The fateful text message was sent to Lyell Strambi, head of operations at Qantas Airways, just before 5pm on the last Saturday in October 2011. It simply read, “We are go.”
“With those words, the die had been cast. There would be no turning back,” writes Matt O’Sullivan in the new book Mayday: how warring egos forced Qantas off course.
O’Sullivan, a journalist at Fairfax Media, gives a dramatic account of the most radical decision in Australian industrial relations history, the grounding of the Qantas fleet by chief executive Alan Joyce and chairman Leigh Clifford.
With that three-word text message, the Qantas fleet was grounded, worldwide. Some 98,000 passengers left stranded; people going to weddings, funerals, business meetings, even leaders gathered at the Commonwealth Heads of Government meeting in Perth, all left in the lurch.
“By the end of the day, Qantas would book 10,247 passengers into hotels, including 8485 in rooms in Asia, Europe, the US and South America, and 1762 in Australia’s state capitals.”
It could be said that as far as industrial relations battles go, the showdown on the waterfront has had a more profound effect but for pure shock value nothing surpasses the Qantas grounding.
Contrary to the official line from Qantas management that the decision was made after bloody-minded action from the unions that year at the annual shareholders’ meeting, O’Sullivan reveals that the grounding almost happened two weeks earlier.
The option of locking out staff and grounding the fleet, he writes, had been contemplated in secret for some time.
Was it all worthwhile? Could the showdown have been avoided and accommodation struck with the Qantas workforce without such a dramatic disruption to customers?
According to O’Sullivan, senior Qantas executives still say they had no choice. The fight with the unions had to be brought to a head.
Joyce, described as a polarising figure, as much revered by the right as despised by the left, is now on the verge of pushing through an 18-month pay freeze. He has settled a slew of enterprise bargaining agreements with the engineers and the short-haul pilots, though issues remain with Jetstar.
There were unintended consequences of grounding the airline, however. By effectively inviting 100,000 passengers to try a rival carrier, Alan Joyce did his arch-rival John Borghetti at Virgin a big favour.
Joyce, Borghetti and former chief financial officer Peter Gregg had all been in the running to succeed Geoff Dixon as CEO. The mathematician from Dublin, Joyce, got the job and the bridesmaid Borghetti went off to run Virgin, where he is considered by many to have outmaneouvred Joyce.
The grounding enabled Borghetti to shake off Virgin’s marque as a discount carrier and reshape it as a full-service airline, a viable alternative to Qantas for business travellers and rusted-on Qantas clientele.
Just last week he was still giving Qantas the niggle. In a nifty stroke of PR, Virgin declared it would eliminate fuel surcharges from its US route. Fares would consequently drop $40.
That put Qantas in rather a ticklish position as its surcharges on the same route tote up to $680 per airfare. As oil prices rose in recent years Qantas stacked on the surcharges but only now, as the price has halved, has it reduced them. It responded by cutting by $110 a fare and wrapping the surcharges into the overall ticket price.
Luck of the Irish
The plummeting price of jet fuel has been a boon for Alan Joyce. Only last year the airline was pleading with the federal government for assistance. It had also pursued the Gillard government for help in years past.
The bitter battle in the domestic market between Virgin and Qantas – as the latter aggressively sought to defend its 65 per cent market share –has been terrific for customers but cost Qantas dearly. It notched up the worst loss in its 94-year history last year, conceding $2.8 billion in red ink.
This week though, UBS put out a research note forecasting a billion-dollar pretax profit for the airline, rising to $1.7 billion the year after. You could say Joyce has had the luck of the Irish. No doubt Qantas will put the performance down to management’s transformation plan, which kicked off early last year, though the fall in oil has sent airline stocks around the world heading north.
The fortunes of Qantas may have changed quickly and dramatically, but it won’t last forever. In aviation, the salad days are short and the big profits are a long time in the making. The complexity of aviation, avid competition, sensitivity to external factors such as volcanic events in Iceland, and the extremely high fixed costs of running an airline make this an unenviable sector for investors.
You don’t have to be given to outlandish conspiracy theories to surmise that the oil cartel may put the choke on supply again soon, now that a plethora of higher-cost energy projects around the world are shutting down. Once enough of the newer competitors in energy have been forced out of the market, higher prices will prevail.
For now however, Qantas is in a sweet spot perhaps redolent of its last big stroke of good fortune when mainline rival Ansett collapsed in 2001. Then, Qantas was offered to buy Ansett for $1 and take on its obligations. It declined, picking up 90 per cent of the market instead. Now it is back to a duopoly. The third player Tigerair is controlled by Virgin.