Qantas’ Final Destination

Commentary, Transportation, Ken Phillips

Given its current direction, Qantas as an airline brand will most probably disappear. Its likely future is as an owner and manager of franchised other branded airlines. The transition could happen with a comparative speed that may surprise.

In fact, it’s well underway. Jetstar is the first successful brand. Other brands have been experimented with and more are in development.

The reason is that Qantas as an operational carrier is mired in a business model unable to adapt to the degree necessary to remain competitive. The root cause is its industrial relations agreements and culture from which it is unable to escape. It’s a human resource manager’s worst nightmare.

All attempts at management-worker bonding around a common business cause seem to have crashed. Chris Tipler described this in Business Spectator recently (Qantas’ HR policy crashes to earth, October 6). The current concerted industrial disruption campaign by Qantas’ unions should be understood for what it is. It’s a battle over who runs the airline; management or the workers’ collective.

Both sides (management and unions) are pointing fingers of blame at each other. There’s an enormous public relations battle accompanying the flight disruptions, which have halted nineteen weekly domestic services for at least a month as five aircraft stay grounded due to a backlog of maintenance work.

In reality no one at Qantas is to blame, not the workers or management. Qantas is simple faced with the horrid reality of the competitive global airline business.

It really started with the introduction of Virgin airlines. When Virgin set up it began with workforce agreements that enabled a flexible use of staff in a way not before seen with Australian airlines. In comparison, Qantas runs like a bureaucracy—a hangover from when it was government-owned. People work in job description ‘pidgeon holes’ from which they don’t move. Pay rates and careers are structured accordingly. It’s all made legally binding on Qantas through formal industrial relations agreements.

Virgin threatened the Qantas business. Unable to change their industrial agreements—or the work culture tied to the agreements—Qantas instead set up Jetstar. With a fresh workforce, culture and industrial agreements, Jetstar has matched and even bettered Virgin.

But the success of Jetstar now even threatens Qantas, particularly on international routes. Take the simple example of checking website advertised airfares. A return Sydney-Tokyo flight with Qantas will cost around $2,300 for economy class, on a special deal. The Jetstar price is around $1200 for economy class and business class is priced at under $1800—and this is not on sale. The price difference is enormous.

Sure, Jetstar long haul economy is pretty uncomfortable compared to Qantas economy. But Jetstar business is superior to Qantas economy. Qantas flight options to Japan are now limited, where Jetstar flight options are relatively wide. Expect Qantas to abandon the Japan route.

Clearly Qantas management have developed a new successful business model. Already their management focus has shifted from a commitment to solely managing a Qantas branded carrier, to seeing themselves as managing other brands that they own or control. They are setting up a new airline to be based in Asia, probably in Singapore. Singapore is a high wage country on par with, even exceeding Australia. But it doesn’t have Australia’s industrial relations system.

In this respect, the value of Qantas is not in the flying of aircraft as such but the intellectual property and expertise existent in Qantas management. Where and how they use that expertise is only limited by their imagination. On evidence this is enormously flexible, innovative and with a global perspective.

The ‘Qantas’ workforce is now furious. Understandably they want to hold onto their career structures, the ability to call the shots on overtime and other ‘industrial relations rights’ entrenched over time. Workers, from pilots and stewards to baggage handlers, feel sold out by management. They’ve accepted big changes such as automated passenger check-in. From their perspective they have a legitimate beef.

The unions have new vigour born from the Fair Work Act. Gillard’s industrial relations laws give unions bargaining leverage not seen in Australia for probably twenty years. The union promise to workers is that they can force clauses into agreements that limit the capacity of Qantas management to manage. Workers will rule! The unions may succeed.

But assuming my analysis above is accurate, this outcome would probably quicken the transition of Qantas out of being an airline, to being a manager of other branded airlines. The highly competitive global environment of the airline business is pushing in this direction. Domestic routes have no immunity.

Who knows; in the foreseeable future morning, business commuters on the lucrative Melbourne-Sydney route may fly Kuantas even though they booked through a booking agency called Qantas.