Low Cost V Mainline

[43S/172E]

Copied from PPRuNe a very interesting view from across the Tasman

Good Evening All:

One of the dangers of an established mainline carrier starting up a low cost carrier is the potential demise of the main line carrier to the favour of the low cost carrier.

I will let the eloquence of Australian Nick Xenophon of Australia explain what his fears for the future of Qantas are. Feel free to substitute the name of any established mainline carrier that you wish for Qantas, and for employees that are seeing this happen do what ever is in your power to stop this or you could see your job go off shore faster than it takes to read this article.




Senator Nick Xenophon (South Australia) (19:37): I rise to speak tonight on an issue that is close to the hearts of many Australians, and that is the future of our national carrier, Qantas. At 90, Qantas is the world's oldest continuously running airline. It is an iconic Australian company. Its story is woven into the story of Australia and Australians have long taken pride in the service and safety standards provided by our national carrier. Who didn't feel a little proud when Dustin Hoffman uttered the immortal line in Rain Man, 'Qantas never crashed'?

While it is true that Qantas never crashes, the sad reality is that Qantas is being deliberately trashed by management in the pursuit of short-term profits and at the expense of its workers and passengers. For a long time, Qantas management has been pushing the line that Qantas international is losing money and that Jetstar is profitable. Tonight, it is imperative to expose those claims for the misinformation they are. The reality is that Qantas has long been used to subsidise Jetstar in order to make Jetstar look profitable and Qantas look like a burden. In a moment, I will provide detailed allegations of cost-shifting that I have sourced from within the Qantas Group, and when you know the facts you quickly see a pattern. When there is a cost to be paid, Qantas pays it, and when there is a profit to be made, Jetstar makes it.

But first we need to ask ourselves: why? Why would management want Qantas to look unprofitable? Why would they want to hide the cost of a competing brand within their group, namely Jetstar, in amongst the costs faced by Qantas?

To understand that, you need to go back to the days when Qantas was being privatised. When Qantas was privatised the Qantas Sale Act 1992 imposed a number of conditions, which in turn created a number of problems for any management group that wanted to flog off parts of the business. Basically, Qantas has to maintain its principal place of operations here in Australia, but that does not stop management selling any subsidiaries, which brings us to Jetstar.

Qantas has systematically built up the low-cost carrier at the expense of the parent company. I have been provided with a significant number of examples where costs which should have been billed back to Jetstar have in fact been paid for by Qantas. These are practices that I believe Qantas and Jetstar management need to explain. For example, when Jetstar took over the Cairns-Darwin-Singapore route, replacing Qantas flights, a deal was struck that required Qantas to provide Jetstar with $6 million a year in revenue. Why? Why would one part of the business give up a profitable route like that and then be asked to pay for the privilege? Then there are other subsidies when it comes to freight. On every sector Jetstar operates an A330; Qantas pays $6,200 to $6,400 for freight space regardless of actual uplift. When you do the calculations, this turns out to be a small fortune. Based on 82 departures a week, that is nearly half-a-million dollars a week or $25½ million a year.

Then there are the arrangements within the airport gates. In Melbourne, for example, my information from inside the Qantas group is that Jetstar does not pay for any gates, but instead Qantas domestic is charged for the gates. My question for Qantas management is simple: are these arrangements replicated right around Australia and why is Qantas paying Jetstar's bills? Why does Qantas lease five check-in counters at Sydney Terminal 2, only to let Jetstar use one for free? It has been reported to me that there are other areas where Jetstar's costs magically become Qantas's costs. For example, Jetstar does not have a treasury department and has only one person in government affairs. I am told Qantas's legal department also does free work for Jetstar.

