Of regular concern to me is the future of  the airline I have flown the most with: Australian Flag Carrier: Qantas. The next step in CEO Alan Joyce’s  Grand Plan for Qantas was unveiled last week.  It came as the airline shut down its Melbourne maintenance base, eliminating over 500 jobs. From July 1st, 2012, Qantas will be split into four entities:

  • Qantas domestic which has 65% of the Australian air market. This division will run Qantas’ engineering, catering and airport operations
  • Qantas International which will control Freight operations
  • Jetstar, the low cost carrier, which already operates as a separate company
  • Qantas Frequent Flyer with 8.5 million customers

This is actually taking us back to the “old days” before Jetstar and before the Frequent flyer program was  as huge or as profitable as it is now. Twenty years ago, Australia had two government owned airlines: Qantas (International) and Australian (previously TAA) flying domestically. They were merged in 1992 and Qantas privatised. After years of integration, the airline is now being split apart. Qantas Domestic and international will have separate chief executives and operational and commercial plans.

This announcement reflects a few realities:

  1. While Aussies would put their hands on the hearts and weep tears at the sight of a Qantas tail in far flung corners of the world, they are more likely themselves to be flying Air Asia, China Southern, Emirates, Etihad,  Qatar or Singapore airlines
  2. Qantas domestic is highly profitable, Qantas International loses tonnes of money
  3. Qantas International claims to have a very high cost base as a result of staff wages and older 747-400 aircraft
  4. Qantas wants/needs to do everything it can to cut its wage costs
  5. The Frequent Flyer program is the most profitable part of Qantas
  6. The  development  of a premium carrier based in Asia is not going to happen

My questions:

  1. How relevant are the regulations that prevent foreign ownership of more than 49 per cent of Qantas?
  2.  How much does Qantas International feed passengers into domestic and vice versa? Is there a danger there could be some dent to domestic profits?
  3. How much does the international brand contribute to the Qantas Frequent Flyer program? Can they really be separated?
  4. What about the parts of the airline that are used by both Domestic and International? eg Flight Operations and sales
  5. Can Qantas really justify paying the salaries of five senior managers and all of the reports they will need to function? Is the airline effectively doubling its management costs?
  6. How will the airline prevent the development of duplicate systems by all of the arms
  7. What is the future of Qantas International? Will it be eventually phased out? What are the chances that an airline like Emirates could buy all or some of Qantas? Will some of Qantas International flights be flown by Qantas Domestic crews (which has a lower cost base)

 

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  • Johnny said,

    Hello, interesting read. In relation to Question two, Qantas is so ridiculously Sydney centric (compounded by the wrong choice of aircraft orders last decade) which means a large proportion are connecting. For example there’s 12 longhaul destinations from Sydney and only four from our second biggest city, Melbourne. All our federal public servants based in our capital, Canberra, have to connect as there’s not international service from our capital city. With question five I dare say if Qantas afford to have most of their international, read 747, flight attendants earning upto US$75,000 a year they can certainly afford an extra senior manager or two. Qantas International will be a stagnant brand until towards the end of this decade when the 787′s come online which allow them to open new routes, with lesser demand for two reasons. First, the economics of the aircraft will outstrip their competitors by default and secondly, the 787 crew will be employed under a new contract, like the A380 crew, which will equal the playing field cost wise. I’m telling you now Emirates cannot buy out Qantas and even if a loophole was identified in the Qantas Sale Act it would not get through the parliamentary foreign investment review board which proudly blocks China buying up vast somes of sentimentally Australian land and resources.

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