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 Joyce has called on the Australian government to help the national
flag carrier in its hour of need. If Canberra is convinced Qantas is
in peril, it may have little option but to abandon decades of
resistance and provide state aid.
The executive needs little help making a convincing case: losses
from a domestic price war and international competition are piling
up; Qantas is now worth only half what it was when Joyce took the
helm in 2007; and its credit rating is now junk across the board.
The A$2 billion cost savings and 5,000 job cuts Joyce announced on
Thursday represent the airline's most radical shake-up since it was
privatized in 1995.
As yet, Prime Minister Tony Abbott appears unmoved by Joyce's plea
for the government to offer a debt guarantee that would lower
Qantas's costs. A change in laws to allow more foreign investment to
flow into Qantas, as it has done to rival Virgin Australia Holdings
Ltd <VAH.AX>, is a longer-term proposition.
Yet Qantas still has plenty of cash to keep it afloat pending
changes, as well as inevitable disputes with trade unions over
cutting 15 percent of the carrier's workforce.
As Joyce's calls for state support grow louder, so too does
criticism of the way he has run the airline. The spotlight on his
management has spurred some to call for his resignation.
"The only way for Qantas to get out of this nosedive is for Alan
Joyce and the board to resign," said lawmaker Nick Xenophon.
HAND TIED
There's no sign of that happening. The Irish-born executive, 47,
promoted from Qantas's low-cost Jetstar unit seven years ago, likes
to say that the struggling carrier is fighting lavishly funded
competitors "with one hand tied behind our back", citing the
unfettered foreign funds provided to Virgin Australia and others.
The law authorizing Qantas's privatization contains a provision that
foreign investors may not hold more than 49 percent of the company:
Though officially a domestic airline, Virgin Australia is nearly
two-thirds owned by non-Australian carriers - Etihad, Singapore
Airlines <SIAL.SI> and Air New Zealand <AIR.NZ> - whose investments
have provided funds for growth.
Others say Qantas' troubles rest squarely with the airline - and in
part with Joyce himself.
Analysts point to what they say are a number of key errors by Joyce,
notably the fight to retain Qantas's share of an already crowded
domestic market and the failure to get proper lift-off for low-cost
subsidiary Jetstar.
"Alan Joyce came from Jetstar, his performance in Jetstar was pretty
good, but Jetstar is a cheap airline and the cheap airlines were
quite popular during the global financial crisis," said Biyi Cheng,
head of Asia Pacific dealing at City Index. "Since he took over the
role at Qantas I haven't seen too much improvement for the company
structure or commercial plans to improve the revenue."
Joyce has dug in his heels in the Australian market, spending on
planes and staff to keep Qantas' domestic market share at 65 percent
or above. That has locked the airline in to a deeply unprofitable
price war with Virgin Australia.
Joyce defended that strategy on Thursday after unveiling A$252
million ($226 million) for the six months ended December 31. The
domestic arm remained profitable but earnings of just A$57 million
were a quarter of the A$218 million it made the previous year.
"We are very clearly protecting our position in the domestic
market," he told reporters, noting Qantas's dominance of flight
schedules gave it a significant advantage. "It would be remiss of us
to weaken that product in any way," he added.
Joyce does have supporters, who credit him with decent stewardship
through competitive times in the Asian airline business, the most
attractive in the world with passenger numbers growing faster than
in any other region.
"I think Joyce has done a solid job," said Geoff Wilson at Wilson
Asset Management. "It's a lot easier when you are running a company
and things are going forward. I don't necessarily think he's the
wrong man for the job."
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GROUNDED
Still, analysts say, the brand was weakened in an incident in 2011
when Joyce grounded the entire airline in an attempt to win an
industrial dispute, stranding passengers and creating headlines
around the world.
The incident cost shareholders some A$70 million and allowed Virgin
Australia, under the stewardship of Joyce's former rival for the top
Qantas job, John Borghetti, to ramp up its business, adding lounges
and routes and building up an international alliance network.
The A$262 million first-half loss in Qantas's international division
was greater than analysts anticipated, raising concern that an
alliance it signed last year with ambitious Gulf carrier Emirates is
not yet paying off.
"The leakage out of the international business is really surprising
and we think that Qantas will find it very hard to articulate how it
plans to stop this," Peter Esho, chief market analyst at Invast
Financial Services.
Meanwhile, the Jetstar brand, launched 10 years ago, has sputtered
after its strong start amid well-leveraged competition. Jetstar
recorded a pre-tax loss of A$16 million for the six months to
December 31 compared with a A$128 million profit the previous year,
largely blaming regional operation Jetstar Asia for the result.
Joyce said Jetstar Asia had suspended further expansion until market
conditions improved. At home, Jetstar is competing with its parent
as well as Virgin.
"Expansion into Asia is a long-term plan and it doesn't seem like it
is paying off anytime soon," Invast Financial's Esho said.
The change to a law dating back to Qantas's privatization that
restricts how much money foreign investors can put into the carrier
would make a significant difference.
Prime Minister Tony Abbott has suggested he is in favor of amending
the Qantas Sale Act privatization legislation, to lift the current
49 percent foreign ownership limit, as well as alter restrictions on
smaller shareholdings for foreign airlines.
Such a move may be some time coming. It will require the government
to win over the major opposition parties which have vowed to block
any bill in the Upper House of parliament, preventing it from
becoming law.
Still, if the opposition is eventually won over, Joyce and his
management team will score a big win.
Relaxing the foreign ownership rules, as well as providing a
potential direct funding injection, would allow the capital-
intensive group to move offshore, outsourcing parts of its
operation.
($1 = 1.1159 Australian dollars)
(Reporting by Jane Wardell; Editing by
Kenneth Maxwell)
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