What is going on? Has ASX’s Most Controversial CEO Gone Soft? Is the aviation tough man, who grounded the entire Qantas fleet in 2011, rethinking his engagement with stakeholders? Joyce, who laid off 9,800 people as part of a three-year recovery plan, is she now putting workers before shareholders? Will customers be next?
The answers to these questions are complex and nuanced. Before answering this, it is worth examining the perception of iconic brands and the role they play in shaping community attitudes towards businesses.
Setting the national tone
There are essentially eight businesses in Australia that set the tone for the slightly nebulous relationship between the average Australian and the corporate sector. They are: the big four banks, Telstra, Qantas, Coles and Woolworths.
These are difficult concerts for several reasons.
First and foremost, every Aussie is your customer and every one of them wants impeccable service and exceptional value.
Second, every shareholder, including retail investors and all the big super funds, looks at your industry structure (oligopoly or duopoly) and wants high returns, including high dividend payout ratios that limit capital investment in the growth.
Third, every politician, but especially the Treasurer and Prime Minister, wants the CEO to step in and contribute to ‘Team Australia’.
Fourth, some of these companies employ so many people that their treatment of workers can resonate far beyond company walls, even if only a small percentage are union members.
Balancing these competing interests – and the short- and long-term financial trade-offs inherent in this – is exceptionally difficult.
Qantas is arguably the most difficult of all these businesses to manage as it faces global competitors, unlike the comfortable domestic positions of the others.
National duopolies tend to go through periods of intense competition followed by “rational pricing”, which is what is happening in the telecommunications industry today.
Joyce had her version of it when Virgin, under CEO John Borghetti, and Qantas began a capacity war that ended in one of the biggest losses in Qantas history and set Virgin up for administration.
Joyce’s exposure to ultra-competition goes through his international activity. It faces government-subsidized airlines in the Middle East trying to attract its best customers.
Shareholder Return Hall of Fame
The cyclical nature of aviation is the other factor that sets Qantas apart from its peers. Banks, supermarkets and telecom operators have been very defensive in difficult times, as shown by COVID-19.
From a shareholder perspective, Joyce has weathered the pandemic with flying colors. His brutal and clinical decision-making, including getting rid of 1,700 baggage handlers and laying off another 8,100 permanent employees, caused a structural shift in the airline’s cash flow.
It now makes the highest profits in the airline’s history.
If there is a total shareholder return hall of fame, Qantas investors would surely vote to put Joyce there.
During his career, he has steered a highly cyclical, capital-intensive business through at least two global down cycles by working with government and leveraging the strategic importance of its operations.
But when it comes to other stakeholders – workers, unions and customers – the judgment is decidedly negative.
As TWU national secretary Michael Kaine said in a press release on Friday, Qantas needs experienced workers, not a bunch of freshly trained people with no practical experience.
“Unless there is a significant shift in ideology and strategy under a new management team, Qantas will never return to the airline it once was. The Spirit of Australia was built by workers who had sought-after careers at Qantas, but those workers have disappeared and the jobs are now lower paid and precarious,” he said.
“After $2.7 billion in taxpayer funding and a half-year profit of $1.4 billion, the airline should return to full capacity and air fares at pre-COVID prices, but that is impossible with one hand. – decimated and inexperienced workforce.”
Kaine, who is clearly a long-term critic of Joyce, is largely correct.
But the reality is that Joyce is doing the same as Greg Hywood as CEO of Fairfax. Its extensive layoff program in 2012 eliminated experienced and well-paid journalists, most of whom were happy to be made redundant.
The billion dollars paid in redundancy to Qantas workers who were made redundant was the price Joyce paid to set up Qantas for a higher capital investment in new planes and new employees.
Go soft or stick to the playbook?
Qantas has gotten rid of an expensive experienced workforce and is now bringing people back at entry-level rates. This will bring huge savings, but the damage to the Qantas brand is considerable.
This begs the question of whether Joyce is softening or just sticking to the same playbook he’s always followed.
In fund manager terms, he is a “rational maximizer” – he is incentivized by the airline’s board of directors to deliver a higher total shareholder return than the S&P ASX100 and a cohort of international airlines.
It says a lot about the terrible economics of global aviation that Joyce has consistently beaten her peers in global aviation. At this point, he’s implemented his three-year recovery plan and will be in line for big bonuses later this year.
Joyce isn’t going “soft.” He simply works within the incentive structure created by the board.
Qantas chairman Richard Goyder could change incentives to put more focus on customers and workers, but that would likely require a cultural shift across the business.
Joyce said Friday that he would most likely leave at the end of the year.
“My decision hasn’t changed,” Joyce said Friday. “I’m here at least until the end of the year. I’ve always said my task was to leave Qantas in a better position, a stronger position, and once that’s done and my very last task is to make sure I have an internal successor.
Qantas chairman Richard Goyder has confirmed that headhunter Russell Reynolds has been working with Joyce and the airline “for some time” on management renewal.
The two internal candidates to replace him are: CFO Vanessa Hudson and Qantas Loyalty boss Olivia Wirth, both of whom have worked for the airline for years.
It’s unclear if customers will be next in line for Alan Joyce’s softer version. This would imply lower airfare prices and an increase in capacity.
The problem is that the profit-maximizing strategy put in place during COVID-19 limits its ability to do so. Meanwhile, profits will hit record highs and major domestic competitor Virgin will happily fly just below the radar, making record profits in preparation for a stock market listing.
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