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“Qantas should not be allowed to face death by a thousand cuts”

“Given the raising of the Qantas axe, I think it would be a good time to revive Senator Xenophon’s speech from Aug 2011”, suggests AIMN reader Glenn G. And given the public’s anger at its apparent financial demise and the blame laid at its Chief Executive Officer Alan Joyce, it is perhaps time to raise again the question Xenophon asked, “Why would management want Qantas to look unprofitable?” It is a probing question. ” … the sad reality” says Xenophon, “is that Qantas is being deliberately trashed by management in the pursuit of short-term profits … ”

But again, why?

Xenophon nails this in his speech.

Thanks again to Glenn G, here is the transcript of Xenophon’s speech:

Senator Xenophon Speech in Parliament – Hansard 23 Aug 2011 Senator XENOPHON (South Australia) (19:37)

I rise to speak tonight on an issue that is close to the hearts of many Australians, and that is the future of our national carrier, Qantas. At 90, Qantas is the world’s oldest continuously running airline. It is an iconic Australian company. Its story is woven into the story of Australia and Australians have long taken pride in the service and safety standards provided by our national carrier. Who didn’t feel a little proud when Dustin Hoffman uttered the immortal line in Rain Man, ‘Qantas never crashed’?

While it is true that Qantas never crashes, the sad reality is that Qantas is being deliberately trashed by management in the pursuit of short-term profits and at the expense of its workers and passengers.

For a long time, Qantas management has been pushing the line that Qantas international is losing money and that Jetstar is profitable.

Tonight, it is imperative to expose those claims for the misinformation they are. The reality is that Qantas has long been used to subsidise Jetstar in order to make Jetstar look profitable and Qantas look like a burden.

In a moment, I will provide detailed allegations of cost-shifting that I have sourced from within the Qantas Group, and when you know the facts you quickly see a pattern. When there is a cost to be paid, Qantas pays it, and when there is a profit to be made, Jetstar makes it.

But first we need to ask ourselves: why? Why would management want Qantas to look unprofitable? Why would they want to hide the cost of a competing brand within their group, namely Jetstar, in amongst the costs faced by Qantas?

To understand that, you need to go back to the days when Qantas was being privatised. When Qantas was privatised the Qantas Sale Act 1992 imposed a number of conditions, which in turn created a number of problems for any management group that wanted to flog off parts of the business. Basically, Qantas has to maintain its principal place of operations here in Australia, but that does not stop management selling any subsidiaries, which brings us to Jetstar.

Qantas has systematically built up the low-cost carrier at the expense of the parent company. I have been provided with a significant number of examples where costs which should have been billed back to Jetstar have in fact been paid for by Qantas. These are practices that I believe Qantas and Jetstar management need to explain. For example, when Jetstar took over the Cairns-Darwin-Singapore route, replacing Qantas flights, a deal was struck that required Qantas to provide Jetstar with $6 million a year in revenue. Why? Why would one part of the business give up a profitable route like that and then be asked to pay for the privilege?

Then there are other subsidies when it comes to freight. On every sector Jetstar operates an A330, Qantas pays $6,200 to $6,400 for freight space regardless of actual uplift. When you do the calculations, this turns out to be a small fortune. Based on 82 departures a week, that is nearly half-a-million dollars a week or $25½ million a year.

Then there are the arrangements within the airport gates. In Melbourne, for example, my information from inside the Qantas group is that Jetstar does not pay for any gates, but instead Qantas domestic is charged for the gates. My question for Qantas management is simple: are these arrangements replicated right around Australia and why is Qantas paying Jetstar’s bills? Why does Qantas lease five check-in counters at Sydney Terminal 2, only to let Jetstar use one for free? It has been reported to me that there are other areas where Jetstar’s costs magically become Qantas’s costs. For example, Jetstar does not have a treasury department and has only one person in government affairs. I am told Qantas’s legal department also does free work for Jetstar.

