Dixon Days

As Qantas CEO Dixon was certainly no stranger to external shocks and crisis – the 9/11 terror attacks, the Ansett collapse, SARS, the Iraq War and record oil prices all feel during his watch – and probably his greatest legacy will have been that through all that adversity he and his management team have crafted an airline capable of withstanding today’s latest economic shocks, and indeed able to use the current circumstances to its advantage (if the mooted merger with BA is any guide).

“The management team that I put together proved very adept at what I’d call crisis management. We were very, very good at moving quickly, and I think we had a clear direction of where the company needed to go,” Dixon said. “My view was that if you wrung your hands and waited in this industry, you’re going to get caught, and a lot of airlines have.”

Dixon’s time as CEO was certainly marked by quick action in times of crisis – typically capacity and job cuts – and bold decisions in time of opportunity – capitalising on the collapse of Ansett, massive aircraft orders, launching Jetstar – leaving the airline, now indeed the ‘Qantas Group’, fundamentally reshaped and recast, and undoubtedly on its surest financial footing since government ownership.

“Qantas, more so than other airlines, besides the fact it is financially strong, has a lot more options,” Dixon said of today’s challenges. “If things go badly internationally we’ve got the domestic operations, we’ve also got (the two brand strategy with) Jetstar.”

In August Dixon was able to announce a record profit for Qantas, a $1.4 billion exclamation point on a successful tenure as CEO that has also seen the airline group to nearly double in size to revenues of $16.2 billion, employees of 37,000 and an aircraft fleet of over 225. There were other highpoints in 2008 too, notably the delivery of the airline’s first Qantas A380 in September (one of Geoff Dixon’s first tasks as CEO in December 2000 was to sign the airline’s order for the Airbus double-decker).

“At the end of the day I suspect the biggest thing I’m pleased with is that eight years on Qantas has a great aircraft order book, has a very strong position in both the full service and the low cost models and indeed the regional model, and has, for an airline, a very strong balance sheet.”

But 2008 was equally notable for some of the lowest points in Dixon’s career – industrial action by maintenance engineers, high profile air safety incidents, and a tsunami of negative media publicity over technical problems, on-time performance and service standards.

“I regret having the dispute with the LAMEs given we’d gone seven and a half years virtually without any disputes,” he said on reflection.
In large part that industrial action, due to a backlog of maintenance work that took months to overcome, contributed to a big drop in on-time performance and in combination with the explosive decompression on 747-400 VH-OJK operating QF30 from Hong Kong to Melbourne drew considerable media attention to even the smallest technical problem the airline experienced.

“Eight years on Qantas has a great aircraft order book, has a very strong position in both the full service and the low cost models, and a very strong balance sheet.”

“You do get a bit frustrated with the amount of publicity but I’m not going to blame the media.(But) I don’t think many of our peers are under anywhere near the scrutiny (Qantas is), I mean we’ve got 360,000 flights a year and we’re going to have turn backs, but they end up on the front page.”

“I must say that (I’ve felt a) fair bit of frustration over the last six months with the (media scrutiny of the) number of incidents, given that the two major ones (QF30 and the QF72 A330 air upset) were almost certainly manufacturer issues.”

Through it all Dixon has maintained that the Qantas brand has not suffered long term damage, and indeed points to the product improvements introduced under the stewardship of executive general manager John Borghetti as one of the highlights of his management term, saying he is proud of the “sheer amount of work that has been done here, particularly under John Borghetti, of creating a very, very top quality airline. Despite the criticism we get in Australia, this is proven by all the research and voting, Qantas is one of the top four or five customer service airlines in the world.”

And while the restructure of Qantas upper management Alan Joyce has ushered in seems to reflect a renewed focus on safety, brand and HR (with a new head of operations, a new head of safety, streamlined responsibilities for John Borghetti so he can focus on the brand and marketing, etc), Dixon questions whether these changes reflect fundamental changes for Qantas under Joyce.

