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Geoff Dixon, Qantas CEO, 2001-2008, leaves today. He made a difference.

28-Nov-2008
Qantas CEO, Geoff Dixon
Qantas CEO, Geoff Dixon

Dixon became CEO in early 2001 and proceeded to guide Qantas through a challenging period, when two new low cost operators - Virgin Blue and Impulse - threatened to emasculate it in its fortress home base. In the entire history of Qantas, the airline was never under such threat as it was from early-2002 onwards.

The incoming CEO had been groomed for the role by previous incumbent, James Strong, and managed to a greater extent than his predecessor to use a very talented support team, something that too few company heads have the confidence or skills to do. This talent helped him navigate a very complex and often unpopular course.

He quickly moved to buy Impulse, leaving a re-invigorated Virgin Blue to stampede through the domestic market, rapidly eroding Qantas' market share. With a cost base at least a third lower than Qantas' and in an essentially point-to-point marketplace, ideal for the LCC model, Virgin Blue looked to be unstoppable.

This was a threat whose commercial impact far exceeded the 1997 financial crisis, the Bali bombings and, later, the 2003 SARS epidemic. It was not going to go away. Things were not going to return to normal.

His major legacy became the creation of a greenfield low cost subsidiary, Jetstar - against all "expert" advice. After a couple of false starts at finding an adequate reply to the new Virgin Blue threat, including a confusing "segmentation" domestic model and a compromised Australian Airlines international operation, which suffered from high cost, the Jetstar response was launched in 2004.

By doing so, he turned around the low cost threat and forced Virgin Blue into a revised strategy, as Jetstar came in under it and eroded its bottom-end market. And, led by highly competent CFO, Peter Gregg, a major cost saving programme complemented the Jetstar measure.

Creating a dual brand strategy made Qantas a very formidable presence. This was a controversial action, unpopular among many within Qantas, from pilots to engineers, to large parts of its management.

In reality the dual brand strategy is probably the airline's saving grace. Without it, Qantas would have gone the way of many US airlines, undermined by low cost competition. The strategy allows substitution of higher cost Qantas services on lower yielding routes, but permits the mainline brand to offer premium service on higher yielding routes.

It sounds simple, but no-one else has been able to achieve it.

The domestic duality was then translated into an international operation, with pragmatic links between the two brands, meaning that competitors find great difficulty in matching its flexibility.

Geoff Dixon will also be remembered more recently for two events that he would probably handle differently, given the chance to revisit.

The extraordinarily controversial (and, in reality, probably at the time a very good option for Qantas) private equity buyout in 2007 was not well handled, to say the least. Dixon and his always supportive Chairman, Margaret Jackson, were seen to be and probably were, much too close to the whole deal. Each suffered considerably in the backwash of the butchered attempt.

Today, with the benefit of hindsight and the intervention of the global economic meltdown, the thought of what might have been if the buyout had succeeded - a highly leveraged entity, with extensive links into the devastated Allco and others - doesn't bear mention.

Then, more recently, the CEO's handling this year of a heavily flawed media beat-up over safety, combined with a maintenance engineers dispute, undoubtedly cost the airline large amounts of goodwill. This also converted into cash, as delays and uncertainty alienated premium travellers.

But events such as this are not unusual for CEOs in the highly dysfunctional business that is the airline industry. The complexity of the business and its many integrated activities frequently leaves it exposed to numerous unions. Most notable of these are pilots, cabin crews and engineers, whose powers to wreak havoc to regular operations have often allowed the perpetuation of unsustainable practices and costs.

That said, throughout a continuing period of heavy cost-cutting, Qantas' unions have for the most part behaved responsibly over recent years, recognising that a changed world meant that internal change was also necessary for survival.

Whether this meeting of minds can be sheeted to Dixon's leadership, or more likely to a combination of factors is academic. The airline has managed to undergo a metamorphosis during Dixon's tenure. And this required company-wide support.

New head, the highly competent Alan Joyce, inherits an airline which is fundamentally in good shape, with a strong balance sheet. His headwinds will be the stunning fall in consumer demand - never before seen to such a degree in the business - and the need to persuade a battle weary workforce that he can lead them through the hard times.

It appears from early indications that he will not however have the good fortune that the outgoing CEO had, of unconditional support from his Chairman. The new incumbent, Leigh Clifford, comes from a different mould and shows many signs of planning to occupy an executive role.

Certainly, strength of character is going to be needed in the next couple of years, but the new Chairman would not be the first to underestimate the complexity of this superficially simple industry. Alan Joyce is a skillful operator and, as CEO, will need all the support that can be mustered.

Meanwhile Geoff Dixon leaves an airline that, although, like all others, is seriously threatened by the global economic meltdown, it is probably better equipped than almost any other to survive.

He has done what many strive towards, but fail: to make a lasting difference. And had a few laughs along the way.


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