Then there is the area of disruption handling where flights are cancelled and people need to be rebooked. Here, insiders tell me, Qantas handles all rebookings and the traffic is all one way. It is extremely rare for a Qantas passenger to be rebooked on a Jetstar flight, but Jetstar passengers are regularly rebooked onto Qantas flights. I am informed that Jetstar never pays Qantas for the cost of those rebooked passengers and yet Jetstar gets to keep the revenue from the original bookings. This, I am told, is worth millions of dollars every year. So Jetstar gets the profit while Qantas bears the costs of carriage. It has also been reported to me that when Qantas provides an aircraft to Jetstar to cover an unserviceable plane, Jetstar does not pay for the use of this plane.

Yet another example relates to the Qantas Club. Jetstar passengers can and do use the Qantas Club but Jetstar does not pay for the cost of any of this. So is Qantas really losing money? Or is it profitable but simply losing money on paper because it is carrying so many costs incurred by Jetstar? We have been told by Qantas management that the changes that will effectively gut Qantas are necessary because Qantas international is losing money but, given the inside information I have just detailed, I would argue those claims need to be reassessed.

Indeed, given these extensive allegations of hidden costs, it would be foolish to take management’s word that Qantas international is losing money. So why would Qantas want to make it look like Qantas international is losing money? Remember the failed 2007 private equity bid by the Allco Finance Group. It was rejected by shareholders, and thank goodness it was, for I am told that what we are seeing now is effectively a strategy of private equity sell-off by stealth.

Here is how it works:

You have to keep Qantas flying to avoid breaching the Qantas Sale Act but that does not stop you from moving assets out of Qantas and putting them into an airline that you own but that is not controlled by the Qantas Sale Act.

Then you work the figures to make it appear as though the international arm of Qantas is losing money.

You use this to justify the slashing of jobs, maintenance standards and employment of foreign crews and, ultimately, the creation of an entirely new airlines to be based in Asia and which will not be called Qantas. The end result? Technically Qantas would still exist but it would end up a shell of its former self and the Qantas Group would end up with all these subsidiaries it can base overseas using poorly paid foreign crews with engineering and safety standards that do not match Australian standards. In time, if the Qantas Group wants to make a buck, they can flog these subsidiaries off for a tidy profit. Qantas management could pay the National Boys Choir and the Australian Girls Choir to run to the desert and sing about still calling Australia home, but people would not buy it. It is not just about feeling good about our national carrier—in times of trouble our national carrier plays a key strategic role. In an international emergency, in a time of war, a national carrier is required to freight resources and people around the country and around the world. Qantas also operates Qantas Defence Services, which conducts work for the RAAF. If Qantas is allowed to wither, who will meet these strategic needs?

I pay tribute to the 35,000 employees of the Qantas Group. At the forefront of the fight against the strategy of Qantas management have been the Qantas pilots, to whom millions of Australians have literally entrusted their lives. The Australian and International Pilots Association sees Qantas management strategy as a race to the bottom when it comes to service and safety. On 8 November last year (2010), QF032 experienced a serious malfunction with the explosion of an engine on an A380-800 aircraft. In the wrong hands, that plane could have crashed. But it did not, in large part because the Qantas flight crew had been trained to exemplary world-class standards and knew how to cope with such a terrifying reality. I am deeply concerned that what is being pursued may well cause training levels to fall and that as a result safety standards in the Qantas Group may fall as well. AIPA pilots and the licensed aircraft engineers are not fighting for themselves; they are fighting for the Australian public. That is why I am deeply concerned about any action Qantas management may be considering taking against pilots who speak out in the public interest.

A lot of claims have been made about the financial state of Qantas international but given the information I have presented tonight, which has come from within the Qantas Group, I believe these claims by management are crying out for further serious forensic investigation. Qantas should not be allowed to face death by a thousand cuts – job cuts, route cuts, quality cuts, engineering cuts, wage cuts. None of this is acceptable and it must all be resisted for the sake of the pilots, the crews, the passengers and ultimately the future of our national carrier.

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26 comments

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  1. joni

    Is the end game a management buyout – where thing miraculously turn around after the buyout?

