Qantas today announced a substantial reorganisation of its management structure designed to create greater accountability and transparency among its different business units. This comes at a time when the international aviation scene is in a greater state of turbulence than ever before, with alliance and partnership relationships reaching a critical stage.
Splitting domestic and international operations into two separate business units and giving each its own separate P&L is not a unique strategy in any industry and arguably at a time like this gives the Group a better handle on formulating strategy for the future.
Coming in the wake of local competitor Virgin Australia dividing its domestic and international businesses into what are effectively separate companies (something that Qantas is unable to do, thanks to political restrictions set in the Qantas Sale Act), this does also set Qantas up for something similar in the future.
- Simon Hickey, CEO Qantas International. Mr Hickey is currently CEO, Qantas Frequent Flyer;
- Lyell Strambi, CEO, Qantas Domestic. Mr Strambi is currently Group Executive, Qantas Airlines Operations;
- Jayne Hrdlicka, CEO, Jetstar Group. Ms Hrdlicka is currently Group Executive, Strategy and Technology. The Strategy and Technology function will move under CFO Gareth Evans;
- Lesley Grant, CEO, Qantas Frequent Flyer. Ms Grant was formerly the Group Executive responsible for developing Qantas’ new international strategy;
- Jon Scriven, Group Executive, People and Office of the CEO;
- Olivia Wirth, Group Executive, Government and Corporate Affairs;
- Brett Johnson, General Counsel;
- Gareth Evans, CFO;
- And Alan Joyce of course remains as Group CEO.
The two brand Qantas/Jetstar will remain business as usual from the outside
The reorganisation will have no external visibility; the two brands of Qantas and Jetstar will appear for all purposes precisely as they did before.
The real impact of today's move is in establishing separate business accountabilities, each operating as an entity with its own internalised cost and revenue centres.
Qantas’ turbulent international environment
Qantas, as a relatively small international operator at the end of the line, is in a difficult position as the world changes around it.
The oneworld alliance to which Qantas belongs has shaky linkages. Cathay Pacific has almost zero cooperation with Qantas and has made clear it does not support the view of Qantas, and others, that oneworld needs a Chinese mainland member while Cathay's ties to Air China become stronger. New member airberlin has aligned with Etihad, American Airlines is in Chapter 11 bankruptcy (which although provides a well-trodden path does leave an air of ambiguity) and Japan Airlines is reorganising its European relationships – it has strong ties with Air France – to account for better access to western Europe, where main partner British Airways (BA) is weaker.
Then BA itself and the IAG Group is looking to go its own way internationally, looking to acquire foreign airlines, possibly with even the prospect of a linkup with one of the Gulf carriers – something that could rock the boat for Qantas internationally.
By creating an organisational arrangement that is more flexible, Qantas does set itself up to be more able to adapt to changing circumstances. For example, establishing a Qantas branded premium operation in Asia would sit easily within the Qantas International part of the Group.
An Emirates 'partnership' might be in the wind
Equally, with rumours flying about Emirates looking to establish a closer link with Qantas, in order to have a firmer foothold in the Australian domestic market, the Qantas Domestic activity would be better positioned to make this a highly transparent process. And there would be – as the quid pro quo – greater opportunities for Emirates to codeshare transparently with the Qantas International arm.
Recent figures from IATA for Apr-2012 showed passenger traffic in the Europe-Australia market plummeting over 30% year-on-year, while Middle East-Australia grew by a similar amount – a very clear statement of how the old kangaroo route is being replaced by more effective connections to and from Europe over the Gulf states.
That is one battle Qantas can never win. So perhaps the next move will be, if you can’t beat ‘em, joint ‘em – a prospect Air France-KLM is considering. At this stage of the game, that is probably a good idea. It could even lead to a reinvigoration of the Qantas international activity.
And Virgin provokes lots of change at home, with a major international partnership probable this year
Virgin Australia is well on course to becoming a much more virulent competitor to Qantas in its home market. And having created a separation of its domestic and international businesses into two separate companies (not merely different business centres), Virgin is now in a position to sell down its domestic equity to a partner keen also to have a strong foothold in Australia’s rich domestic market.
CEO John Borghetti is about to embark on a roadshow to display his new flexibility and it is barely conceivable that his airline will end 2012 without a major new equity partner – most likely Singapore Airlines or Etihad, with others like Delta (and even Air New Zealand, which already holds nearly 20% of the airline).
So time is of the essence for Qantas, in both domestic and international spheres. The carrier is highly challenged at the moment, in ways it has not previously experienced.
One of the biggest personnel changes in the new line up is that Bruce Buchanan, currently CEO of the Jetstar Group is to move on – although he will stay on at the Group for another six months, then continue to consult for a further 18 months. Mr Buchanan is an entrepreneur at heart and not a died-in-the-wool petrolhead – and after all, with very few exceptions, the airline business is not renowned for making entrepreneurs rich.
He will, for one thing, be working with Vanessa Megan, an Australian organic skincare company (in which he and his family have invested in), according to a blog today.
Mr Buchanan has presided over one of the more remarkable airline developments, as the Jetstar brand has sprung up across Asia, involving some highly significant strategic initiatives, including most recently a JV with China Eastern to establish a low-cost subsidiary in Hong Kong.
There seems little in this move that would be seen instantly as threatening to existing staff relations – Qantas is engaged in compulsory arbitration with its international pilots union at present – and in many ways the new format should make it more resilient and flexible for the future.
2012 promises to be a year like no other for major change in the airline industry. This new announcement should position Qantas better to deal with whatever might be thrown at it. It is a relatively small move, but a potentially valuable one. The big ones – in the form of partnerships– should now become more straightforward.
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