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Qantas a “financial mess” – Branson

written by australianaviation.com.au | December 4, 2013
Richard Branson
Richard Branson

Sir Richard Branson has lashed out at Qantas, accusing the Australian icon of being badly managed and offering bad service, in one of the most damming attacks in the Australian airline industry has ever seen, writes Geoffrey Thomas.

“If Qantas was better managed and offered the public a decent service; it would not be in the financial mess it is currently claiming it is in,” said Sir Richard, still a cornerstone investor in Virgin Australia.

In the attack launched from his website Branson said the “Government should be there to encourage competition, not to prop up the weak when the going gets tough.”

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Qantas has been lobbying the federal government to stop the Virgin $350 million capital raising arguing that the airline will use the funds to continue an unsustainable fare war.

Virgin counters that the fare war has resulted because Qantas has dumped capacity to defend its “line in the sand” 65 per cent market share policy.

Branson said that when Virgin Blue started competing with Qantas – and Ansett – it had just two aircraft and one route.

“Qantas was the giant in the market with a myriad of foreign alliances and advantages determined to bleed Virgin Blue, now Virgin Australia, dry.”

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“However, thanks to the superior quality of Virgin Australia’s management and its staff, it has not only survived but has now managed to create a much more level playing field which is offering the customer more choice and better value.”

“Over the last 13 years we have grown the airline to more than 140 planes but flying in Australia has sometimes been akin to having a bleeding competition with a blood bank.”

“Today Qantas’s alliances are still larger than Virgin’s but our improved position is having a big impact on Qantas, who are now complaining about the intensified competition,” said Branson.

He added that it “seems strange that a Liberal government would even consider tilting the playing field once again in Qantas’s favour.”

“It would be grossly unfair, undermine the great work of Virgin Australia’s management team and staff and bewilder investors in Australia and worldwide.”

Via a spokesman, Qantas responded to Branson’s comments saying it was not interested in a “slanging match”.

“Qantas thrives on competition, but everyone except Virgin now recognises that the playing field is tipped in their favour,” the spokesman said. “Their battler status is far behind them, thanks to the backing of three government-owned foreign airlines covering their losses. Qantas doesn’t have that luxury and yet our customers have never been better served. That’s thanks to Qantas staff, who are the people responsible for our record customer service ratings. We’re not interested in a slanging match, we’re interested in a serious debate about the true nature of the Australian aviation market.”

Branson’s comments comes as an analysis shows that Virgin Australia’s costs are 17 per cent lower than Qantas’s, reinforcing commentators’ views that the Australian icon needs to address inefficiencies.

Those figures exclude the low cost subsidiaries of both airline groups.

Qantas says the figure is more like 10 per cent but that includes Jetstar.

At the core of the problem Qantas’s cost structure is too high compared to virtually all its major competitors just as Ansett’s was well above Virgin when it first entered the Australian market in 2000.

Three years after Ansett in 2001 collapsed under a mountain of debt, then Virgin chief executive Brett Godfrey, claimed that his airlines was carrying as many passengers as Ansett did, with one third the staff being paid 50 per cent less.

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13 Comments

  • JS

    says:

    100% support on this. Well said Sir Richard.

  • travelhound

    says:

    Competition.

    I read with interest Richard Branson’s piece in the Australian and now his views on QANTAS on his website on his views on competition, Virgin Australia and its relevance to the changing nature of the Australian aviation industry.

    The use of the sporting arena as a metaphor for competition in the airline industry is sure to hit a nerve with most Australians. Our love of sports is well documented, with the majority of us experiencing the highs and lows associated with the success and failures of our favourite sports stars and teams.

    Whether this be on the playing field, the track or amongst natures elements the (1) appreciation of sport comes from seeing individuals skilfully master a set of tasks defined by the rules of a game. We are (2) entertained not just from winning, but also seeing the sport being played at the highest level.

    For all of the enjoyment sport brings to our lives, as Australians, we are acutely aware of controversy in sport. Just as much as we are witness to unfair play, bad refereeing and cheating in the field, the media constantly reminds us of the off-field controversies which include poor player behaviour, drugs in sports and corrupt and unprofessional administration of sporting clubs and other sporting bodies.

    For many of us the off field action has often been a significant detractor for the love of our favourite sport. In some cases we have chosen to no longer follow a sport, team or player and in other cases through our unique Australian spirit we vocally, rightly or wrongly express our views with the sole expectation being “Fair Play”!