“I don’t know, is it a fundamental shift? Is it a generational change?” he asked rhetorically. “It’s normal, I mean I didn’t end up with that many people (from the previous management team) after a period of time when I took over from James (Strong), and you certainly need people around you yourself who you are confident about .”

Still there’s no doubt Alan Joyce’s changes are comprehensive – with Virgin Atlantic and former Ansett executive Lyell Strambi taking up the new role of chief operating officer, the creation of a new EGM group safety and the planned appointment of a new HR chief, coming on top of a new chief financial officer (in Colin Storrie) after Peter Gregg’s resignation following the board looking over Dixon’s former right hand man for the top job.

“I think he’s got a good balance, matter of fact I think it’s a great management team, he’s got some people he knew before who he wanted to bring in, he’s filling a couple of holes that he believed needed filling, of course with people leaving, and he’s kept some of the others. But without a doubt, Alan will do it differently, as I did it differently, and as James did it differently to his predecessor. I personally think they will be very successful.”

Alan Joyce is only in his early 40s, but having successfully launched and grown Jetstar, has been the Qantas Group’s rising star. That he was appointed CEO was in itself not surprising, although the timing, leapfrogging older fellow candidates for the top job in John Borghetti and Peter Gregg, may have been. Certainly Dixon has high praise for his successor, no matter his feelings for close mate Gregg.

“The things I’ve always said about Alan, he has an absolutely clear mind, he’s very, very intelligent, and decisive, and he has a very nice feel to him in the sense he is charming, he can get people to follow him.”

That has been borne out by Jetstar’s success, which is another highlight Dixon nominates of his time as CEO.

“I think the creation of Jetstar was a saviour for Qantas, we could see that it would be very difficult to compete against low cost carriers unless we had some options ourselves,” Dixon related. “Jetstar is one of the top low cost carriers in the world and has been profitable from the start, so I’m really pleased with that.”

Dixon agrees that the decision to launch Jetstar was a gutsy one, but says he was convinced of the necessity for Qantas to have its own low cost carrier. “I was convinced that we had to do it, I saw the numbers every day, I could see that unless Qantas was able to shed at least 15 maybe 20 per cent of its routes where it just didn’t have any business markets with its cost base – and with its need to continue to have a high product for the business market – that we had to ‘cut the tail off the plane’ (in terms of profitability).”

“I think the creation of Jetstar was a saviour for Qantas. We could see that it would be very difficult to compete against low cost carriers unless we had some options ourselves.”

“I think it was a gutsy decision, in the sense that it would have been a very very public failure,” Dixon recalled. “There was quite a debate (about launching a low cost carrier), not everybody wanted to do it, and I understand the reasons for people not wanting to do it. And there was not always a unanimous view that Alan should (lead the new airline), obviously I wanted Alan to do it, but I must say people like Peter Gregg and others said ‘yeah that’s terrific’, and we went with it.”

Of Alan Joyce leading Jetstar, Dixon said, “I just knew that he would be absolutely focussed on what needed to be done there, and that was to make it genuinely low cost, don’t compromise, and I didn’t have to say that to him more than once.” On taking over running the whole Qantas Group, Dixon says he was not in “in the business of giving Alan advice,” but “I’m in the business of trying to help him settle in before I go, (and) I did say that I believe you are going to be a successful leader or chief executive, (and that you’ve) got to be prepared to manage risks, but you can’t be risk averse, you’ve got to manage your risks, but you’ve got to take some risks.”

There’s no doubt that a preparedness to take calculated risks and seize opportunities was a hallmark of Qantas under Dixon, from launching Jetstar to placing massive aircraft orders for 787s and A320 and 737 narrowbodies.

“ You can’t be risk averse. You’ve got to manage your risks, but you’ve got to take some risks.”

“We’ve taken some risks,” Dixon concurred. “I think one of the bigger risks was the 787 order, that was a very highly debated issue within Qantas, many people wanted to go with the A350 – which wasn’t the A350 (XWB) that they’re offering now – they also felt that it was safe to go with the A330 as an interim measure. I suppose at the end of the day, myself and some of the others just felt that it was just so necessary to go for the new technology, and even allowing for the 787’s being delayed, I think that it is without a doubt the correct decision.”

