Wednesday, August 17, 2011

Visitor 120,000, structural change and QANTAS

Visitor 120,000 to this blog arrived last night from Melbourne via Google. They spent some time reading Manners and Society in Modern Australia, a July 2007 post musing on changes in manners and society in Australia.

It's always interesting if sometimes uncomfortable looking at past posts. I don't think that I would vary anything that I said then.

As I write, change continues to ripple across this country.

Yesterday QANTAS CEO Joyce announced further changes to that airline group intended to strengthen its position in Asia; the transcript of his speech is here, examples of local media coverage here, here, here, here. While Mr Joyce focuses on the positives, a new Spirit of Australia, it is clear that a shift in business focus away from Australia is central.

The QANTAS case is an interesting one because of the way it combines and reflects many of the changes taking place in Australia. For that reason, I thought that I might look briefly at certain elements in the announcement, linking this to broader change patterns.

QANTAS mainstream international services have been losing money. One telling statistic provided by Mr Joyce is that those services are now carrying only 18 per cent of people flying out of Australia. Such a percentage would have been inconceivable even fifteen years ago.

In explaining this, the CEO focused on the changing economics of airline operations. That's true, and I will come back to it in a moment. However, there is another factor as well, brand destruction, something that I have written on before in a general sense.

On QANTAS specifically, I began my 27 January 2010 Armidale Express column (The importance of a Gin and Tonic) with these words:
Several years ago flying to Armidale on Qantas, I asked for a gin and tonic only to be told that they no longer served alcohol. I have avoided Qantas as much as possible since.
This may sound an extreme reaction. Surely the man can go for an hour without a drink! However, in my mind it marked the final end of an era, a sad full stop on part of our history.
My focus in the column was on New England. However, in a broader sense, the problem was that the events described were the last straw in the progressive destruction of my own loyalty to QANTAS.
Even twenty years ago, certainly thirty years, I thought of QANTAS as my airline. It was safe, it was Australian, it was mine.

I remember getting onto a QANTAS flight in London in the mid eighties. I was exhausted, for I had been flying constantly for several weeks. As I sat down on the QANTAS flight, as I was given a drink and listened to the crew, I suddenly relaxed. I actually felt that I was home.

That brand loyalty translated into a willingness to pay a premium for QANTAS. I generally didn't think about it. I just booked QANTAS. Where cash was very important, I would look at other options (I ruled a lot of airlines out on safety grounds), but I still flew QANTAS where I could.

It took QANTAS a number of years and a lot of hard work to destroy that loyalty. In no particular order:
  • Code sharing. In flying QANTAS I wanted to fly QANTAS. With code sharing, I would find myself flying with airlines that I really didn't want to fly with.
  • Constant chops and changes to the rules governing things like QANTAS Club and Frequent Flier, creating a commodity merchandise feel. More generally, a decline in my perception of the standard of service and of comfort. 
  • Erosion in my faith in QANTAS safety standards in the face of constant cost cutting and an increasing number of near misses.
  • Improved standards on other carriers that challenged QANTAS in terms of safety and service. Singapore Airlines was the first, but but by no means the only one.
I still have vestigial loyalties to QANTAS, but it's much eroded. Now here I want to attach a rough number.
Looking across the family including my wife's side, QANTAS' share of international travel is down to about 10 per cent. Just an extended family, but one that has made over fifty international flights in the last few years.
I started with the brand loyalty point because that is critical in allowing QANTAS to extract some price premium in a competitive market. And QANTAS needs that because of its changing market place.

Australia has three features that dictate QANTAS behaviour
The first is the country's small size in population and economic terms. While Australians travel extensively, it remains true that Australian is something of a minnow in global terms. QANTAS' natural market place is quite small by global standards, as it is for most other local businesses.

The second is Australia's location. Australians talk about the relative shift in the country's geographical position with the rise in Asia. Forget that. The country remains, as it was, on the periphery. A Singapore or Dubai is surrounded by traffic routes. Australia is not. We are not, and never can be, a natural hub. For that reason, it makes perfect sense for QANTAS to look for way of locating business closer to natural hubs in high growth markets.
The third is Australia's cost structures. We are simply a high cost country. This is accentuated by the mining boom and consequent changes in things like the exchange rate. An airline like QANTAS has to adjust to survive. I would argue that QANTAS has stuffed things up by failing to protect its base, but that doesn't affect the overall economics.
Now here I want to finish this post with a comment that I have made before.

The changes at QANTAS are simply a microcosm of the changes rippling across this country. In considering those changes, we focus on domestic issues. We almost completely ignore broader issues and especially Australia's real place in the world.

We just aren't important beyond our role as a quarry. If we want to be more, if we want to change our place, we have to change our thinking. At the moment, I can't see that happening.     


Rummuser said...

The last time I visited Australia, I flew to Sydney from Singapore by Singapore Airlines, and returned to Mumbai from Melbourne by Quantas. The contrast could be imagined by you. Our own national carrier, Air India is in a ventilator and I hope that they will pull the plug soon. They were at least better than PIA (Apt acronym too!)

Jim Belshaw said...

Hi Ramana. Your comments sent me on a Wikipedia browse looking at Air India and PIA. I had forgotten the details.

I must write something at some point on aviation past.