  2. Terry2

    I think we are well served by independent senators like Nick Xenophon who are prepared to do the research and then speak out; I believe that we are all the poorer since Oakeshott and Windsor departed the lower house.

    I trust WA electors are taking note and will select their senate representatives carefully – there is just no upside to Australia in electing party hacks from either side.

  3. Graeme Rust

    joyce and the board HAS to go.

  4. mikestasse

    The Great Unravelling has begun…….

    The Great Unravelling has begun…….

    I have been warning of the Great Unravelling for years now. It is becoming increasingly difficult to shrug off feelings it has begun. Exactly what is causing me to feel this way today is hard to pinpoint. I have thought for a long time that some event would trigger it, an event like 9/11, or the GFC collapse in 2008, but still the Matrix defies all the odds. Today, however, too many ducks are lining up on the wall…….

    2014 was the year many pundits forecast would be the beginning of the long decline from civilisation. It’s barely two months old today, and so far this year we have had confirmation that all car manufacturing will end in Australia, that Shell has sold its entire interests (except for aviation interestingly) in this country, and that QANTAS and Virgin Australia are unprofitable, QANTAS announcing it would cut 5000 jobs to save money…… After seeing Steven Kopits’ presentation on what’s happening in the oil industry, surely even blind Freddy can see where this is all going now. You even have to ask why Vitol bought Shell out…?

  5. Pingback: “Qantas should not be allowed to face death by a thousand cuts” | lmrh5

  6. lmrh5

    Reblogged this on lmrh5.

  7. sam

    I believe Xenophon also mentioned refuelling of various Jetstar –> Asia flights done by QANTAS (so thanks for that free AVGAS qantas).
    And there were 3 aircraft purchased. (It would be interesting to see details behind this too)

    These actions are fraud. Joyce is a white collar criminal with the well being of 5000 QANTAS employees who have done nothing wrong at stake!

  8. passum2013

    This looks like a Very large case of fraud the whole management team needs criminal action taken against them by the office of fair trading or who ever .Including the Taxation office to have a very close look at the managements salaries and compare any monies they have world wide to see if they balance if not they will have discovered a fraud milking Qantas you can get away with it.

  9. Stephen Tardrew

    I’m drowning in crap.

    Mummy the nice man held out his hand to save me.

    Oh shit I’m sinking

    Panic: The nice mans hand fell off

    He said it was for the good of all

    He said if you can’t swim then fly

    But there’s no bloody panes left

    That’s what Adan Smith must have meant by the invisible had

    Too bloody late now glub, glub……….

  10. Stephen Tardrew

    Dammit “planes” not panes.

  11. Don Winther

    Xenophon was right that we would need a national carrier in a time of trouble, a war or a world disaster. It is every country for its self as we have discovered in the past. We need to be self sufficient.
    A national airline is important in a time of war but so is a can of pears, a telephome, a glass of water, electricity, fuel, farming, manufacturing. Why did we beg General Motors to set up in Australia, transport is essential, manufacturing skills are essential, canned food is essential. The machines to make a can or a car or a fridge, are essential. We cant even make a washing machine in Aurstalia so whats so important about an airline? Our governments have been selling us out for years and calling it free trade. Alan Joice and Abbott are just the same as each other, hurry there’s not much left.

  12. olddavey

    There’s a rumour about that Joyce is still working for O’Leary of Aer Lingus and is attempting to have ownership restrictions waived or at least changed so that when he’s driven the share price to the bottom of the harbour, bingo, Qantas becomes Aer Kangus.

  13. CMMC

    Snakes on this plane.

  14. fryaduck

    Wasn’t Joyce the pillock who sank Ansett? Isn’t this his raison d’etre?

  15. Kerri

    Joyce is a nasty corrupt little man.
    Ho is it the shareholders agreed to grant him a raise??
    Xenophon is right (again) this needs investigation under corporate fraud scrutiny. But first sack Joyce and remove his super and other lifetime blood he will suck from our national carrier.

  16. Stephen Tardrew

    Kerri you will have to join the old boys club first.

