Hearts and minds

From the Editor’s desk

As ever, if you really want to know what people are thinking, follow the money. When the dust from the Qantas grounding cleared after the weekend, investors had responded positively, sending its share price up 4 per cent to $1.60 by close of Monday. It was a sign of the support that Qantas chief executive Alan Joyce had received at the annual meeting on Friday before his amazing decision to lockout staff and ground the whole fleet around the world.

For investors, while Joyce’s actions were daring and possibly even destructive of brand value, they made sense. Last year, the international arm of the business lost more than $200 million. Qantas simply can’t compete with other airlines that are propped up by their respective governments. Frankly, international air travel is not a sector that any sane business would get into – there’s an uneven playing field, rising fuel prices and unpredictable events such as the ash clouds earlier this year that cost Qantas $224 million.

Nonetheless, Qantas is in the business of international travel and its investors recognise that if it wants to stay there, it will have to radically restructure its cost base. International air travel is a sector where consumers buy on price, not on product, which is why airlines such as British Airways have been ripping out first-class cabins from long-haul flights as consumers have questioned paying extra for a better seat over a 12-hour flight.

To illustrate the pressures Qantas faces, when Fair Work Australia terminated the industrial action on Monday, Southern China Airlines announced that it would now fly direct from Beijing to Brisbane. It already offers fares from Melbourne to Beijing at $400 less than Qantas can offer. These are the benefits of globalisation that we love – it has brought down the cost of goods and services and increased our standard of living. What we have to take with that are the downsides – the increased competition and offshoring that are also part of living in global times.

The irony of the whole chain of events is that it was Qantas that used the Fair Work regime to its advantage, not the union, despite the fact that the federal government has given power back to unions. Qantas management was smart; it was the gravity of its action that forced the government to ask Fair Work Australia to get involved and no doubt that gravity played on the minds of the panel members as they opted to order the termination of the industrial action rather than a suspension.

The latter would have given the unions more time to breathe, while the former forces a result through compulsory arbitration if the unions are unable to come to an agreement with Qantas over the next three weeks.

Meanwhile, the thousands of passengers stranded all over the globe will gain little comfort from the fact it was their intentions with regards future travel plans that forced Joyce’s hand. The industrial action was costing the company $15 million a week and Joyce could see booking numbers dropping off while focus groups told him their future travel plans would include less of Qantas. He now has to start the hard job of winning back passengers who have been treated poorly and employees that resent his high-handed and dramatic actions. A favourable result from industrial negotiations is one thing but for Qantas to truly prosper, it needs to win the hearts and minds of both these groups.

Kate Mills

BRW

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