Then there is the area of disruption handling where flights are cancelled and people need to be rebooked. Here, insiders tell me, Qantas handles all rebooking's and the traffic is all one way. It is extremely rare for a Qantas passenger to be rebooked on a Jetstar flight, but Jetstar passengers are regularly rebooked onto Qantas flights. I am informed that Jetstar never pays Qantas for the cost of those rebooked passengers and yet Jetstar gets to keep the revenue from the original bookings. This, I am told, is worth millions of dollars every year. Therefore, Jetstar gets the profit while Qantas bears the costs of carriage. It has also been reported to me that when Qantas provides an aircraft to Jetstar to cover an unserviceable plane, Jetstar does not pay for the use of this plane.

Yet another example relates to the Qantas Club. Jetstar passengers can and do use the Qantas Club but Jetstar does not pay for the cost of any of this. So is Qantas really losing money? Alternatively, is it profitable but simply losing money on paper because it is carrying so many costs incurred by Jetstar? We have been told by Qantas management that the changes that will effectively gut Qantas are necessary because Qantas international is losing money but, given the inside information I have just detailed, I would argue those claims need to be reassessed.

Indeed, given these extensive allegations of hidden costs, it would be foolish to take management's word that Qantas international is losing money. So why would Qantas want to make it look like Qantas international is losing money? Remember the failed 2007 private equity bid by the Allco Finance Group. It was rejected by shareholders, and thank goodness it was, for I am told that what we are seeing now is effectively a strategy of private equity sell-off by stealth.

Here is how it works. You have to keep Qantas flying to avoid breaching the Qantas Sale Act but that does not stop you from moving assets out of Qantas and putting them into an airline that you own but that is not controlled by the Qantas Sale Act. Then you work the figures to make it appear as though the international arm of Qantas is losing money. You use this to justify the slashing of jobs, maintenance standards and employment of foreign crews and, ultimately, the creation of entirely new airlines to be based in Asia and which will not be called Qantas. The end result? Technically Qantas would still exist but it would end up a shell of its former self and the Qantas Group would end up with all these subsidiaries it can base overseas using poorly paid foreign crews with engineering and safety standards that do not match Australian standards. In time, if the Qantas Group wants to make a buck, they can flog these subsidiaries off for a tidy profit. Qantas management could pay the National Boys Choir and the Australian Girls Choir to run to the desert and sing about still calling Australia home, but people would not buy it. It is not just about feeling good about our national carrier—in times of trouble our national carrier plays a key strategic role. In an international emergency, in a time of war, a national carrier is required to freight resources and people around the country and around the world. Qantas also operates Qantas Defence Services, which conducts work for the RAAF. If Qantas is allowed to wither, who will meet these strategic needs?

I pay tribute to the 35,000 employees of the Qantas Group. At the forefront of the fight against the strategy of Qantas management have been the Qantas pilots, to whom millions of Australians have literally entrusted their lives. The Australian and International Pilots Association see Qantas management strategy as a race to the bottom when it comes to service and safety. On 8 November last year, QF32 experienced a serious malfunction with the explosion of an engine on an A380 aircraft. In the wrong hands, that plane could have crashed. Nevertheless, it did not, in large part because the Qantas flight crew had been trained to exemplary world-class standards and knew how to cope with such a terrifying reality. I am deeply concerned that what is being pursued may well cause training levels to fall and that as a result safety standards in the Qantas Group may fall as well. AIPA pilots and the licensed aircraft engineers are not fighting for themselves; they are fighting for the Australian public. That is why I am deeply concerned about any action Qantas management may be considering taking against pilots who speak out in the public interest.

A lot of claims have been made about the financial state of Qantas international but given the information I have presented tonight, which has come from within the Qantas Group, I believe these claims by management are crying out for further serious forensic investigation. Qantas should not be allowed to face death by a thousand cuts—job cuts, route cuts, quality cuts, engineering cuts, wage cuts. None of this is acceptable and it must all be resisted for the sake of the pilots, the crews, the passengers, and ultimately the future of our national carrier.

[SilentMajority]

The key words in your post are "stop this" from happening.

Qantas wanted a LCC arm and they got one.