Dixon also nominates the decision to invest in product enhancements as another risk that has paid off. “The decision to invest very very heavily in the product, lounges, which Qantas hadn’t done to quite a degree, was a big decision.”

“I think one of the bigger risks was the 787 order. That was a very highly debated issue within Qantas, many people wanted to go with the A350.”

But more significant than those two, says Dixon, was Qantas’s deliberate decision to grow the airline. “Deep down the biggest decision was to decide to grow, because many, many airlines over the last few years had decided to cut back. Now we’ve been successful by getting a lot bigger, so we’ve got the advantages of scale which we didn’t have before. I think that’s been a very, very good decision.”

Quite likely that decision to grow and pursue scale was behind the proposed merger approach with British Airways, details of which publicly emerged just days after Dixon’s November 28 hand-over to Joyce. (Indeed just hours after his November 17 interview with AA, Dixon was boarding a plane to London, possible for negotiations with BA.)

Other decisions during Dixon’s leadership haven’t come off, such as establishing a separate aircraft leasing and financing arm, dubbed ‘Fleetco’, put on hold due to the credit crunch; the failed alliance with Air New Zealand (blocked by New Zealand’s competition authorities); and divesting catering.

“I don’t dwell on either successes or failures, it’s never been something that I have done, I’ve considered them, I reflect on them, as a matter of fact I think I’ve learnt a lot as I’ve come along, and I’ve always used that learning to hopefully do something better the next time,” Dixon said.

Perhaps the biggest failure during Dixon’s time as CEO was the collapse of the private equity Airline Partners Australia takeover bid for the airline, which fell over in 2007. Dixon didn’t conceive the plan but he and his management backed it and would have been retained to lead the airline had the deal gotten up.

“I don’t think we dodged a bullet, I’m not displeased it didn’t happen now, but no I don’t think we dodged a bullet. Our shareholders would have got double what their share price is now, I think the airline would have had most of its debt in place, and would have ridden through this (the credit crunch/global financial crisis) and probably been very successful. But now I can’t say I’m glad it didn’t happen, I think we’re better off going forward.”

Still, Qantas is arguably lucky the deal did fall through and that it has not had to sell off assets and implement further sweeping cost reduction programs to service an onerous debt burden in today’s financial circumstances.

Interestingly Dixon says luck played a role in the airline’s success earlier in the decade too.

“I think we got very lucky early,” he noted. “I think we were probably a … beneficiary of the collapse of Ansett, other airlines were (too), and I think Australia ended up with a much better airline system as a result of it, but at great personal cost to a lot of people and I’m still very conscious that a lot of people got hurt in that.”

“But the truth is for Australia this was what was needed,” said the former Ansett employee – Dixon joined Qantas in 1994 from Ansett where he had been director of marketing and industry sales. “Australia could not have gone on with those two full service airlines in the state they were. But I think we also had done a lot of work to get ourselves to be much more efficient and cost effective than Ansett had been, or it would have been us that had collapsed. So I think a bit of credit needs to go to the Qantas people that they had put themselves in a position that they could take advantage of it. We were lucky.”

Dixon admits to being surprised that Ansett collapsed so quickly. “But I think everybody – Virgin, Ansett, ourselves, Impulse, you name them – would admit we were all struggling at the stage, it was a very vicious time in this industry,” he recalled of the air fare wars of 2001 that lead to the Ansett collapse.

“I think we were not particularly focussing on any one of them,” Dixon said of that era of aggressive domestic competition. “We were focussing on ourself, and we knew had to do two things – continue to try and reduce our costs, and we had to be able to compete against one or maybe a multitude of low cost carriers… With Ansett wanting to match the likes of Virgin, we had no option but to match Virgin, and that was a sure way of destruction for both of us. I think we did a lot more work – that’s not a criticism of Ansett, but it’s a reality – of getting our cost base down and making real changes to the business over a period of time and it started under James, and that was the reason we were able to hold.” Not that he says there was ever the prospect of Qantas itself collapsing.

