So here we had a company that, to a great extent,
represented success in one of the most competitive international arenas� at
least on the surface.
The problem for Ansett was that its fate lay not only in
the future but in the present and the past. The reasons why it failed lie in
a complex mix of factors and circumstance, some of them outside its control.
But for the roll of the dice, it may not have been Ansett that failed. It
would never have been Qantas but it could easily have been newcomer Virgin
Blue. And whatever the unions or some commentators might think, it
definitely was not Gary Toomey�s fault.
I would argue, however, that the collapse of yet another
airline in Australia was inevitable. The only question late last year was:
which one?
Ansett died for a number of reasons but for the sake of
simplicity I�ve broken them down into several main categories:
�
Bad ownership� and I�m not only talking
about Air New Zealand.
�
Regulatory issues� politics and ignorant
politicians.
�
Uncertainty� staff didn�t know what the
hell was going on.
�
Unions
�
Qantas� what role did it play in the Final
Act?
BAD OWNERSHIP
And let�s get that straight. That IS bad ownership and
not bad management. On the whole, Ansett over the years had the best
managers the industry could produce, executives who were as good as any in
the world. Many of them came from other airlines or moved on to other
airlines and a large number also worked for Qantas at one stage or another.
Some still do. Their problem wasn�t not knowing what to do, it was not being
able to do what needed to be done.
Well laid plan after well laid plan was reviewed, revised
and rewritten as owners wallowed in a morass of indecision and
prognostication. While Sir Reg Ansett laid the groundwork for a national
icon, Sir Peter Abeles took it by the scruff of the neck and laid the
groundwork for disaster. A hard, tough businessman he may have been� a
visionary airline chief he was not. Abeles was a one-man autocracy: he ran
on hunch, hardly listened to advisers and went off to air shows in Paris and
London, returning with bags full of aircraft ordered with little reference
to company planners. Were they the right planes at the right price? No, they
were not.
This might not have been so bad if Ansett had
subsequently been able to move with the times. Unfortunately, owner after
owner was totally unprepared to invest in modernisation or rationalisation
of the fleet. CEOs, from McMahon to Eddington to Toomey, took proposals to
their Boards saying flatly that the number one priority must be to remodel
the fleet. Shareholders were simply not prepared to invest the money
required to do it.
The result was inevitable. With it�s disparate fleet
growing more uneconomic by the day the profit margin equation became
untenable. Ansett grew into a dinosaur, left behind by an industry whose
business plan had become far more refined in a world becoming increasingly
competitive, where every cost saving has to be eked out through intricate
micro-management. The cost of maintenance of these rapidly ageing jets
became a nightmare for the airline�s operational staff and the
infrastructure required to keep them going a huge barrier to ongoing
profitability.
Unfortunately for Ansett, with one half of the airline
owned by a man regarded within the company as a virtual demigod, the other
50% was in the hands of a company whose core business had nothing to do with
air transport and whose main contribution to internal debate was why the
profits weren�t bigger than they were. Rupert Murdoch�s News Ltd was just as
guilty as anyone else of refusing to grant Ansett the investment lifeline it
desperately required to keep up with competitors.
As this became more tangled, with Air NZ buying in and
sharing ownership with News, the signs grew even more ominous. Rod Eddington
arrived and declared Ansett was a great airline but a bad business. There
was a brief revival but when Rod went, for a year - give or take a few
months � Ansett went its merry way with no-one in charge. Staff morale
plummeted as those who worked for the company spent much of their time
wondering not only who was actually running things but who might eventually
arrive to take the reins. As we know, it turned out to be Gary Toomey, a
successful Qantas executive who could hardly have known he was stepping into
the frying pan.
Of course, during this time came the onerous decision of
Air New Zealand to pick up it�s first right to buy the second half of Ansett
and make it a wholly Kiwi-owned airline. A decision, I might say, totally
based on trans-Tasman nationalism rather than sound business judgement. The
simple fact is that Air NZ should never have purchased Ansett. Not only
could it not afford it, it did not have the nous to run it successfully. As
Eddington, now head of British Airways, told me recently, if - as he had
fought strenuously for - Ansett had been sold to Singapore Airlines, it
would still be flying today.
I might just
refer here to a speech made last month (October) by Air NZ CEO Ralph Norris.
