Joyce points the finger, but airline’s wounds are self-inflicted

Qantas chief Alan Joyce ratcheted up the histrionics on Thursday when he phoned key politicians, including Treasurer Joe Hockey, warning them of massive losses, swingeing job cuts and an urgent need to look at all options including the sale or partial sale of some key assets.

Qantas chief Alan Joyce ratcheted up the histrionics on Thursday when he phoned key politicians, including Treasurer Joe Hockey, warning them of massive losses, swingeing job cuts and an urgent need to look at all options including the sale or partial sale of some key assets.

Joyce blamed high fuel prices and a ‘‘fiercely difficult operating environment’’. But most of all he fingered Virgin Australia and its ‘‘unprecedented distortion of the Australian domestic market’’, with its strategy to seek ‘‘majority ownership and massive financial backing from foreign government-owned airlines’’.

What he didn’t do was blame himself or the board for allowing him to paint himself and the airline in a corner. What staff and investors are left with is a carrier bleeding red ink and a business that is facing a credibility crisis and calling on the government to help it out, either through equity, debt or clipping Virgin’s wings by classifying it as a foreign carrier so it would lose its international flying rights.

That it took Joyce and the board until now to ’fess up to what the market has been talking about for weeks – big losses for the six months and full year – is a topic for another day.

For now the debate centres on the losses, the slashing of another 1000 staff, $2 billion in cost-cutting over three years and a structural review, which could include the partial float of its frequent-flyer business, along with other sales.

It has prompted a number of people, including independent senator for South Australia Nick Xenophon, to call on Joyce and the board to resign. ‘‘It’s a big call to say the CEO and board of a company should resign, but this is a crisis of their own making,’’ Xenophon said in a statement.

It is a high-stakes game that Joyce is playing – a game he played two years earlier in the industrial relations arena when he took the unprecedented step of grounding flights and locked out the many thousands of staff who were negotiating awards.

This time he is playing hardball in the political bearpit to pressure the government to give him what he wants: access to cheap capital, a review of the Qantas Sale Act and any other leg-up that will help get Qantas back on the road to profitability, including a partial privatisation.

He is using the national carrier card to do it and it will be interesting to see just how far the government, investors and the board will let him go.

From a shareholder perspective the share price lost more than 11 per cent after the ASX announcement on Thursday. The shares are currently trading at $1.07, which is a long way from the $2-plus share price Joyce inherited when he took the job five years ago.

Joyce has cranked up his lobbying of the government since competitor Virgin Australia announced a $350 million capital raising that would be backed by its shareholders, Singapore Airlines, Air New Zealand and Etihad.

From that day, his language has become increasingly emotive and desperate, reaching a crescendo with his allegation that Virgin was causing ‘‘us unbelievable pain’’ and the so-called ‘‘unlevel playing field’’ required ‘‘urgent actions’’.

Joyce believes a key reason for the problems at Qantas is Virgin and its dumping of capacity on the market, and the resultant airline wars. What he doesn’t say is his own line in the sand of 65 per cent market share has driven much of the capacity war.

The lesson he should have learnt from all of this is that companies rarely make a profit chasing market share. Virgin started the war 18 months ago when it began increasing capacity by putting more aircraft on routes that had previously been neglected. Qantas hit back and warned it would continue to fight to maintain its share at 65 per cent or higher, arguing the decision was based on the so-called ‘‘S-curve’’ phenomenon, which contends that aviation revenue will fall off a cliff if market share falls below a certain level.

The Qantas philosophy was outlined in March by the boss of Qantas’ domestic business, Lyell Strambi, who warned he would add two planes for each one added by Virgin. ‘‘That’s the game and people need to understand the game.’’

The airline industry is a tough game, but Joyce hasn’t made it easy for himself. Qantas is far bigger than Virgin, but he has allowed the airline to outwit him every step. If this latest demonstration of the pain Qantas is suffering doesn’t work, his next card might be to threaten to close the international airline and lay off the many thousands of staff.

He could then substitute the airline for Jetstar international and truly jetstarise the airline.

There will be a lot of twists and turns in the Qantas saga. Where it will end is anybody’s guess, but it will be bloody and brutal.

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