The news that Qantas has been devalued by two rating agencies to “junk status” filled many of us with dismay.
In 2020, Qantas should be celebrating its 100th anniversary. Only two airlines: KLM and Aviannca are older. Qantas has survived the Great Depression, World War Two, 1970s hyperinflation and oil crisis, the Asian Financial Crisis, the bombing of the World Trade Centre, SARS and the the global financial crisis.
Today, its Australian domestic market share is being attacked by a new and aggressive competitor Virgin Australia. The international network has been trimmed. The long flown kangaroo route has been axed and a deal with Emirates has handed customers over to the bigger rival. The Jetstar brand is costing it money in Vietnam, Japan, Hong Kong and Singapore. Jobs have been cut and continue to be cut. This once mighty kangaroo has seen a fall in its ratings by passengers. For example, Skytrax places them at tenth place. The fleet is getting old. Shares have continued to fall in value. While Qantas is still solvent, it is bleeding cash.
It now faces the unthinkable:
- Could Qantas vanish?
- Or be taken over by a bigger international rival
- Or become an Australian domestic carrier only with some regional routes?
Drastic steps to restore the company’s profitability are needed. It’s time to accept the current strategies are not working. Ten things are needed to fix the carrier:
1. Reposition the Brand
Qantas needs to retain its place as a full service carrier but its time for a refresh. Virgin Australia are the “hip” airline brand in Australia. Qantas must work hard to get the loyalty of a new generation of Aussies who are eager to fly but choose Emirates, Qatar and Etihad because they are perceived to be “better” or China Southern, Air Asia, Jetstar because they are cheaper. As for the middle class of Asia and the backpackers of Europe, how does Qantas reach them? Relying on the sentiment of “still calling Australia home” is not enough. http://www.youtube.com/watch?v=VZgZ0LjFX3g
2. Ramp up Service
The decision to link with Emirates has shown up the service gap that exists between Qantas and the world’s best carrier: Emirates. The Emirates product is largely superior and anecdotally, many business customers are choosing Emirates over Qantas to Europe. If Qantas wants to be seen as an equal partner in their key alliance, then their service offerings need to be improved. This means food, amenity kits and even re considering the abandoned wifi (Qantas ditches wifi).
3. Run after Partners
As much as I have criticised the partnership with Emirates, other partnerships need to be aggressively built up to get passengers onto the Qantas network. This would be an arrangement similar to Virgin Australia’s deals with Air New Zealand, Etihad and Delta. Virgin fly to only a handful of international destinations but their partners allow them to extend their global reach. In Qantas case, there is their existing One World network including Cathay Pacific and LAN. Using these “virtual” networks to fly visitors from all over the globe to Australia and Australians to their preferred destinations is vital.
4. More Destinations
Qantas has reduced their international network drastically. Some of it has resulted in Australians flying low cost subsidiary Jetstar, some have switched to Emirates and some have flown other carriers. I was in Vietnam recently and most of the tourists, I encountered were Australian. Had they flown with Qantas? No! Qantas does not fly to Vietnam. As for China. Australia’s biggest trading partner? One solitary flight from Sydney to Shanghai.
Why not Melbourne-Hanoi-Paris? Sydney Beijing -Frankfurt? Melbourne-Shanghai-London. Wherever was profitable. This could mean engaging Vietnamese and Chinese staff and yes their wage costs would be lower.
5. Reign in Jetstar
Jetstar now has a fleet size that is 2/3 the size of Qantas. Its Australian domestic growth is significantly impacting on mainline Qantas. The Asian arm has not made the money that previous CEO Geoff Dixon suggested that it would. Growth in the Asian market must not cost Qantas its existence.
6. Relate to, value and support employees
The Qantas workforce has been effectively disengaged for many years. They have been complaining for sometime at their feeling of a lack of value. Jobs are being cut every few months as the airline cycles down. The grounding of the entire fleet in 2012, to win an industrial relations war has damaged both consumer support for the brand and staff morale.
7. Rationalise the fleet.
Qantas has some old aircraft in the form of its fuel inefficient 747s and 767s. They keep refurbishing them while ignoring the obvious issue: they cost too much to fly. A 330, 380, 737 and 787 fleet needs to be reverted to as soon as possible.
8. Raise Freight Revenue
9. Revive Loyalty
Frequent flyer pages are filled with the lack of connection long term flyers have felt with their preferred carrier for some time. Responding to frequent flyer complaints and reaching out to them is imperative to restore the carrier’s credibility.
10. Increase ancillary revenue
Korean airlines makes a huge chunk of revenue from Duty Free. Air Asia sell airline souvenirs and memorabilia. Most low cost carriers make it easy to buy baggage in advance rather than just punishing excess luggage at check in. Premium Economy has proved popular at Qantas. Taking all of these options to earn additional ancillary revenue and expanding them has the potential to generate Qantas more revenue from customers who have already paid for a ticket. Add expanded travel insurance, hotel and hire car options and this revenue could touch hundreds of millions.
In 2010, Japan Air Lines was declared bankrupt. Today, it flies successfully. The work taken to get there was drastic. Now its the turn of Qantas. What happens in the next six months will set the tone for what happens in 2020 when Qantas should turn 100.
This post, like my other posts is written as a private individual and has no connection to my professional work.