Ironically entitled �The Risk of Success� and made to a �Corporate
Governance Summit� held by the NZ Institute of Directors, in what must be
the understatement of the decade, Norris said at this time last year, Air NZ
was well and truly wandering in the wilderness. A strategy that had been
guiding the company's development for the best part of a decade was in
ruins, he stated.
Norris argued
Air NZ had �exhausted every opportunity at our disposal to keep Ansett
flying, to keep our dream alive - of operating the first comprehensive
Australasian network of airlines�. He did not fully debate the causes of the
Ansett collapse, simply commenting that the Auckland flag had been subjected
to an extremely high degree of official scrutiny - on both sides of the
Tasman - both before and after the Ansett collapse.
�In all the
investigations, no-one has been able to demonstrate a breach of duty on the
part of the directors or executives in regard to the collapse of Ansett,� he
said.
Norris also
pointed out Ansett�s Administrators found no evidence of directors obtaining
personal benefit, or of recklessness in their considerations. He said:
�
On claims of asset stripping at Ansett by
Air New Zealand - on available information, they said there was no evidence
of asset stripping.
�
On claims of inappropriate payment of
expenses - claims that Ansett had been billed for paying for fuel and air
navigation charges that should have been met by Air New Zealand - there was
no evidence to support these allegations.
�
On claims of unfair preference payments to
creditors prior to the appointment of the Administrators - their
investigations have not provided any evidence of unfair preference.
I leave those
who worked at Ansett/Air NZ through this cricical period to pass their own
judgement on that. Basically, Norris said Air NZ�s time and opportunity to
save Ansett both ran out. �Certainly, the world airline industry is rapidly
dividing into two groups - The Quick and The Dead,� he said.
That may be
true but the fact is that those who made the decisions (before Norris� time)
stuffed up. They not only took on an airline far bigger than themselves,
they tried to run it from Auckland with systems that weren�t anywhere near
as good as the systems Ansett itself already had in place.
That�s what
led to what may well have been the final nail in the coffin, the notorious
B767 maintenance lapses that led to a grounding of that critical part of the
fleet and serious questions of safety, an issue clearly designed to turn off
the passenger tap.
Maintenance
staff in Melbourne had their own tried and tested routines and system of
back-up checks totally destroyed by new directives from across the Tasman.
Key personnel were replaced by people who neither knew Ansett nor were
capable of doing as good a job as those they were replacing. And Auckland
had it�s mind on so many other issues the critical decision-making process
was slowed to a dangerous pace. In other words, people in Melbourne had
absolutely no idea who was doing what or how long they would have to wait
for decisions on crucial issues.
That didn�t
only apply to maintenance. Melbourne was made to feel like an unimportant
branch office of what was actually an international airline minnow, an
adjunct that was to take second place in any planning decisions. The Tasman
Sea could have been as wide a gulf as the Pacific Ocean and the lines of
communication were hopelessly tangled, in some cases even non-existent.
It is interesting to note that during this period, when
Air NZ was saying Ansett was on the mend and business was picking up, the
Australian carrier was getting so desperate to retain passengers,
particularly business traffic, it was offering corporate clients deals they
simply couldn�t refuse. In fact they were so good � 40% and more in
discounts, with all sorts of other incentives thrown in � Qantas marketing
chief John Borghetti and his team just walked out of negotiations stating
flatly they could not match the offers. For an airline as competitive as
Qantas is in the corporate account business, that speaks for itself. And
ultimately, QF got them anyway. The point is that Ansett was doing business
for the sake of filling seats that would plunge it into further loss.
UNIONS
I�d like to turn to the unions now because they must bear
a substantial amount of the blame for Ansett�s troubles. Most recently of
course, they should be praised for their valiant but failed attempts to keep
the airline alive. No-one gets any satisfaction over the fate of 16,000
Ansett employees and perhaps 50,000 more in ancilliary industries whose
lives have been destroyed by the collapse.
At the same time, the union movement should hang its head
in shame at the years of short-sighted money-grabbing that played as big a
role in Ansett�s death as did the repeated negligence of various owners to
the management needs of the airline. It�s ironic that both owners and unions
essentially saw Ansett as a cash cow and that owners, just as criminally,
mostly gave in to union demands.