  17. Hotspringer

    Spot on then, spot on now. Joyce cannot be that stupid, must be a deliberate effort to drive the price down.

  18. James Dupree

    History and the present time in respect of the women and men of Q.A.N.T.A.S.(“the women and men”)

    History reveals the women and men of Winton and Longreach and the optimism of , firstly,internal and thereafter external travel in and out of Queensland gave rise to a “tradition” of loyalty and hard work.

    History reveals the women and men and women who brought into existence the curved building at the end of Elizabeth Street Sydney continued that “tradition” of loyalty and hard work.

    History reveals the women and men who created the tradition of “handing down to the next generations” the skills of the past generations in maintenance, sale and operation of a great airline at Mascot, Avalon and throughout the “kangaroo route” did not toil in vain.

    History reveals the women and men who “handing down to the next generations” the skills worked tirelessly at improving and expanding such skills such that that which was handed on was an exemplar of inspiration and clear sighted thinking the cornerstone of which was “there is no time to rest on laurels”.

    History reveals that the women and men excelled in all aspects of Q.A.N.T.A.S. until blindsided by the “flip-flam women and men” who,carrying a carpet bag and hiding behind the smoke screen of “victim hood” and. oh yes, the market (what ever that really means). Oh yes and the failure to pass on the …..Tax in circumstances where this argument is to be a refuge for many to “excuse away” the unbelievable figures when relief is to hand brought Q.A.N.T.A.S. to its knees.

    Investment in an “Asian Carrier” reveals the quickness of the “slight of hand” in “cost center shifting”.

    All in all so much for accounting standards.

    No longer is there a tradition of “handing down to the next generations” the skills. The apprentices have gone, the Junior Commercial Trainees are no longer, the call center serves as the “interface”, the innervation of Quantam and the excitement of the “new” is lost.

    The present reveals that the management of the “History”, call if you will the Dream time, is now in the hands of people who speak a language that has no resonance with the market place, for if it did passengers (and not “clients”) would be lining up to enjoy the “History” and not the “present”.

    I know that the History of Ireland and its “management” of “victims” of the banking and property “industries” may not have a direct illustration of that which is happening under the “burgers and suitors of Ithaca” who now “run” Q.A.N.T.A.S.however the History of Q.A.N.T.A.S. (no doubt the management will come one day to correctly express it in an ancient tradition call “writing” correctly) a bit like the tapestry (or the balloon) needs to be unpicked (or “pricked”) in the night for there to be time in the next day to forestall the threats inherent in this “wine dark sea” the women and men of Q.A.N.T.A.S. now find them self in.

    What is needed is a “Tabla in Naufragio”

  19. diannaart

    Thanks for the speech from Xenophon, Michael.

    At least the LNP can’t delete all of history, can they?

  20. mikestasse

    At least the LNP can’t delete all of history, can they?

    NO…… but Peak Oil can.

    In a worst-case scenario, the long-term future for aviation is disastrous. As oil prices continue to rise, the world economy will be confronted with a major shock that will stunt economic growth and increase inflation. The chief economist of Morgan Stanley recently predicted that we have a 90 percent chance of facing “economic Armageddon.” During the transition period to a post oil era, there may be massive disruptions to transportation as the global decline of oil deepens. There will be social unrest and a strong reduction of business and government activity and very serious unemployment. Eventually, a large proportion of the demand for air travel will be almost completely destroyed, with the risk of the aviation adventure going out of business, with the exception of perhaps a handful of airlines. Once again, air travel will be reserved for the rich and for government business and the world will become a larger place again.

    We are now on aviation death watch.

  21. Eddy

    I am sure the Carbon Tax of 100 million would go a long way to fixing things it they did not have to pay it

  22. Terry2

    Eddy

    Actually, it is we, the passengers who pay the carbon levy imposed by both Qantas and Virgin; they just pass it on so, when removed will they both remove the levy ?

    As with electricity charges and the recent increases, carbon pricing has little to do with the cost as we shall see when the carbon tax is repealed and there is little change in electricity prices.

