Why Qantas’ next great challenge is China: Kohler

Once again Australia’s politicians have put on a pathetic display of point scoring and point missing in response to the Qantas dispute. The Government rushed to get bogged down in an argument about whether it was properly warned about the grounding, and the Opposition, incredibly, is accusing the government of not intervening earlier.

The idea that government ministers should go around terminating industrial disputes under S.431 of the Act is idiotic, and utterly unworthy of a party that is supposed to be against government intervention, and Qantas had no obligation to tell the government anything, legally or morally.

So both sides of politics are, as usual, managing to make themselves irrelevant in a crucial matter of national interest: whether the flag carrier can survive Australia’s popular open skies policy.

The dramatic grounding of the airline on Saturday has gone pretty well for the company, so far. It was clearly the only thing that would have forced government to argue with Qantas for a termination of the dispute under S.424, which provides that Fair Work Australia must suspend or terminate industrial action if it threatens “to cause significant damage to the Australian economy or an important part of it.”

With Qantas saying it would continue the grounding if the dispute was only suspended, the government and FWA had no choice but to support the company’s application for termination.

So far so good, apart from a lot of angry customers and happy competitors of course. Assuming there is no agreement within the maximum of 42 days of negotiation that must now take place (21+21), FWA will arbitrate.

Under S.275 of the Act, the factors that the FWA must take into account when making a determination include the public interest and “how productivity might be improved in the enterprise or enterprises concerned”, so there is a good chance Qantas will get the flexibility it needs to try to compete in international air travel.

The fact that the board was prepared to support the plan to ground the fleet on Saturday indicates that they believe it is possible to make a profit on international operations, otherwise why bother? Just close the business.

The importance of international flights as feeders to domestic flights and to the profitability of the Frequent Flyer loyalty system means the business doesn’t have to do more than cover the cost of capital, but to do that requires management to have full control of maintenance and flight operations, which are the two operating costs that it can control (fuel is the third major cost).

It’s not about wages, but productivity. Qantas needs to get more out of its pilots and engineers for the money they’re paid. Given FWA’s requirement that it must work to improve productivity, there is a fair chance the ruling it must now make before Christmas will go Qantas’s way.

Once a new EBA framework is in place, Alan Joyce can set about improving relations with the pilots, engineers and baggage handlers. That won’t be easy and there is now a lot of bad blood, but at least the employees have got the message now that the game is serious.

And as with many things these days, it’s all about China.

Yesterday the Queensland Tourism Minister, Jan Jarratt, plus Tourism Queensland chief executive Anthony Hayes and Brisbane Airport chief executive Julieanne Alroe were at the airport to welcome the inaugural Beijing-Brisbane flight by China Southern.

China Southern is Asia’s largest airline, both in terms of passengers carried and fleet size. Last year it made a profit of nearly $1 billion and its fares are very cheap. Of the other members of China’s big three – Air China and China Eastern – the former is code-sharing with Virgin and China Eastern its flights into Australia.

Together these three airlines reported profits of $US3.5 billion in 2010, despite very cheap fares, and they are looking to rapidly expand their global services.

Qantas wants to compete on flights in and out of China – the world’s fastest growing air travel market. It has been murdered on the European routes by the three Middle Eastern airlines – Emirates, Etihad and Qatar – because of the flexibility they get from flying to dozens of destinations around Europe from their hubs in the Persian Gulf.

Servicing the drop off and pick up for the booming European cruise ship business has become a huge part of the growth for global airlines, but Qantas has been out of that game because of its lack of destinations.

If it can’t get a foothold in China, then it is doomed as a national carrier.

This article first appeared on Business Spectator.