Generational change

“People’s inclination is not to like change, and my job, and the job of the management is to explain why change is necessary in some cases, and why it’s extremely important for people’s futures.”

Jetstar’s success meant Joyce, the personable and charismatic Irishman known for his intellect and hard work, was one of three logical internal candidates considered by the Qantas board last year to replace Geoff Dixon as chief executive, alongside then chief financial officer Peter Gregg and executive general manager (in charge of Qantas ‘mainline’ operations) John Borghetti. Joyce is a decade Gregg’s and Borghetti’s junior, but after eight years of Geoff Dixon’s leadership of Qantas, the airline’s board, under relatively new chairman Leigh Clifford, elected for generational change in appointing the 42 year old Joyce as Dixon’.

Under Dixon Qantas had become one of the world’s most profitable airlines, an aggressive competitor that seized and created opportunities (such as creating Jetstar and placing large aircraft orders). But, as highlighted by an acrimonious industrial dispute with maintenance engineers early last year, staff engagement and morale were issues, and Qantas’s public image had been tarnished by a series of air safety incidents and engineering issues (not all of them the airline’s fault) which also affected on-time performance.

With Dixon’s contract due to expire in March 2009, in mid 2008 the Qantas board assessed the three internal candidates plus others from outside the company in its search for a new CEO role, before selecting Joyce. In announcing the appointment last July, Clifford described Joyce as “an outstanding executive with wide experience in all facets of the airline industry”. The CEO transition began immediately, but formally took affect at the Qantas AGM last November, with Dixon remaining available to Qantas on a consulting basis until the end of March this year.

The age gap between the 69 year old (but very active) Dixon and Joyce emphases the new CEO’s comparative youth, but Joyce is still a 20 year airline industry veteran who first cut his teeth for Irish flag carrier Aer Lingus.

“Every couple of years I was lucky enough to be able to move between various roles, so I worked in IT, sales, marketing, I worked on the planning side, worked in market research, worked in operations research,” Joyce said of his eight years at the Irish carrier. “That (moving people around) is probably a philosophy that we want to try and do a bit more here.”

Aer Lingus has proven a good proving ground for airline executives, with British Airways CEO Willie Walsh also rising through the ranks to become CEO at the Irish airline in 2001 (after starting as a pilot). Indeed when Walsh was appointed British Airways CEO in 2005 he was 43, barely older than Alan Joyce was when he was appointed to the Qantas top job.

“It had a great reputation,” Joyce said, “and I think its management training philosophy, its experience base it gave people was something that I think just worked. As a consequence of that you’ve had a few executives around the world doing well.”

Aged 30 Joyce was approached by a head-hunter to join Ansett Australia to run network planning. “It was a good opportunity to work overseas,” Joyce related. He moved to Melbourne in 1996, joining Ansett about the same time as Rod Eddington became executive chairman of the airline. Reflecting on his time at Ansett, Joyce says Eddington’s famous observation of Ansett as “a great airline but a poor business” was “absolutely true”.

Then in 2000, by which time he was CEO of British Airways (and as a consequence on the Qantas board), Eddington recommended Joyce to Qantas’s Geoff Dixon as a talent worth employing, with the then new Qantas CEO interviewing Alan Joyce in the boardroom of the Qantas Melbourne offices on Franklin St.

“Geoff did the whole interview with his feet up on the table! Then he offered me a job.”

Joyce says his Ansett experience was invaluable, and taught him a number of lessons.

“The difference between Ansett and Qantas, having just moved between the two of them, was very stark,” Joyce observed, noting that Ansett lost a lot of management expertise when Air New Zealand took it over in 2000 at a time when there was a four-way domestic capacity and price war between incumbents Qantas and Ansett and newcomers Impulse and Virgin Blue. “Qantas had this can-do, aggressive, we’ll react, we’ll survive, we’ll do what is necessary in order to make the business viable (mentality). When we had the option (when Ansett was collapsing) of taking over Ansett a year after I left … I remember we had an opportunity to look at route profitability (figures) and look at how the airline was doing, and I was blown away that they hadn’t done anything during that period of time. In Qantas we were pulling routes, pulling capacity, parking aircraft, doing what we had to do to make sure that the airline was viable for the bulk of the employees,” even if there had to be some redundancies.

“That ability of Qantas to adapt was one of the things that got instilled in me,” Joyce said. “To this day if you look at the last eight years at the amount of things that we’ve gone through with SARS, September 11, the Asian SARS crisis, everything that’s hit the airline and its ability to be able to adapt rapidly to it. Both in making sure you downsize but also making sure you can adapt to opportunities when they exist and grow quiet rapidly. That to me is something that will stick with me forever, I think.”

