The ebullience with which Qantas chief Alan Joyce announced the airline’s record half year pre-tax profit of $1.4 billion, underscored the jarring disconnect now at play in the company. Michael Sainsbury reports.
True to its priorities, Qantas has announced a share buyback of $500 million, its second in the past 12 months designed to prop up its share price. That’s a cool $840 million diverted to shareholders instead of investing funds on its aging fleet, maintenance division and staff wages that continue – for the majority of employees – to go backwards in real terms, as inflation neutralises the small increases.
The results, which included improved cash flow, mean that Joyce and his senior team have locked in stupendous bonuses under the one-off Recovery and Retention Program. Yet the airline’s other stakeholders, the majority of its staff and its put-upon customers are being left behind.
Taxpayers are also in this bracket, with Alan Joyce confirming that the company would not follow the lead of other corporations in paying back any of the Morrison government’s COVID era taxpayer, no-strings attached, $2 billion handout.
Beneath all the upbeat financial news, there are growing signs that the cracks in the airline’s operations are becoming too big for the usual management band-aids. And the share market marked the company down 7% in early trading, perhaps a sign that this may be a high water mark for the company.
Look at all the “good news”!
Alan Joyce is the master at delivering the good news, but nowhere to be seen when things get rough as they have been since, well, he informed the market that profits would be booming for the first half of the financial year.
Today’s results briefing was vintage Joyce, upbeat, not answering parts of questions that could be troublesome, and throwing out all sorts of fact-free commentary about how Qantas is better than its competitors with its lounges, premium seats, and speed in bringing back capacity post COVID – much of it questionable.
The airline’s international business lounge in Sydney, for instance, looks like a tatty, tired suburban RSL with surprisingly basic food and lower shelf wine. Pilots report that 2-4 business class seats on every international 787 are broken, while Qantas is furiously trying to stop rival Qatar from increasing its flights into Australia; it does not have the fleet and capacity to match them.
The results cap a furious month of what Joyce and his team do best – the marketing spin of smoke and mirrors that has seen a multi-million campaign of newspaper and online advertising and customers communications designed to make them forget the horrors of the past year of cancellations, delays, lost baggage and nights on airport floors.
“We’ve now been the most on-time of the major domestic airlines for five months in a row. Our service levels – bags, cancellations, catering and the call centre – are back to what customers expect from us,” Joyce wrote in a free-kick oped in the Nine papers in late January. It’s the part of media real estate that millions in advertising gets you.
Yet few customers of Qantas, Jetstar and the regional airline would have swallowed the spin. The damage to the airline’s brand over the past 12 months has been palpable, and proving the old adage that reputations are hard won, easily lost and extremely difficult to regain. It is also thin end of the wedge stuff because eventually short-term rises in financial performance are wiped out by long-term neglect of investment in fleet, staff and brand.
Maintenance issues – what maintenance issues?
The latest baubles Joyce is offering is a $100 million upgrade to its airport lounges and a preview of comfy new premium seating for its upcoming A350 long haul aircraft – planes that won’t start arriving for another three years.
And from the day before Christmas, across the critical school and summer holiday period, Qantas faced its worst month for more than a decade with two very rare mayday calls, an emergency landing in Azerbaijan, an engine failure, as well as multiple highly publicised international and domestic turn-backs.
“There is a lot of inexperience in the dispatch area (that organised flights), so pilots are really taking up the slack,” one Qantas pilot said. Some of this is due to the mass redundancies during peak COVID.
If we didn’t have a lot of experienced pilots floating around. It might be even more serious, but we’re taking up the slack at the moment.
The series of dramatic failures by Qantas may have surprised the traveling public, but insiders at the airline and pilots who once plied the skies for the limping kangaroo, have been predicting for some time that the airline would face safety issues. The airline’s emerging technical problems are only expected to become more pronounced as its fleet continues to age with no new replacement planes due for at least two years.
