The radical management restructuring Qantas announced today is actually quite conventional. It’s the existing organisational structure that is unconventional.
Today Qantas’ aviation brands are managed in two broad streams, operations and commercial, rather than as distinct business units. That diffuses responsibility and accountability and makes it quite difficult for external analysts to come to precise conclusions about the performance of the individual brands.
It also breeds cynicism. Qantas’ employees have, for instance, been sceptical about Alan Joyce’s assertion – the foundation for his argument is that Qantas International needs major surgery – that the international business lost $216 million last year. They’ve also been suspicious about the potential for cost and revenue shifting between the Qantas and Jetstar brands.
The structure Joyce outlined today breaks the group up into far more orthodox pieces. From July 1, Joyce will have four main and quite discrete business units reporting to him – Qantas International, Qantas Domestic, Jetstar Group and Qantas Frequent Flyer.
Each will have its own chief executive accountable for all of its operations and with their own profit and loss account, creating direct accountability and considerably more transparency. That’s going to add a sense of urgency in particular to the attempt to stabilise and reverse the declining fortunes of Qantas International, which has been under assault on its traditional routes from a host of new entrants and has been steadily haemorrhaging market share.
Simon Hickey, who has been a highly successful CEO of Qantas Frequent Flyer for the past four years, building it into a major profit centre, has been rewarded with the toughest job in the group.
As a former head of strategy, and with a finance background – he was chief financial officer for Lend Lease in the Americas before joining Qantas – he’s got the right credentials for what will inevitably be a difficult and multi-faceted challenge. With improving its network of international alliances one of Qantas’ priorities, Hickey’s experience in negotiating rewards partnerships will be useful.
The closure of Qantas’ heavy maintenance facility at Tullamarine and contraction at Avalon announced yesterday will, at the cost of 500 jobs already and with more to come, help by improving Qantas’ cost base by up to $100 million a year.
Lyell Strambi, currently in charge of Qantas’ operations, will become CEO of the core, highly profitable, Qantas domestic business at a time when former Qantas executive John Borghetti, now CEO of Virgin Australia, is turning up the competitive heat while, in a major surprise, Jayne Hrdlicka has replaced Bruce Buchanan as CEO of the Jetstar group.
Buchanan played a major role alongside Joyce in launching Jetstar in 2003 and became CEO of that business when Joyce was elevated to the top job at Qantas in 2008, spearheading both the growth in its domestic business and its rapid expansion into Asia. Given his emotional commitment to Jetstar, his departure is a shock.
He will, however, remain with the group for six months during the transition to the new structure and then be a consultant to the entire group for a further 18 months, which would tend to suggest the departure is of his own volition and amicable.
Buchanan is regarded as entrepreneurial, which might signal that he believes Jetstar, having established joint ventures in Singapore, Vietnam, Japan and (subject to approvals) Hong Kong, is entering a different phase of its development.
Hrdlicka, a former Bain & Co consultant who is currently in charge of strategy and technology, is regarded as a more detail and process-oriented executive. Having established the foundations of a regional platform for Jetstar, Joyce presumably wants to focus on ensuring those operations are profitable.
Lesley Grant, who helped develop the strategy for responding to the losses within the international business, becomes the new CEO of the frequent flyer business.
There are some risks in breaking the group down into business units. One of the keys to the success of Jetstar and the two brand strategy is that the Qantas and Jetstar strategies and ambitions have been managed in tandem to avoid the kind of internal competition that had traditionally undermined other carriers’ second brand strategies. Qantas Domestic has been able to leverage its domestic position because of the international business, and vice versa.
That will make Joyce’s own ability to co-ordinate and direct the business units – and hold them accountable for their performances – even more important now that they are being granted a fair degree of independence.