  23. Andreas Bimba

    Qantas is actually doing as good a job as can be expected with fighting off competition from foreign airlines that receive almost free fuel (the Middle East Airlines) and heavy government subsidies such as the Chinese airlines and also with protecting its 65% local market share from the premeditated last ditch final assault from the foreign owned and heavily subsidised Virgin Australia Holdings.

    Virgin has taken out credit lines from major shareholders and issued $797 million of bonds secured against its aircraft as it adds flights and upgrades lounges and business-class seats to crack Qantas’s 65 percent share of Australia’s local market.

    The little leprechaun is actually not primarliy to blame for Qantas’s current plight, it is our national governments that allow excessive access to our airports and to our consumers by subsidised foreign airlines. Qantas must be given loan gurantees and access to preferential loans until the foreign subsidised assault by Virgin is bled dry. Alternatively Qantas may need to be temporarily nationalised, the bottom line is Qantas cannot be allowed to fail.

    Governments need to use their wide range of powers to level the playing field for Qantas. Governments must play tough and must play to win just like every other well run nation. Tony Abbotts ‘end of the age of entitlement’ is code for foreign corporations being free to rape our economy and our future.

    http://www.bloomberg.com/news/2013-10-18/qantas-passenger-yield-to-drop-to-decade-low-amid-virgin-fight.html

  24. James Dupree

    Really Andreas Bimba.

    Competition is to blame.

    Unlevel “playing” field is to blame.

    Competition access to “liquidity” is to blame.

    Oh dear me I am a victim and I am in need of tree-arge is to blame.

    It is strange that the “heavy government subsidies” do not seem to appear in the “accounts” no doubt it is “off the book”.

    Almost free fuel – where is that in the lexicon of capitalism.

    This is serious and needs to be analysed without the unsubstantiated “Daily Telegraph” approach.

    Supply and Demand and that wretched curve are at the bottom of all the angst.

    Too many seats costing too much money chasing too few bottoms.

    When the grownups were in charge of Q.A.N.T.A.S. seats and the price a passenger paid had market relevance.

    In the present climate the price of a seat. like with like, across the various airlines can easily be demonstrated by reference to any of the on line comparison web sites. Q.A.N.T.A.S. seems to be at the back of the pack.

    I suggest that Q.A.N.T.A.S. in facing its present problems might avail itself of the “brains trust” found in its many employees and in doing so end the era of the “Ryan Airlines” approach by turning to grownups untroubled by sharing a market where empty space and no “bums in seats” is the main feature.

    As our Prime Minister Mr Chifley identified “the light on the hill” the fuel for which is the passion and intelligence in the hearts and minds of all employees who do not aspire to the title “director”.

  25. JohnB

    When Qantas request the taxpayers supply guarantees/subsidies/concessions etc. it is then incumbent on Qantas to reveal the true state of profit/loss trading accounts for perusal.

    There is apparently incomplete/selective account detail as outlined by Michael Taylor above – is that the full extent of cross subsidies to Jetstar that inevitably affect the parent company’s P&L?
    I suggest the details of significant accounting transactions via the four “secrecy jurisdictions” (commonly used as tax havens) in Singapore, Hong Kong, Cayman Is. & Phillipines are likely not being fully revealed for examination.
    http://www.theglobalmail.org/feature/tax-dodgers-sans-frontieres/667/
    (Take the tax evasion tour )

    While not disputing that the nature of Qantas business requires overseas administrative offices, Qantas should be clear as to the function/effect of these entities on trading P&L.
    Are profits/losses being hidden?

    There appear to be many unknowns/vagaries at this stage, with the company presenting only the detail it considers to best suit their goal of achieving government financial backing.

  26. passum2013Ron Barnes

    The Australian government should receive a 1/3 share as a guarantee of good will that they will not sack and have maintenance done overseas and all maintenance on both fleet to be serviced here in Australia. As well as contracting other airlines services to be done here in Australia. To ensure a continual flow of work and revenue back into Australia. At the same time the management as is at present wages reduced in line with world averages in simular types of employment. Before they try to reduce their labour force.

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