Qantas dodges a brand bump

Contrary to what's been claimed in the media, the Qantas brand has not crashed landed. But it could be vulnerable.

Business history shows that brands with iconic status, like Qantas, are as durable as Oprah Winfrey. But the airline has lost ground. It has plenty of work ahead to regain its status and if it doesn't manage this properly, it will be a sitting duck.

According to brand valuation specialists Brand Finance, the Qantas brand was worth $1.1 billion in January. With the grounding of its planes, its value dropped $100 million.

Brand Finance managing director Tim Heberden says it could result in direct loss of revenue due to cancelled flights, increased costs in the recovery phase through advertising and discounts, increased capital costs if ratings agencies lose confidence and time to recover lost market share. A Roy Morgan poll last week found that 56 per cent blamed Qantas management.

It's hardly surprising. The tweets that followed the Qantas action revealed a public outraged that a service brand they had grown up with, that they trusted, had let them down.

NSW MP Mike Kelly tweeted: "Finding it increasingly difficult 2 accept credibility of Alan Joyce. Worried we will see the flying roo give way 2 the flying pig emblem."

Certainly, the company's brand will be damaged long after peace has been declared with the three unions. Restoring it is the huge management challenge.

Still, evidence and studies show that long-standing brands with strong track records are resilient. The business world is littered with examples of big brands that stuffed up, alienated customers and still bounced back.

Toyota, for example, posted an impressive profit in the same quarter where it suffered the ignominy of auto recalls, defying the so-called experts who at the time said the Toyota brand was finished. IBM used its brand to move from low-margin commodity businesses into service-related solutions.

There have also been numerous examples of mistakes in the fast moving consumer goods market. Coke survived the disastrous introduction of New Coke and is still one of the world's most recognised brands. Richard Branson's empire is still expanding despite Virgin Vodka. Bic, makers of pens and shavers, is highly regarded despite Bic perfume, and people still buy Vegemite, regardless of that stomach-turning attempt to combine it with cheese.

Study after study shows that parent brands are as enduring. People forgive for them for their transgressions. True, there are now many who have vowed never to fly Qantas again. But many others will return when things have stabilised. Why is that? Think of the market. Qantas is highly protected on its access to slots on domestic routes. Virgin is still an up and coming airline and not many will fly Tiger. Qantas is still in a strong position.

Nonetheless, it will have to be carefully managed because Joyce's game plan is not without risk. While his clever strategy forces the union to negotiate at a pace it might not like, keeping in mind his long term ambition is offshoring, there are no guarantees Fair Work Australia will rule in the airline's favour if it goes to arbitration.

Nor is it a lay down misere that the Asian hub strategy will work. A new premium subsidiary airline, say Red Q operating out Kuala Lumpur, will be competing against state-owned carriers.

And finally, Virgin will pick up a chunk of Qantas' market. That means Qantas could be out on a limb if it fails to really engage with its customers. It hasn't been doing that.

Qantas could have managed the lockout and grounding of the fleet better. Alan Joyce and his chairman Leigh Clifford faced the threat of a lengthy guerrilla campaign by employees in what had become a battle for control over the management of an airline trying to create a viable future as a hub-style carrier with work practices and cost structures that would allow it to compete with Asian and middle eastern carriers and transform an outdated business model. That's never been properly conveyed to the public. Certain steps could have been taken to win support.

Things might have been very different, for example, if Joyce had publically knocked back his 71 per cent pay rise on the eve of the grounding. Because he failed to do that, he was perceived as money-grubbing and greedy when the planes were grounded. It was difficult for him to take the moral high ground after that.

In his email sent to Qantas customers last week, Joyce apologised for the "inconvenience” of the planes being grounded. He then blamed it on the unions and reassured customers that it wouldn't happen again. Shifting blame was a mistake as many customers were aggrieved at the decision. Nor was it a real apology, it was a fauxpology, the kind given by politicians. He was apologising for the inconvenience, not for the decision.

His appearance before Parliament on Friday wouldn't have helped. He compared his grilling with the McCarthy anti-communism trials in the United States in the 1950s, and stretched the boundaries of belief by claiming he woke up on Saturday morning, as you do, with the idea to shut the airline down. But his planned advertising campaign with M&C Saatchi had reportedly been in the pipeline for at least a week suggesting he had been planning it for some time.

Qantas is now planning an all-out public relations assault in the lead up to Christmas, which will include offering special promotional deals to passengers affected by the grounding and the launch of one of the biggest advertising campaigns in its 90-year history. It has started by saying sorry with free tickets. The trouble is Australians are smart and cynical.

"Common sense says they should lie low,'' says Charles Areni, professor of marketing from the University of Sydney Business School.

A better strategy would be to look at its approach to social media. It's a better way than advertising to connect with customers. Social media is a proxy, a litmus test, of how quickly a company responds and engages with consumer dynamics. It's one area where Qantas needs to lift its game more broadly. It needs to change to stand out from competitors.

While Qantas should be commended for making itself available on Twitter, critics said it didn't respond quickly enough and the responses were too wooden and had no personality. It's a lesson for companies where social media makes a difference: airlines, banks, telcos – the three kinds of businesses where most people interact and are sensitive to customer service, and talk about it extensively on social media.

For now, the brand is in no danger of going under. But with Virgin closing in and the skies becoming more competitive, it might be in danger of becoming just another airline if it fails to manage the recovery effectively and connect with customers. With no brand advantage, politicians will be less likely to keep shielding it from competition.