Qantas CEO Alan Joyce has a fight on his hands to overhaul his airline. There’s no doubt changes have to be made, but is he making the right decisions?
Last week the Australian and International Pilots Association launched a new website, www.qantasshareholders.com, which pointed the finger at what it called Qantas’ poor management decisions and overpaid executive team. Many would say that’s a bit rich when senior pilots are reportedly getting paid salaries of $536,000. By comparison, Cathay Pacific’s last annual report showed they had just four flight crew (out of 11,258) earning more than AU$500,000. Eighty-one percent of Cathay’s flight staff earn less than AU$125,000. It would be helpful to get a similar breakdown for Qantas, because it’s clear that getting staff costs down is part of the reasoning behind Qantas’ move into Asia.
The graph shows why this is so important. Qantas had a salary bill totalling 26 percent of total expenditure last year — the highest proportion for six years and 7 percent up on the year before. BA and Qantas both suffer from high staff costs when compared to two reputable overseas airlines — Cathay Pacific and Emirates — both of whom manage to keep staff costs well below 20 percent of total expenditure.
Joyce might be overpaying himself (he gets AU$5 million while Tony Tyler, Cathay Pacific’s CEO, had a AU$1.5m package last year), but his enviable salary accounts for just 0.03 percent of all staff costs so it’s not the biggest issue here (except when he is seen to be asking others to take a cut while he takes more).
The biggest concern Qantas is facing is cost of fuel. Fuel represented less than 11 percent of costs for Qantas in 2000, but that figure rose to 25 percent last year. At Emirates, fuel accounts for more than a third of total expenses.
This is where the makeup of airline fleets is critical. The A380, when it was introduced, boasted 10 percent greater fuel efficency over other large aircraft in service around at the time. According to plansespotters.net Qantas has just nine of them out of a fleet of 140. Cathay Pacific meanwhile is consolidating its fleet around the fuel-efficient Boeing 777, which already accounts for a third of its 129 strong fleet. As oil prices rise, the fuel efficiency of the fleet will become an even more signficant cost differential.
So Joyce is up against it on two fronts: his costly staff and inefficient fleet. I wouldn’t want to be in his shoes. Well, alright, maybe for $5 million.