    I would never by any means call myself an aviation historian, but would like to state I have had enough exposure to the industry to know what represents a historical view.

    If we look at Australian aviation we actually have a wonderful history filled with fond and sometimes sad memories of Australians constantly pioneering new frontiers. The early years were filled with many heroic individuals who each played their little part in the dawn of this new era.

    The names of Lawrence Hargrave, Harry Hawker, Ross and Keith Smith, Bert Hinkler, Sir Charles Kingsford Smith, Sir Hudson Fysh, Paul McGuinness, the Holyman brothers, Reg Ansett and Nancy Bird-Walton being just a few of the aviator names that laid the seeds for Australia’s aviation industry.

    Fast forward almost fifty years to the eighties and nineties and the Australian aviation landscape had changed from those early days of romance, adventure and intrigue to one of corporations, government and some would argue constant bungling . During this time the landscape consisted of a mix of government and privately owned entities controlling everything from airports to airlines with the majority arguably being in the realms of “basket case” territory.

    The nineties and early two thousands sore the privatisation of the vast majority of government owned assets, with QANTAS (merged with TAA) sold to the public through an IPO and many of the airports sold to private entities. Start-up airlines including Compass (Mks 1 & 2), Impulse, Ozjet, Strategic Airlines came and went and after many years of corporate and government interfering Ansett collapsed almost taking Air New Zealand with it. Arguably these years of considerable change laid the foundation for the aviation industry we have today.

    The 2000’s sore in many ways a deregulated market at play. The airlines were no longer play things for bungling corporates and government. The airline businesses had to quickly adapt to this new dynamic free market environment where everything from access to airports, landing slots and capital had to be negotiated on commercial terms.

    The incumbent QANTAS, still with many legacy issues thrived under this new environment, consistently winning awards for its product and services, whilst still maintaining investment grade status (one of a few in the world to do so). Over these years it consistently paid dividends to its loyal band of investors and branched out into new airline ventures launching its Pan-Asian Jetstar airline. The QANTAS of today, even with its legacy related issues, is very much a different beast to what it was ten years ago. It is a more cohesive airline consistently investing in its product and restructuring its business affairs. Today, it has greater levels of product consistency and arguably is one of the top airline performers in the world. It proved its airline crede when the A380 engine failure over Indonesia occurred and it started long distance flights from Sydney to Dallas using 20 year old plane technology. These are all tell-tale sign this is an airline with substance.

    On the other side of the field a fast growing Virgin Blue airline took full advantage of the market opportunity left by the collapse of Ansett. Quickly accumulating 28-30% of the Australian market it arguably become one of the most successful Low Cost Carriers (LCC) of the last decade. With it now morphing itself into something in between a LCC and a full service carrier using the full scope of free market mechanisms to fund its expansion, it once again covers new frontiers. It delivers a consistent product at a reasonable price.

    If we look back over the last ten years it is not hard to see how change has transformed this industry. In many ways, even with the points of contention, it is quite a remarkable story of a free market at play. On the whole both airlines represent good practice and are a bench mark for others to aspire to. It is a testament of the skills of the people, past and present who run these businesses.

    With regards to the Richard Branson article and its suggestion the emergence of Virgin Australia and the current conflict between itself and QANTAS are indicators of the competition it brought to the industry it raises a significant point of contention. Was Virgin Blue/Australia a driver for change or did it simply just take advantage of market opportunities presented by two decades of deregulation (including the selling of government owned assets) that resulted in a free market environment?

    The importance of this question doesn’t relate to the bragging rights of any individual airline or their stakeholders, but to the well-being of the industry as a whole. This includes the people employed by the airlines and airports through to the economic benefits our nation derives from having a healthy and competitive airline industry.

    In expanding the realms of the sport metaphor we discussed the principals of “fair play”, “rules of the game” and “controversies”.

    On this point, transforming the Australian Aviation industry from the government interfering and often bungling antics of the early eighties to one where government through strong policy set the scene for a free market environment that brought real benefits to the consumer, is a lesson learnt. Governments, not airline executives are the ones best positioned to enforce the virtues of a free market. Ultimately, they are the custodians of the free market and the ones we as a nation look to, to show leadership on such important issues.

    Richard Branson’s opinion piece sets the scene of a free market at play indulgently depicting Virgin Australia as a white night by “giving it” to an incumbent anti-competition QANTAS.