Air Canada has stated they NEED a LCC arm and they are going to get one whether we like it or not. It will be our choice whether we are eventually part of this new entity or find ourselves on the outside looking in.

My guess is that if the Qantas pilots had it to do over again they would have:

1). Realized that they had no power to stop JetStar from being formed in the first place.

2) Swallowed their pride and placed themselves in the JetStar flight deck seats, knowing that by being there, they would eventually have some semblance of control over the operation and the inevitable intrusion into their mainline operation.

My guess is that if we balk at Air Canada's proposed LCC and refuse to become part it, a LCC will appear under a different brand name (i.e. JetStar) but firmly under the control and resources of AC.

Air Canada has stated that they need this to survive and as such they will find a way to circumvent our scope clause. Air Canada will do it with or without us.

[What_the?]

Mods... Please move this topic to "AC low cost carrier closer to beoming a reality". The reasons for not selling ourselves for free and degrading the profession were discussed in detail there.

[CanadianEh]

I wish we had more politicians like that here in Canada. If those allegations are true, then those are disgusting (mis)management practices being employed. As many of here have said, LOW COST does not necessarily have to equate to LOW WAGES AND WORKING CONDITIONS.

Revolving door airline management needs to stop filling their wheelbarrows with cash and then leaving the company worse off than before for the next crook.

[KAG]

I wish we had more politicians like that here in Canada. If those allegations are true, then those are disgusting (mis)management practices being employed. As many of here have said, LOW COST does not necessarily have to equate to LOW WAGES AND WORKING CONDITIONS.

Revolving door airline management needs to stop filling their wheelbarrows with cash and then leaving the company worse off than before for the next crook.

Capitalism at work. Just look how great it's working around the world.

[Flaps 1]

I'm baffled that Robert Milton wasn't accused of some sort of white collar crime when he decimated the airline, took $millions for himself, and left the company lying in the gutter, bleeding perfusly. How can CEO's be graciously rewarded for failure? If we fail a ride, we are not rewarded.

But i guess that's old news. Or is it? Will a lawyer running AC do any better?

[vic777]

I'm baffled that Robert Milton wasn't accused of some sort of white collar crime when he decimated the airline, took $millions for himself, and left the company lying in the gutter, bleeding perfusly. How can CEO's be graciously rewarded for failure?

I think there must be a mechanism for any one of us to formally accuse some one of a crime. The BOD is also suspect, what influenced them to make their decisions?

[Flaps 1]

Obviously my white collar crime comment was an exaggeration, but how can we sit back and let these managers come in and destroy the wealth of a good company, while walking away with $millions? It just seems highly unfair. The good people of AC have no chance as long as this continues, and it seems a lawyer is not the right choice to bring value back. If this low cost model is approved, I'm sure we'll see one more manager walking away with a pocket full of bucks, as the employee's continue to lose salary and good working conditions. It seems wrong on so many levels. And how long before the low cost model begins to fail? What's next?

[TheSuit]

WestJet is devouring Air Canada's market share at will and still has 40 birds on order. Porter is now entrenched on regional routes and is moving East. The transatlantic market is way over capacity, and the Pacific market is packed with high quality operations and is about to be jammed with LCC upstarts. Good luck carrying on business as usual.

[rudder]

WestJet is devouring Air Canada's market share at will ....

That statement isn't even remotely supported by the facts.

[CanadianEh]

WestJet is devouring Air Canada's market share at will ....

That statement isn't even remotely supported by the facts.

Pretty much nothing TheMoron says is.

[Doug Moore]

WestJet is devouring Air Canada's market share at will and still has 40 birds on order. Porter is now entrenched on regional routes and is moving East. The transatlantic market is way over capacity, and the Pacific market is packed with high quality operations and is about to be jammed with LCC upstarts. Good luck carrying on business as usual.

