Qantas’ profit writedown: How to deal with a sustained crisis

Some companies can’t seem to catch a break.

In recent weeks, things were looking up at Qantas after a year of technical malfunctions, union strife, groundings, layoffs and price wars.

A corporate restructure was widely expected to bring a level of clarity and transparency to the business. And in a profile published in The Weekend Australian Magazine in May, Qantas CEO Alan Joyce said he believed Qantas had recovered from the brand damage caused by its October grounding.

However, yesterday’s profit downgrade put Joyce back on the defensive. It bought into sharp contrast all the problems still facing the business, many of which were outlined by former Qantas economist Tony Webber today.

The airline is now warning that this financial year’s profits (to June 30) will be as much as 90% lower than the previous year. On the ASX yesterday, the airline’s shares fell 18.6% to trade as low as $1.10, the lowest price since the company floated in 1995.

Qantas is facing a prolonged squeeze. Its domestic and international businesses are both facing increased competition. Its long history, while in many ways a branding bonus, means its costs are high relative to its competitors. And global conditions have lessened the demand for many of its flights.

It seems like Qantas is in many ways lurching from crisis to crisis, or, indeed, facing a prolonged period of crisis as its leaders try to chart a course for its future.

Andres Puig of The Civic Group, an expert in crisis management, says this is, in itself, a problem.

“If you have systemic issues in a company that are going to play out over a long period of time that is not by definition a crisis. That is a problem that requires a long-term strategic solution. If you’re lurching from crisis to crisis as a consequence of that, the problem is you’re not dealing with the strategic issues.”

Puig says that companies facing long-term difficulties need to be honest about their problems, outline a strategy for how to deal with them, and report periodically on their progress. The best step to dealing with a crisis, if you can see it coming, is to avoid an issue ever becoming one.

In clearly outlining and sticking to its strategy, Qantas is following the rulebook. At a media conference yesterday, Joyce took the opportunity to reiterate the company’s four-pillar strategy to turn around its international division (improving and investing in the consumer experience, deepening the company’s presence in Asia, building and strengthening new strategic alliances and “ongoing underlying business improvement”).

But, on the other hand, Joyce said he wasn’t aware of the full extent of the airline’s losses until Monday. Such surprises don’t make his job of selling his ability to turn the airline around any easier.

The announcement clearly shocked the sharemarket. “I think there is an expectation on the part of shareholders and the public that companies will know and understand everything that relates to their financial position,” Puig says.

Implementing a turnaround, or a reworking of an outdated business model, requires leaders to bring staff along with them, which can be difficult if they are worried about losing their jobs.

In a public company such as Qantas, reassuring staff during a period of crisis can become more complex, as anything said to staff needs to be revealed to investors if it may impact the market.

But Puig says honest leadership reassures both staff and shareholders.

“I think most workers want the company that they work for to be successful, not just because it’s in their interests, but because they can take some pride because of place in which they work. They want to be part of the solution not the problem.”

“If you begin with the general rule that you should try to be open and honest about the position, that you can clearly articulate what the problem and issues are, and your plans for resolving it, I think people will give you full marks for that approach, as opposed to being uncommunicative, evasive, or dishonest.”