    In reality the piece was a theatrical self-serving, narrow portrayal of aviation history that overstated the role of Virgin in a free market environment. It did not address (or dismissed) the competition issues associated with having not just one, but three sovereign state owned airlines as major shareholders and it doesn’t give us any answers on how this current battle benefits the long term future of Australia’s aviation industry.

    For the free market ideologists, people employed within the industry, the Mum’s and Dad’s investors (who invest in these airlines) the question is, ARE WE HEADING BACK TO THE FUTURE, a place where corporates and governments bungle, engage in backroom deals and don’t play by the rules. If you think YES, this could be the case, than ultimately we have to ask the ultimate question. Is this an arena where (historically speaking) the spectators (consumers) get their monies worth?

    What the antics of Richard Branson, John Borghetti and Alan Joyce do highlight is that of the need for leadership. Leadership that calls the taunts and perspectives of the players in the heat of battle for what it is, leadership that is willing to blow the whistle on unfair play, leadership that constantly reviews the rules of the game and ultimately leadership that knows the best games played are the ones where the playing field is level and the players are free to play the game with the skills and courage that on the highest level we are all inspired by.

    For the true lovers of sport a level playing field is just as much, if not more important than winning. For the true aviation enthusiasts, this sport requires the Government to act!

  • P.W.McPhie

    says:

    Lets just say that if the QFA management team were pilots they failed the check ride many times over.

  • bob

    says:

    Qantas should keep paying its baggage thrower 80k a year 🙂

  • David VG

    says:

    I try to be a loyal Qantas Frequent Flyer however they make it very difficult. e.g. Melbourne to Adelaide 27th of December as part of return flight $115.00 however I only want to travel one way so price is $160.00 !!! Virgin $99.00 one way or return…………… it really Sh…..Me!

  • Andrew

    says:

    A while ago, with a first class ticket, QANTAS denied me access to the Captains Club lounge in Cairns because I was not a member.
    Never flown with them since!
    Any wonder they have problems when premium passengers get such treatment?

  • John

    says:

    Branson is spot on in my opinion.

    Qantas’ strategy has been to use their weight to effectively squash any competition. This is evident in their self confessed 65% market share “line in the sand” policy (threat?).

    Now that this policy is losing them money, they want tax payer money to maintain it so that they can… charge taxpayers more to fly!

  • Murray Heldon

    says:

    Qantas Board should have ditched the 747 10 years ago in favour of the 777, and only bought the Airbus A330 for domestic routes. Then the love affair with Jetstar is destroying Qantas. Why buy 787’s and give them to Jestar – tells the travelling passenger that the Board does not care for Qantas passengers.

  • Brian

    says:

    stop pumping $$$ into Jetstar that will make a big difference!

  • Michelle

    says:

    Leave qantas alone it is the discount war makes qantas in the position it is in. Regardless I always support qantas love the airline and staff…Every local company in oz faces the same issues…just look at the car industry…Keep up the good work qantas I love You

  • Neale

    says:

    QF management remains so out of touch with its customers. Never have I had a customer feedback form from the airline, so how can they ever hope to know how we, the customer thinks? Then again perhaps Platinum is not a high enough frequent flyer status to justify customer feedback.

    They seem to think the key to survival rests with the tie-up with Emirates. When will they realise that not all of us like EK and Dubai as a transit stop to Europe. I for one always transit via Singapore, which is a much more pleasant and efficient experience.

    And when things go wrong, QF conveniently forgets about its membership of the One World Alliance and doesn’t give a hoot about connections to partner airlines’ flights (EK being the exception of course!).

    I feel sorry for the staff, who in the main do a decent job. A pity management always ties one hand behind their back when it comes to customer service.

    VA on the other hand have got it right on the customer service front. Sadly, some of RB’s comments on QF ring true.

  • Tom A

    says:

    It’s not about the customer service. The real reason for Qantas’s ailment is hidden in one little sentence near the very end of the article. Not a single poster seems to have noticed it.

    Here it is again:

    “… an analysis shows that Virgin Australia’s costs are 17 per cent lower than Qantas’s …”

    Now did you see it? You can ignore everything RB said. Everything you need to know is contained in this one little sentence.

  • Leo E

    says:

    Years ago there was PMG all phones to them, change the name, sell some stock, open up competition and prices fell over time i.e. mobile phone / internet access. RB ticket sales is Qantas bottom line.

    Management stuffed it up! Otherwise RB airline wouldn’t be growing. How many gates does Qantas have at major airports in Australia?

    Sell it off otherwise, will it be another TAA ? 25 years later for back pay. Perhaps a Christmas union strike would sink it once and for all.

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