03/07/2014 - 13:35

Qantas must rue its Kodak moments

03/07/2014 - 13:35

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No financial result will be more carefully watched when annual reporting season kicks off in a few weeks than that of Qantas, a business some critics have dubbed the ‘Kodak of the aviation industry’.

Qantas must rue its Kodak moments

No financial result will be more carefully watched when annual reporting season kicks off in a few weeks than that of Qantas, a business some critics have dubbed the ‘Kodak of the aviation industry’.

Estimates of the loss likely to have been incurred by an airline, which was once the national flag carrier, range from $500 million to as much as $1.2 billion, with the upper end reflecting the cost of the latest round of staff retrenchments and service cancellations.

Impressive as the loss will be, the more important issue with Qantas is that the result could be the final straw for politicians in Canberra who have argued for months about whether, and how, the airline should receive government assistance.

A direct financial grant from government seems out of the question, with opinion leaning towards changes to the Qantas Sales Act, which would enable the airline to secure a cornerstone investor with the muscle and connections to save the business.

Emirates is the obvious ‘rescuer’ of Qantas because of the airlines’ close ties on international services.

However two more important matters need to be considered when the question of saving Qantas arises:

• how did one of the world’s once-great airlines fall to the status of mendicant, effectively holding out a begging bowl; and

• has the airline fallen so low that a rescue, with or without government assistance, becomes mission impossible?

The answer to the first question is that many fingerprints can be found on the Qantas murder weapon – including organised labor, management and government.

They have all played a role in Qantas being forced to (a) incur labour costs that are among the highest in the world, (b) be dumped by a once loyal customer base, and (c) used by politicians to score points when they should have known that a dose of politics would probably finish off a failing business.

Labour costs are a well-known issue for most Australian companies trying to compete in an international marketplace. Quite simply we have priced ourselves out of world markets, with the ultimate cost being wholesale job losses, an outcome evident to everyone except union leaders.

Management bears a share of the blame, as this column has pointed out several times in the past, with too many senior executives failing to recognise that passengers are customers and vote with their feet when service standards drop.

A compliant section of media that covers the aviation industry also played a role by failing to tell Qantas management it was failing, perhaps fearful it would lose access to the company’s bosses, not to mention the occasional free lunch or an invitation to a new aircraft delivery ceremony in France or the US.

Politicians have left their prints on the evidence by failing to recognise that, once they cut Qantas free from government control they exposed it to some of the world’s toughest business competitors, while also forcing a cost structure onto the local champion that is both uncompetitive and could not be changed because of union opposition.

Now for the Kodak comparison. For younger readers who have grown up in the digital age, Kodak was a pioneer of film and some other forms of imaging.

As a business, Kodak made two great mistakes. It failed to spot the rise of digital photography (or the advent of smart phones, which have all-but killed the camera), while in Australia it begged for financial assistance and made promises to politicians it could never keep.

The first mistake is almost understandable. A lot of people missed the digital revolution, just as they’re missing the internet revolution.

The second mistake was a team effort, with Kodak asking for, and receiving, assistance from Australian governments to keep its local film-making business operating, including an infamous $36 million cash hand-out from the Australian government in 1989 to maintain a film-processing factory in Victoria, a futile gesture that ended embarrassingly for everyone involved because of the overpowering digital revolution.

Is history about to repeat with unions, management and politicians presiding over the final moments of a business that lost its way on so many levels?

Sadly, the answer to that question is probably yes. The time for saving Qantas has almost passed, and a time for organising a fitting funeral is approaching.

The tricky question is whether anyone wanting to rescue Qantas understands what it means to try and catch a falling knife.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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