Hey Suit,

AC doesn't need some "luck" carrying on its business, but it does need a few Suits who know how to run the airline. Oops, pardon me, it's a business they're running, not an airline - right?

By the way, have you taken that bus to YYZ yet? viewtopic.php?f=31&t=77053&p=724326#p724326

Cheers,

[mduffy]

SilentMajority

- Qantas pilots have no scope - they had trust.
- AC pilots have scope - they have no trust.

I think if AC thought they could have an LCC without AC piltots it would already be flying. Are you sure you're in the majority?

[TheSuit]

That statement isn't even remotely supported by the facts.

Ouch

airline.gif (9.24 KiB) Viewed 3327 times

http://www.iveybusinessjournal.com/topi ... -viability

http://www2.macleans.ca/2009/04/30/west ... ir-canada/

http://en.wikipedia.org/wiki/WestJet

http://www.theglobeandmail.com/report-o ... le1472230/

Don't forget to vote for your favorite CEO:

http://www.theglobeandmail.com/report-o ... le2247746/

[rudder]

Hey suit, last time I checked it was almost 2012.

Perhaps you should research the stats for the last 24 months which make it clear that the domestic market share war between WJ and AC has stabilised and has even slipped a couple of points in AC's favour as the WJ CEO stated publicly that WJ would not irrationally add capacity in an attempt to secure greater market share and instead would focus on yield.

I do however believe that if WJ decides to add Q400 lift that it will allow WJ to enter many more markets that will in fact erode AC market share that is provided by the AC Express carriers.

[bearinmind]

stock has been declining and at the 52 week low for 14 days in a row. People with money dont seem to think its a good idea either.

[TheSuit]

Perhaps you should research the stats for the last 24 months which make it clear that the domestic market share war between WJ and AC has stabilised

Rudder, take a look at the slope of those two lines. When WestJet wanted market share, they got it, at will. The last two years you're talking about are the break between boxing rounds. They just reiterated that they are open to any new fleet type they think they can run, I'd say they'd like some more market.

stock has been declining and at the 52 week low for 14 days in a row. People with money dont seem to think its a good idea either.

So has the TSX.

[bearinmind]

So has the TSX.[/quote]

The tsx is not at its 52 week low, and hasnt been there for 2 weeks.

Think, then type.

[DrBoeing]

Perhaps you should research the stats for the last 24 months which make it clear that the domestic market share war between WJ and AC has stabilised

Rudder, take a look at the slope of those two lines. When WestJet wanted market share, they got it, at will. The last two years you're talking about are the break between boxing rounds. They just reiterated that they are open to any new fleet type they think they can run, I'd say they'd like some more market.

stock has been declining and at the 52 week low for 14 days in a row. People with money dont seem to think its a good idea either.

So has the TSX.

The stock is at junk bond level AGAIN!!!!!! I am surprised the BOD has not sacked Rovinescu. He was supposed to be a savior, reality, he is Milton clone lining up to the trough to fill his pockets and then he will leave.
He is a great idea, sack the entire executive suit and only replace 50% of them, do not even bother filling the other 50%. Watch the stock go through the roof!

[Norwegianwood]

Perhaps you should research the stats for the last 24 months which make it clear that the domestic market share war between WJ and AC has stabilised

Rudder, take a look at the slope of those two lines. When WestJet wanted market share, they got it, at will. The last two years you're talking about are the break between boxing rounds. They just reiterated that they are open to any new fleet type they think they can run, I'd say they'd like some more market.

stock has been declining and at the 52 week low for 14 days in a row. People with money dont seem to think its a good idea either.

So has the TSX.

The stock is at junk bond level AGAIN!!!!!! I am surprised the BOD has not sacked Rovinescu. He was supposed to be a savior, reality, he is Milton clone lining up to the trough to fill his pockets and then he will leave.
He is a great idea, sack the entire executive suit and only replace 50% of them, do not even bother filling the other 50%. Watch the stock go through the roof!

AKA Lawyer.........................