Joyce says the human dimension of that airline’s collapse is another lesson that has stuck with him.

“They had a huge amount of great people and it was very sad when it went down. I had a lot of friends in Ansett at the time. I think the human tragedy also associated with an airline going bankrupt – the people that did lose their jobs, the impact it had at a personnel level to a large amount of people really – I think to me is something very clear. There’s a determination it doesn’t happen again.”

Joyce spent his initial time in Qantas in charge of network and schedules planning and network strategy, before in mid 2003 Geoff Dixon asked him to develop a business plan for a low cost airline subsidiary – for what became Jetstar. After board approval for his plan (developed with then Boston Consulting Group consultant Bruce Buchanan, who last year succeeded Joyce as Jetstar CEO), the Irishman was appointed Jetstar’s inaugural CEO later that year. Jetstar launched services in May 2004, and Joyce oversaw its growth from an initial fleet of inherited Boeing 717s to operating more than two dozen brand new A320s and half a dozen widebody A330s on domestic, trans-Tasman and international services to South East Asia, Japan and Hawaii, plus its investments in Jetstar Asia and Jetstar Pacific in Vietnam.

Jetstar’s success that marked Joyce for greater things – Jetstar has been profitable since inception, has helped defend domestic marketshare, provided international growth opportunities which are potentially enormous, and allowed Qantas to withdraw from a number of marginal and loss making markets. Jetstar is now an integral part of the Qantas Group, allowing it to pursue its two brand strategy of where Qantas mainline can focus on premium and business traffic and Jetstar focuses on lower yielding leisure travel.

So even if the step in size and the scale of challenges from running Jetstar to the entire Qantas Group, with its $16 billion in annual turnover, 200 plus aircraft and 37,000 odd employees, was big, given Joyce’s success at Jetstar few have doubted his ability to step up to the top job

“Alan,” Geoff Dixon told Australian Aviation last November, “has an absolutely clear mind, he’s 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 decisiveness has seen Joyce move quickly to refashion the management of Qantas – creating new positions and hiring new blood. With Joyce’s appointment to the CEO role it was not surprising that the over-looked Peter Gregg decided to leave the airline, and he was replaced by his former deputy, Colin Storrie. But Joyce also created the new positions of chief operating officer to look after airline operations functions and EGM group safety, and he has appointed a new head of HR, a new head of government relations and corporate affairs, and he has removed the position of chief information officer.

Those changes are very instructive in revealing some of Joyce’s key priorities – operations including engineering and safety, and HR and corporate communications.

“We knew that we needed to restructure the whole operations side, so immediately I was very keen to get somebody in to look at it, given the issues we’ve gone through, given the fact that that part of the segmentation (strategy) wasn’t working well for us and we needed to bring the ops departments back together.”

So Joyce contacted Virgin Atlantic chief operating officer Lyell Strambi, who he knew when the two worked together at Ansett, and offering him the similar role of EGM operations Qantas Airlines. “I thought he would be ideal for that role, and he is, he’s been fantastic, a high quality executive.”

Strambi, who had worked at Ansett from the mid 1970s through to 2000, is now responsible for the airline’s troubled engineering operations (the group general manager engineering role, held by the now departing David Cox, reports to him), as well as other operational areas such as flight operations, flight training, airports and catering. The appointment also in effect streamlined John Borghetti’s role, who now concentrates solely on the commercial aspects of the business, such as sales, marketing, networks and scheduling.

“Segmentation was fantastic for the group, we created Jetstar, we created Frequent Flyers, so we created some businesses that had created huge value,” Joyce said. “But we (also) had created an engineering business and an airports business and a flight training business that weren’t really businesses. They were services to the core airline and we created a huge infrastructure, people charging each other, people looking over each others’ shoulders, that wasn’t adding added value, and it was a logical move when I took over to say, ‘well this is a chance to reintegrate it back into a traditional airline structure’, and to do that you needed a head of operations.”

Just as telling as Joyce’s emphasis on operations was his emphasis on bringing in new blood in new executives for the HR and government/corporate relations – the latter role now headed by former chief of staff to Prime Minister Kevin Rudd, David Epstein.
“Because of the change agenda on the people side I thought it was necessary to bring in a new approach to people, and we wanted to go with somebody external who had different experiences in change programs, so John Shriven from Coca-Cola Amatil … got the job out of a list of tens of high calibre individuals from around the world.”

Joyce and Shriven have a big task in turning around the airline’s relations with its staff, particularly after last years’ engineers’ dispute but even as recently as late March baggage handlers went on strike over outsourcing some Jetstar grand handle functions.