“I think everybody – Virgin, Ansett, ourselves, Impulse, you name them – would admit we were all struggling at that stage, it was a very vicious time in this industry.”

Another aspect to come out of those tumultuous days was Qantas’s takeover of Impulse, the NSW regional airline that entered the trunk route domestic market with Boeing 717s in 2000.

“It had some very good labour agreements,” Dixon said of Impulse, “and we certainly felt then that it was something that we should put in our back pocket for if the opportunity arose or if the need arose.”

Initially Impulse was put to work flying its 717s on regional routes under the QantasLink banner, but bigger things were in store. Qantas used the Impulse AOC and basic operating structure to fast track the establishment of Jetstar (which began flying with its inherited Impulse 717s in May 2004).

“What happened was the need arose where we could use it and that proved to be very very right. I think it was overall probably the catalyst for our success today.”

Using Impulse as the operational basis for Jetstar meant the group could in effect start from scratch with its labour agreements with its workforce for the new carrier, but the Qantas mainline operation has a long history of unionised workforces, and it’s not really surprising that Geoff Dixon’s desire to reduce costs and reform workplace practices clashed with unionised workforces prepared to fight for long established conditions. Qantas’s relations with its unions were often problematic during the Dixon era, with some workers worried about the impact on Qantas mainline operations and jobs, and Qantas’s often aggressive attempts to change practices and increase efficiencies by steps such as hiring foreign flight attendants on cheaper wages and conditions in New Zealand and Thailand, and dismantling heavy maintenance operations at Qantas’s Sydney Jetbase in favour of new operations in Avalon and Brisbane.

That fractious relationship really only came to a head with the industrial action by aircraft maintenance engineers in 2008 over Australian Licensed Aircraft Engineers Association members’ dissatisfaction with a new enterprise bargaining agreement. But while Dixon still disagrees that there were staff morale problems at Qantas under his watch, he does acknowledge that constant change can be wearying for some.

“People say, ‘well look Qantas has bad relationships with their people, bad relationships the unions and bad morale’, and I go back and say, ok we are one of the most profitable airlines in the world, we’ve a big order book out there, we’re winning all sorts of awards, we are highly regarded in customer service despite some of the publicity, we are right up there with some of the top airlines of the world. To me that just indicates that there is a lot of nonsense written about these sorts of things.

“ I’m not saying people love being here, I’ll tell you what I think they love being in Qantas, but do they love what’s going on all the time? No,” Dixon observed.

“But I defy anybody to feel great about having to accept the amount of change that we’ve had to push through this company, I know people don’t like it, some people can accept it, others just say this is (too much), I don’t want to go home (at night) and be unsure about my (work) life. But that’s the reality, and at the end of the day I think we’ve created a very good airline and some very good employment conditions, and that’s what people should acknowledge.”

He also argues that staff redundancies when they have been necessary has helped the company grow faster and stronger than it otherwise would have be.

“I defy anybody to feel great about having to accept the amount of change that we’ve had to push through this company.”

“Yes we’ve put people off and we’ve been pretty tough as we’ve needed to be in certain circumstances and we’ve moved quickly, (but) everybody seems to think … that we’re always putting people off. But the truth is it’s the exact opposite, although we’ve put people off, it saves so many other jobs, and overall we’ve grown the business by about 8000 people. That’s unusual.”

Certainly Dixon himself hasn’t suffered from low morale. “I’ve enjoyed every minute of it and I’m not complaining about it, and in particular I’m not going to complain about six months of bad times, I’ve been treated pretty fairly.”

And perhaps surprisingly, Geoff Dixon seemed happy to face the prospect of impending retirement, despite his evident love of the challenge of the job, and undoubtedly what overall has been a very successful stewardship of Australia’s biggest airline.

“I think they love being in Qantas, but do they love what’s going on all the time? No.”

“I know I won’t miss it at all, and that surprises me now and everybody else seems to be worried about me missing it,” Dixon reflected. “I loved it, but I’m very keen to move on and am very happy with the people who are going to take it forward.”