Qantas 737’s, the workhorses of its domestics and close international routes (New Zealand/Bali) are especially problematic. Those were the planes involved in the January Mayday and other turn-backs. More than a dozen are flying with engines on a watch list because they are burning too much oil.
“The general state of those 737’s is bad, real bad. They could’ve fixed em all up during covid, but let em all sit there in the rain rust away,” a Qantas engineer told MWM. The 737 engine maker, General Electric, no longer makes the engines used on qantas planes, hence they are consistently being reconditioned, requiring a higher degree of maintenance from an already stretched engineering force. And according to Qantas engineers, the replacement A320 have been delayed several times and the first deliveries are not expected until 2025.
The newer 787s have also been experiencing serial problems with flights to and from the US regularly canceled and delayed with ongoing problems at Qantas’ Los Angeles base where maintenance on 787s and A380s is undertaken.
The battle against unions and staff continues
It’s not just the dark shadow of safety problems that is roiling the airline, it continues to battle its own staff and their unions. In recent week, it was revealed that the Federal government will join unions in the High Court case where Qantas is trying to reverse a Federal Court decision
There has also been a tacit admission that the airline cut its cabin crew too deeply, with recent reports that the company is trying to re-employ staff who were handed generous redundancies – albeit on significantly lower wages than previously.
Engineers and pilots say that a key problem is the disappearance of centuries of collective experience in maintenance as well as on the ground expertise in the dispatch and international operations divisions following the heavy jobs cuts in 2020 and 2021. These are very niche occupations where on the ground experience is key.
To try and plug the maintenance gaps, Qantas’ aircraft are carrying more items on their so-called minimum equipment list – known as hold items – because there is a lack of engineers and time on the ground for the aircraft.
Pilots and engineers say this is a common sign of airlines under stress.
But there are some signs that cracks are appearing in the company’s hardline against giving employees relief on their wages. Joyce has already been forced to cut generous deals with pilots at Jetstar and his beleaguered aviation engineers.
Employees that are considered to be more replaceable, such as ground staff, still face real wages cuts of about 15% with the blanket 9% raise on offer. Such cost cutting flows to the airline’s bottom line, propping up its share price to the cheers of mainly offshore institutional shareholders; and helps to pay multi million dollar executive bonuses.
Where is the public scrutiny?
Unlike many privatised companies that consist of former public assets, Qantas has had no obligations placed upon it, unlike Telstra and power utilities, nor are they subject to an overall regulator.
Its only real limitations are in safety, which is why the inquiry by the Air Transport Safety Board (ATSB) that kicked off in the wake of the engine failure, is so important. It can open the black box of Qantas’ operations that its own boss, the Civil Aviation Safety Authority (CASA), seems all too reluctant to do, but the investigation will take at least six months.
ATSB and CASA have a tense relationship. CASA has come out prematurely with a statement that it has faith in Qantas with the ATSB inquiry barely underway. The cosy relationship between Qantas and CASA has disturbed many in the sector with small operators saying they face, relativity, far more onerous tests and penalties than a company government and regulators appear to think is “too big to fail”.
As well as the headwind created by its own creaking operations, Qantas is facing fresh competition in its cash cow domestic market, with both Virgin and Rex building their own fleets of newer aircraft, and new operator Bonze now in the air. Another sign that the best times may already be past.
Critics believe it is well past time that Joyce ended his 14 year tenure, a tenure at odds with good public company governance. Asked about his plans, Joyce said he plans to stay until at least the end of this year. In the view of many, including longtime pilots, engineers and management staff who spoke to MWM, his replacement should come from outside the company to take a long hard look with fresh eyes. A renewal of the board is well overdue, too.
Michael Sainsbury is a former China correspondent who has lived and worked across North, Southeast and South Asia for 11 years. Now based in regional Australia, he has more than 25 years’ experience writing about business, politics and human rights in Australia and the Indo-Pacific. He has worked for News Corp, Fairfax, Nikkei and a range of independent media outlets and has won multiple awards in Australia and Asia for his reporting. He is a fierce believer in the importance of independent media.