A Lasting Legacy

Qantas requalifies its flight attendants in emergency evacuation procedures twice a year, double the required standard from CASA – another example that picks up on my point in my previous Notam editorial about the many positive aspects of the Qantas corporate culture.

Also during that tour we spent time in the airline’s Integrated Operations Centre, saw an A380 undergoing maintenance checks, and toured the flight simulator facilities.

It was a visit that reinforced to me that Qantas has a definite culture of operational excellence, built over decades, often stemming from earlier eras of DC-3s, Constellations and 707s, aircraft far less reliable and far more complex to operate than today’s fleet. That has bred a culture that takes safety and operations very, very seriously, manifested, for example, in higher than the minimum regulatory standard requirements for pilots and cabin crew.

That is just one example of the ‘legacy’ that the so-called legacy carriers like Qantas have inherited, with corporate cultures and work practices borne of another time of government ownership, regulated operating environments (both domestically and internationally), and less reliable, less efficient and more manpower intensive (whether maintenance or crewing) aircraft.

Those legacies are the sources of many of Qantas’s strengths and weaknesses. Tellingly, on the day of my Qantas tour, the airline made its stunning announcement that it expects to barely break even for the 2011-12 financial year, largely thanks to massive losses in Qantas’s international operations.

It is the international operations that are faced with the full force of competition from some of the world’s best airlines (Cathay, Singapore, Emirates) with cost bases far lower than Qantas’s. As Geoffrey Thomas writes in Contrails this issue, whenever an international airliner lands in Australia, it imports that airline’s home country’s cost base.

So Qantas finds itself in the position of having higher costs and less efficient ‘legacy’ work, facing competitors that have lower cost bases and often younger corporate cultures with more flexible work practices.

But more than that, the airline’s international operations are increasingly on the wrong side of economies of scale.

As its competitors grow, they can increasingly benefit from economies of scale and hence a lower cost base per passenger, and they can afford more passenger amenities (whether it be better stocked amenities kits for premium passengers, bigger film libraries in the IFE system, wider food and drink selections and even higher flight attendant to passenger ratios. ) That is probably a self-evident point but one that was really reinforced to me when I recently flew Emirates for the first time recently. Experiencing Emirates and flying through its Dubai hub highlights the vastness of the Emirate enterprise in a way that reading about the airline cannot. Every time an Emirates A380 with its 500 or so passengers departs Sydney or Melbourne, that is 500 passengers not travelling on Qantas. And you can see why, it is a compelling proposition – a great inflight product, modern aircraft, friendly cabin crew, and a convenient (if at the moment, over-crowded, at least until the new A380-specific terminal opens) hub in Dubai with seamless and timely connections to all points in the Middle East, Africa, Europe and beyond.

On the other hand, Qantas has cut back in many areas in the name of cost-cutting and efficiency, but at what price to its passengers? Not operating a daytime flight to Singapore may be more efficient for the airline, but what of the passenger who can no longer fly on Qantas to Singapore on a daytime flight? In short, Emirates is a formidable competitor to a Qantas that in comparative terms is shrinking as Emirates is growing.

So the task facing Qantas CEO Alan Joyce and Simon Hickey, the newly appointed CEO of the newly separated international segment of the business (indeed the ‘original’ pre-Australian Airlines merger Qantas), in turning around the international operations is formidable.

But that is the glass half empty view. There are plenty of factors that Qantas has little or no control over – fuel prices, international deregulation, Australia’s currency and geographic location. But there are plenty it can and does control – brand, inflight product and service delivery, cabin crew training, aircraft selection, network, alliances.

And then there are Qantas’s own natural advantages, such as a domestic network and feed that an Emirates, a Cathay or a Singapore would kill for, a dominant position on the trans-Pacific, and that culture of operational excellence as exemplified by the QF32 incident.

The glass is half full too.