“Some of the engagement surveys that we’ve done to test out where we are currently and what we need to do to improvement has found that on certain measures that we actually perform unbelievably well,” Joyce said. “You ask people the question are they proud to work for Qantas, and we get some ratings that … non profit organisations only get, where people are incredibly proud to work for charities and non-profit organisations, we get the same ratings in Qantas. But you ask them other questions on how we do things and we get some unbelievably low ratings.

“On that (IR) we have to work on a few things that are going to be important to get that right. We are on a longer journey on that, one (aspect) is to getting our communications better. We are getting a lot better at internal communications, people are saying that the messaging and communications from the top, the roadshows we do, but also the local management communicating a lot better is critical, and it is improving. Because up until now we left a vacuum I think with some of those messages.”

“People’s inclination is not to like change, and my job, and the job of the management is to explain why change is necessary in some cases, and why it’s extremely important for people’s futures and jobs, and that can be a challenge and it’s something we’re very conscious of.”

“HR needed a change, we did need to approach it very differently, because one of the priorities we have is staff engagement.”

It has been not complete change at the top of Qantas, with John Borghetti agreeing to staying on after Joyce’s appointment, the promotions of Grant Fenn (to EGM strategy and investments) and Bruce Buchanan (from head of commercial at Jetstar to the low cost subsidiary’s CEO).

“On IR we have to work on a few things that are going to be important to get that right. We are on a longer journey on that, one aspect is to getting our communications better.

Joyce’s restructure of how Qantas operates has continued with the March 25 announcement that no fewer than 90 management positions were being cut, plus management salary freezes and the restructuring of other management roles. “We are taking layers of management and structure out that were adding to a bureaucracy that wasn’t adding adding value, and that puts less layers between me and the front line, which means people have more of an interaction with the front line of the organisation.”

Joyce explains his changes to Qantas management levels as a focus on getting proper structures and processes in place to effectively manage the company.

“A lot of the time what you are trying to do is make sure you have the right people, the right processes, the right systems in place so that the issues (that arise) are being managed effectively. So a large element of my time has then been getting the right people at the executive committee level, and we’ve been going through that ever since I started and changing the structure so that that is something for me that works. “

As far as process, as CEO Joyce has more formalised the process of executive committee (or “ex co”), meetings to look at group strategy, plus regular airline and safety “forums” involving key executives to look at key indicators (Jetstar has its own forums). A weekly Qantas airline forum looks at a range of performance indicators including sales and marketing, on-time performance and service disruptions, pilot and cabin crew issues, with a particular focus on recurrent issues. “Why has it occurred again, why didn’t we learn from it from the last time,” said Joyce. Then monthly airline forum meetings have a more strategic outlook covering “the big strategic things that you need to do, the things that are important for the performance of that business – what are the big revenue items that we need to be working on, what are the big cost items”.

For the CEO himself, there is also the need to strike a careful balance in what he devotes his time and energies to.

As CEO, “you have to have an understanding of a large amount of different disciplines.” Joyce said. “Geoff was brilliant at this and anybody that does it has to be willing to get their hands dirty in understanding marketing, understanding engineering issues when they occur, understanding rostering and planning issues, aircraft performance issues. You have to be willing to delve into a wide range of disciplines, industrial relations, the legal side, and most of the time you have to operate at 35,000ft, if you use the airline analogy, but sometimes you have to delve down to 2ft above the ground.

“That does mean I think you have to have a good knowledge in each relevant discipline to be able to test at least – no to be able to do it – but be able to test and understand that other people have thought of all the angles and that you’re comfortable enough with the approach that has been taken.”

Joyce says his understanding of the business will be further broadened by going through Qantas’s newly ‘Centre of Service Excellence’ training centre. The $10 million Centre of Service Excellence (detailed from p XX of this issue) is about “changing the culture in how management interact with people, and how we get involved with the employees, and demonstrating that down from the top.”
And then there is a planned program for executives to regularly work in frontline roles.

“We’re also putting schemes in place where senior management have to be out there working with the employees a day a month, a half day a month out on check-in or customer service areas, so we’re finding out what’s happening in the business.”

Having spent time in customer service roles at Jetstar, Joyce says that time on the frontline can be invaluable for executives gaining first-hand experience of issues at the coalface.

“You understand… even though it’s (just) a sample what’s happening at the frontline, you get to see what some of your customers are experiencing, you get to talk to the employees, you get a better feeling for what’s taking place in their day-to-day jobs, it makes it easier to understand the implications of decisions for both the customer and the employees.”

“We’re also putting schemes in place where senior management have to be out there working with the employees.”

Also on the agenda for senior management is travelling in different classes on Qantas Group airlines, not just at the pointy end of the aeroplane. “You get to sit next to your customers, you get to chat to them, and you get to understand what they’re experiencing as well.”

