that the airline’s costs are quite high (20 percent higher than the competition, according to Qantas), and labor is a big part of that.

So, here’s what Qantas is going to do to fix things:

  • Focusing on a “gateway” strategy which means Qantas will bring passengers to a gateway and then send people on partner airlines beyond that gateway.
    • Flight to DFW took the place of San Francisco because it’s an American Airlines gateway. (Forget that Qantas can’t always make that flight nonstop)
    • Looking at Kuala Lumpur as a good spot to transfer to soon-to-be oneworld airline Malaysia
    • Switch Buenos Aires flight to Santiago and feed oneworld partner LAN
    • End Bangkok and Hong Kong to London flights and let British Airways carry those passengers. Focus London flying via Singapore only
    • Continue to use Jo’burg as a gateway to Africa and connect with South African
  • Turn focus to building up Asia
    • Start Jetstar Japan working with Japan Air Lines and Mitsubishi for domestic Japan first and then international
    • Will “invest” in new premium airline to be based somewhere in Asia (location tbd)
  • Improve the onboard experience
    • Refit nine 747s with the A380 seats
    • Bigger, better lounges in Singapore, LA, and Hong Kong
    • Improved premium cabins and check-in for Trans Tasman flights
    • Order 110 new Airbus narrowbodies, including Airbus A320neos
    • Defer six A380s until the 747 fleet is retired (instead of growth, will become replacements)
  • Cut 1,000 jobs

That’s a fairly comprehensive plan, but there’s one problem. Two of these things are complete opposites. I mean, Qantas says it wants to have this gateway strategy, so then why the heck is it opening hubs in Asia? Shouldn’t that be done by the gateway partners?

The upshot here is that Qantas thinks it can rest on its laurels for domestic flying. Forget about the fact that Virgin Australia is gunning for Qantas passengers and that airline is being run by a former Qantas exec who knows all the airline’s secrets. You would think this would be the best time to keep your eye on the part of your business that works since that’s really the lifeblood, right?

Of course, that doesn’t mean the international operation should be ignored. I like the gateway strategy. Stick to your strengths and then have your partners connect people into your system from elsewhere. It makes a lot of sense, and it’s why close alliance ties can pay real dividends. So why mess around with all this Asian stuff, Qantas?

At the end of his speech, Alan talked about how Qantas is “an Australian company, owned by Australians, with the vast majority of our operations based in Australia . . . we’ll always call Australia home.” So then why aren’t you focusing on Australia?

In Japan, it might simply be that JAL doesn’t have the resources to do something like this. Ok, fine. So lend your expertise to “JALstar” if you want, but this is much deeper with Qantas really running the show and providing the aircraft. I’m just struggling to understand how the Qantas expertise in Australia lends itself to a very different culture in Japan. And for that matter, how does a premium Asian airline fit into the mix as well?

This seems like an airline that’s trying to spread itself too thin. I would focus on the strengths, and those lie in Australia. I say that in particular because its position there is under attack by Virgin Australia. It’s not like it has a monopoly and can just forget about what’s happening.

Cut the unprofitable flying, align with your partners, but stop pretending like Asia is somehow your territory just because it’s the closest thing to Australia. I fear that this focus could push Qantas to lose ground in its home market. And then what? Not good.

[Original photo via Flickr user planegeezer/CC 2.0]

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24 Comments on "Qantas Lays Out Its Conflicting Plans to Fix Itself"

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BJ
Guest
This may not end up being that big on a world scale but aviation in Aus is going through a fascinating phase which will be in management books for years to come. In one corner is an airline, Qantas, that is making good profits and sees the way ahead as going low cost and completely disregarding staff, product and equipment – bar some A320s for a high risk venture. In the other is Virgin Aus. Expanding its routes, renewing equipment (first ATR72 arrived tonight), and working with staff (agreement with pilots almost done). Now Virgin will make a loss due… Read more »
A
Guest

Isn’t the purchase of 110 (!?!!!) Airbus narrowbodies a somewhat focus on the domestic market for Quantas? Isn’t that where those things fly? I question the size of the order given that AUS is a country of less people than the state of Texas. I know Perth is a long haul from Sydney, but how much inter-Australia flying is there?

Dan
Guest

Great analysis, Brett, took the words right out of my mouth.

