Issue 91: October 1993

In the interview, Pemberton said it all when he stated “Management must step outside the business and think more laterally about major, substantive changes as to the way the business operates – find the changes that will deliver that result. They should assume they are not looking to any dramatic improvement in yields. One of the traps is to take the view that we’ll all be OK when the yields pick up. History tells you that over recent times, airline yields have been falling faster than costs have been falling. If you assume the market is not going to deliver anything in the future much different from what we’ve got now, then what do we need to get an adequate return on our funds?” That pretty much says it all. The rest is now up to new CEO James Strong and the recently appointed chairman himself. We know both men will do more than their best and we wish them well as the 25,000 employees of the new Qantas certainly deserve no less than the best management can offer – and more of the same is not that! One major area of lateral thinking concerns equipment. As mentioned in our last Recce, there is now more than ever an opportunity for Qantas to move away from its Boeing only mindset and look elsewhere to see if rival products could actually give it a marketing and profitability edge. As mentioned last issue, Qantas now deliberately disregards many supposedly secondary ports that it served years ago in favour of just a few major non Asian destinations such as London, Frankfurt and LA. The primary reason for this is that it just doesn’t want to be involved in the perceived lesser markets though again a driver of this mentality is that Qantas is principally still a Boeing 747 operator. Its 767s are primarily tasked with serving Asia and more recently its domestic routes and never really extend their flight profiles beyond this region.

If, for instance, Qantas did serve Athens, Rome, Amsterdam, Paris, Vancouver, India and South Africa with daily services with a 290 seat three class freight capable long haul aircraft such as the A340-300 then it just might find that it would actually create markets for itself which currently don’t exist to any great extent largely because the capacity and frequency of service is not there. This also totally discounts the potentially huge market awaiting via multiple point designation to China and one day even South America, a destination that many more Australians would visit if only links weren’t so laborious.

Qantas in all fairness has shown interest in the A340 and was personally demonstrated the type last year when an example visited Australia for the Avalon airshow after flying nonstop from Toulouse to Perth using only standard internal fuel tankage. Whilst still the Chief Executive, John Ward told AA as recently as this May that the airline recognised that the A340 could answer its prayers in relation to size and payload/range but a small fleet would not be economically viable.

It is interesting to note that a decade ago Qantas ordered something other than a 747 when it ventured into the world of the widebody twinjet via the 767-200ER. That order was for just six aircraft and today the airline operates over three times that number in roles that it never even envisaged at that time. During the late seventies and early eighties Qantas was most adamant that it didn’t require anything other than 747s. The early eighties recession killed that ridiculous argument stone dead and consequently airline management was dragged kicking and screaming towards a second, smaller type. With just a modicum of lateral thinking could perhaps an aircraft such as the A340-300 actually find such use within the QF fleet that it too might grow in numbers after a decade of service? Opening up new long thin routes is one thing, making them pay is another. With an emphasis on opening up niche markets that presently have little or no competition (due to the A340s ability to fly ultra long haul max pax sectors that other similar sized aircraft can’t) the logical equation is that high yield business traffic will also be attracted to such enhanced fre- quency time saving services.

After all, the Australian business community deals in more foreign gateways than just boring old London, LA and Frankfurt. The A340 could also be used to augment additional frequencies, where practical through IASC designation, even to current primary ports. Let’s just take a Sydney/LA nonstop as a hypothetical example. An A340 flying that route parallel with a 747-400 is going to log sector costs around a third less than the 400 seat Boeing. It is going to carry exactly the same amount of high yield first and business class passengers without needing to offer incredibly discounted economy fares just to fill the back of the bus’. It will also carry some cargo that the 747 can’t. If you do some rudimentary economics on this the results are indeed interesting. Basically the airline increases its yield tremendously by simply cutting operating costs without cutting into full fare traffic. After all, how much money does it really make on a backpacker in row 67? Not much, if any, as is ably exampled by recent events on the Australia/Hawaii route.

That the A340 can also take a full load of passengers nonstop to LA (or San Francisco, South Africa or Buenos Aires) whilst also carrying a viable freight load is also something that greatly enhances the profitability of the sector. The 747-400 can also generally do this but the problem again is (a) cost of ownership – the A340 is more than a third cheaper to acquire than the 747, and (b) that with 400 seats the jumbo is simply too large to use as a development/high frequency aircraft and so forces the airline to serve only those major routes that allow 747 capacity. The aircraft type is thus dictating the market the airline serves and the price the airline charges for a ticket rather than the other way round (remember Compass I)-is this any way to really run a competitive enterprise? We certainly don’t think so, but that’s only our humble opinion.

The A340 can also offer the airline some interesting marketing opportunities not presently available to it. It can for instance fly from western Europe nonstop to Darwin or Perth and tap into a potential tourism market that might lure many affluent European travellers away from holidaying in Asia and North America. When long haul Europeans now travel east they have to land in Asia, which is also usually where much of their travel dollars end up. Qantas A340s could change much of this by taking that market straight into the heart of our tourism empire and now with a domestic network they could exploit this new market to the hilt. Low yield traffic, true, but a new and potentially rich market that won’t ever exist till its tapped.

Enough of our philosophising, it’s what the senior management and the board of Qantas think that matters. We just hope that Gary Pemberton’s plea for lateral thinking amongst those at the controls filters through. If it doesn’t, then Qantas will at the end of the day be poorer for it.