For Qantas management, a better appreciation of passenger needs and staff issues, as well as having in place an effective management structure, can only help as the airline tries to navigate the global recession. At the time of the announcement of Joyce’s appointment to the CEO role last July the airline industry was already experiencing a turbulent time from record high fuel prices, and Qantas had already announced significant capacity cuts to its domestic and international networks, and plans to cut staff numbers by 1500. Then just days before Qantas took delivery of its first Airbus A380 in September, the New York investment bank Lehmann Borthers collapsed, triggering the global financial crisis which in turn has triggered global recession.

In November, days after Geoff Dixon told Australian Aviation that conditions were “as tough as I’ve ever seen”, one of his last acts as CEO was to announce further capacity across Qantas equivalent to the grounding of 10 aircraft. And in the intervening five months through to Alan Joyce speaking with AA, conditions have continued to deteriorate.

“Business is very tough,” said Joyce. “Premium traffic has taken a big hit. It varies by market, but needless to say the US is suffering more than anywhere else, the UK is probably not too far after it. What we’re seeing is that the traffic on Qantas international (services) is taking a bigger hit than anywhere else, we’re seeing the first class and business class traffic, as a consequence of people down trading or not travelling, taking the biggest dings. Leisure markets are holding up well, actually our premium economy cabin is doing very well. We’re seeing Qantas domestic doing well, except again in the premium business class cabin which has taken a hit. QantasLink is holding up well, regional markets are not seeing the same hit. And Jetstar is doing very well in the current environment.”

Joyce says the Qantas Group’s portfolio of businesses, from full service Qantas international and domestic services, to QantasLink, Jetstar and the frequent flyer business, that spreads the company’s exposure to different economic conditions. “That’s one of the things that makes us stronger than a lot of our competitors – we do have a portfolio of assets.”

Jetstar, Joyce says, provides a good example of the success of that portfolio strategy. “Around nine months ago Jetstar was suffering because it couldn’t cope with the higher fuel prices, it couldn’t the higher fuel price built into its airfares (due to the leisure market’s price sensitivity) and people and that stage were saying the low cost market was in danger of going, and people were asking questions about Ryanair and easyJet. And now the environment has turned around and low cost carriers are (comparatively) doing well.”

The portfolio helps, says Joyce, “but overall it’s probably tougher than we’ve ever seen it.” He says airline is waiting to see what impact government stimulus packages have on business confidence, and hence business travel demand, and what happens with unemployment levels, which has a big impact on leisure travel demand.

“Either way, what we’ve done is we have a plan going forward which we think is the core plan of where the airline should be based on what we think the economic conditions are. What we are trying to do is make sure we have flexibility in both directions. If the market does recover faster than we expect we have the ability to ramp up faster again, but if the market does get worse we have the ability to ramp down. Being able to adapt quickly I think is going to be the key to who gets through this period better than others.”

For now Qantas is continuing to monitor conditions and bookings before making further decisions on capacity cuts. “We’re making a judgement call about what we believe demand will be, and you don’t want to be in the position where you have lots of empty seats and you’re massively discounting.”

Potentially big decisions await, as if further capacity cuts are deemed necessary, Qantas will need to consider parking or retiring aircraft from its existing fleet and defer deliveries of new aircraft on order – from A380s and 787s to A320s (for Jetstar) and Q400s. “We are continually talking to the manufacturers about potential delays to aircraft (deliveries).

“If we need further capacity reductions we’re looking at which aircraft we should park, should we retire. In some cases we may park aircraft for periods of time to help us save on operating costs, but then have the capability of bringing them back in.”

And further capacity cuts could have implications for employment numbers too. “If we do grow again we’ll be recruiting again, if we do cut capacity out we’ll be reducing numbers again, and it depends on which way the economic circumstances go.”

Reducing staff numbers doesn’t necessarily mean job cuts, at least initially.

“Certainly when you’re reducing numbers you can ask for people to take long service leave, you can ask for me people to take leave without pay, there’s a whole range of issues before you potentially terminate people’s employment, certainly at the operating levels. We did that when SARS occurred. One of the advantages of being around 88 years is that there are a lot of people with a lot of leave built up, so if can leverage that and allow people to take long service leave, annual leave, leave without pay, that does mean you can get yourself through a period of time, and there is a benefit to the organisation.”

Fundamentally though, Joyce is pleased with the positioning of the group, and sees it well placed to take advantage of the turn-around, whenever that happens.

“We have the people, we have the capability, we have the aircraft on order, we have the brands, so strategically I think we are very well positioned to take advantage of the upturn when it does take place.”

22mins pilot

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