A – the A320s are supposedly for intra-Asia travel, but intra-Australia flying is heavy. Sydney-Melbourne is the fourth busiest route in the world by seat capacity, and 2nd in terms of aircraft movements – http://en.wikipedia.org/wiki/World%27s_busiest_passenger_air_routes

David
Guest

The intra-Asian bit worries me – what can Qantas do, that other airlines like Singapore or any of the mainland Chinese airlines can’t do ? I’m assuming they’re not going to set up in competition with Air Malaysia, JAL or Cathay Pacific

David SF eastbay
Member
When your home base it at the an end point (read bottom of the world) you are more of a O/D location. Opening up Asia hub(s) means more thru traffic you can carry and better compete. Even in their own country most of the population is along the cost so flying coast-to-coast is still a lot of point to point with no where to ‘hub’ in the middle of the country. Starting a whole new airline even with JAL help is risky and you would think they would have learned from the American carriers who tried it, it doesn’t work.… Read more »
jboekhoud
Member
O&D is precisely the issue. Qantas is getting killed internationally by the likes of Emirates, Singapore, etc. These airlines specialize in transiting large volumes of passengers through hub cities (DXB, SIN) which are not themselves large O&D destinations, but are geographically well located for providing connections between Europe, Africa, Asia, and Australia. As a primarily O&D airline serving a relatively small and isolated region, Qantas can’t compete effectively on its own in terms of volume, frequency, or routings. Air Canada faces some of the same problems, which is why they’ve resisted allowing greater access to Canada for Emirates. I think… Read more »
Graham
Guest

Two questions:

1) If they transition to DFW as their US destination hub, what airplane do they have to fly that route if Brett says they can’t now. Are they waiting on the 787s? And when do those arrive?

2) Except for BA’s Open Skies, there are plenty of bodies piled up after the great business class airline fight of the past decade. MaxJet, SilverJet, Eos and L’Avion (which is no Open Skies) Granted these all focused on Europe, but do people think this model will work better across the Pacific?

Nick Barnard
Member

I don’t get Qantas’s obsession with Asia… Its as if US and Mexican airlines said “Lets serve intra-Canadian routes!” Sure its close but why doesn’t Qantas just focus on somewhere really profitable. I dunno, perhaps setup shop somewhere in the Middle East?

David
Guest

Nicholas – places like the UAE, Bahrain and Qatar as destination are already over served with flights – the only way to make money there is by setting up a major mid/long haul connection hub which is pretty risky if you don’t have a country willing to back you in case it all goes wrong.

Further to mu earlier comments, I’m wondering whether, assuming they can get the relevant traffic rights, there might be room for Qantas to set up a local airline based in either Indonesia or the Philippines where the competition is not so strong.

Lewis
Guest
Qantas needs to target the Asian market because the oil-rich Arab airlines (Emirates, Etihad, Qatar) and the Asian airlines are now beginning to attack the Australian aviation market en-mass thanks to Virgin Australia’s new codesharing and the fact most travelers fly on price. The reason they have made this move is because the Australia – World flying (mostly going to Asia/Europe) is coming under attack from all the airlines which are flying. Hence, they are cutting some of those routes and expansion for them and looking to gain some profit in Asia. To try and rid the market of Virgin… Read more »
Peter
Guest
QF’s fleet (in)decision making has been appalling (although what you would you expect from an airline that bought 747SPs to fly into Wellington, New Zealand simply because they could cope with its very short runway). Its lack of 777s limits its ability to serve secondary ports in Europe so Antipodean customers are taking their business to Singapore or Emirates and flying directly to where they want to go without having to transit via LHR or FRA. Not a fan of the gateway strategy. Forcing your passengers to change airlines halfway through their journey, particularly when it’s to someone like BA… Read more »
Phil
Guest

The other thing is just how much of the supposed unprofitability of QANTAS’s international operations can be traced back to undisclosed subsidies to Jetstar?

rerjohnson
Member

There is a long interview with the Qantas CEO at:
http://www.businessspectator.com.au/bs.nsf/Article/KGB-Alan-Joyce-Qantas-Jetstar-international-domest-pd20110818-KU7EX?OpenDocument&src=kgb .
Has anyone noticed that the total Qantas A320 deal is for 300 aircraft, btw?

travelnate
Guest

Didn’t Ansett try to expand on a grand scale before it tanked??

martin
Member

Ansett’s problem wasnt the expansion…it was the constraints put on that expansion by its Air New Zealand owner, the lack of focussed management for years and the crazy fleet mix.

martin
Member
Good analysis Brett. I have blogged about Qantas big announcement: http://mjtravlife.blogspot.com/2011/08/qantas-big-announcment.html The focus on Asia makes sense. Travel between Asia and Aust and across Asia continues to grow rapidly. Look at the success of Air Asia. Whether Qantas has the expertise to compete in that space will be interesting. Setting up a new full service airline that will allow Qantas to expand in the region without the high labour and maintenance costs that it is saddled with in Australia seems logical. The surprise for me was that the new Qantas Asia will not be called Qantas. Setting up with a… Read more »
Interesting
Guest
Some quotes from an interesting speech by an Australian Senator: “Jetstar’s costs are magically becoming Qantas’ costs.” “Jetstar never pays Qantas for the cost of rebooked passengers, but Jetstar gets to keep the revenue of the original bookings.” Senator Xenophon speculated that Qantas was using “a strategy of private equity selloff by stealth” to avoid breaching the Qantas Sale Act. “That doesn’t stop you moving assets out of Qantas and into an airline you own, but isn’t controlled by the Act.” He said Qantas group would end up with a whole lot of subsidiaries it could base overseas, using poorly… Read more »
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