Former senior Ansett executives, some of them here today,
have diaries full of yarns about practices that can only be described, in
hindsight, as incredibly destructive. We are most of us aware of the long
running saga of the three-man cockpit, where Ansett became the only airline
in the world to maintain an engineer in the cockpit of certain types of its
jets, flight decks designed for two-crew operation. The engineer was totally
superfluous. But there, on each Ansett flight, was the engineer� on full pay
and with nothing to do!
Let me tell you about a couple of other practices. Ansett
ramp workers, TWU members, at all major airports around Australia had a
guaranteed overtime component of over 10 hours per man per week. Of course,
they had to be rostered for it� and they were. But it meant management
repeatedly had to roster more staff on than was actually required, a level
of over-manning that, over the years, cost millions.
It was also common knowledge that workers didn�t like to
miss their football. Entitled to 15 days fully-paid sick leave annually � 10
of these didn�t even require a doctor�s certificate � when a Friday night
came along and Essendon had a home match at the MCG� you guessed it� a
minimum of four men would have to be rostered sick and be replaced. And
remember, Ansett not only had to pay those on sick leave in full, it had to
pay the replacements double-time for standing in.
It begins to sound like the old waterfront, doesn�t it?
But these rorts, and there is no other way to describe them, were not
isolated. They were going on the length and breadth of the company, slowly
sucking the lifeblood from a company that thought it was more like family
than a big corporate.
Indeed, the Board was repeatedly warned. At one stage,
when Qantas was going through a major restructure exercise involving the
tendering and outsourcing of work, achieving savings of 30% in several
areas, Ansett executives told the Board the carrier must move to do the same
thing. Their advice was ignored. Ken Cowley decided Ansett did not want to
put its staff through the angst and heartache of having to tender for their
own jobs, believing such goodwill would be reciprocated by appreciative
unionists. He was certainly wrong about that.
In essence, union pig-headedness, coupled with Board
reluctance to confront the issue, was gradually bleeding Ansett dry,
destroying any hope it may have had of properly competing with a major rival
that had streaked ahead in terms of business sanity and fine-tuning of its
economic baseline. Ansett�s profit margins and potential yield were a slave
to archaic work practices and those involved were living in a Fools
Paradise, believing it could go on for ever.
REGULATORY ISSUES
I�d like to turn to the airline industry landscape in
this country and suggest many people in Australia have been living in that
same Fool�s Paradise. I apologise for turning again to Rod Eddington but he
said to me a few weeks ago he recalled when he ran Ansett politicians were
always coming up to him and suggesting the alternative to two full-service
airlines in Australia was three or four airlines. Back then, he told them
they were wrong, the alternative to two airlines was one full-service
operator. He was right and we should face the facts.
There is no other example of a country of Australia�s
market size supporting more than one viable major airline. Two of Japan�s
largest carriers, Japan Airlines and Japan Air System have merged, leaving
only two domestic/international competitors of any size in that country.
Japan has about six times the population of Australia and a massive domestic
airline system, not to mention an international market which is vastly
bigger than Australia's. New Zealand today only has an airline because the
government bailed it out. Canada, with nearly twice the domestic market of
Australia has lost its second and third airlines recently. Even in the U.S.,
the world�s biggest domestic market, airlines are desperately attempting to
rationalise, consolidate and merge� if only they can get past the regulators
and monopoly administrators.
We may have low-cost carriers like Virgin Blue or small
niche operators but there is simply no room for a second full-service major
airline or, if there is, it must be part of a major international group,
such as Singapore Airlines. When the Government gave Qantas domestic rights
and opened the international door for Ansett it did not create a level
playing field. It threw an extra burden on Ansett and contributed heavily to
its eventual downfall. While Qantas was easily able to match Ansett
domestically (and still gets 75% of its earnings offshore) through its
acquisition of Australian Airlines, there was no way Ansett could match
Qantas internationally. Even with its links to Star Alliance, the offshore
network was neither seamless enough nor profitable enough to allow Ansett to
properly compete. With no brand recognition in foreign markets, Ansett had
to spend a lot of money trying to attract customers and compete with
incumbents like Qantas, Cathay Pacific and Japan Airlines. It�s only chance
of doing that would have been with massive investment from an owner like
SIA. It was certainly a lifeline Air NZ was unable to provide.
QANTAS
Did Qantas play a role in Ansett�s downfall? I must say
I�m a little cynical about statements from Big Red it was sorry to see
Ansett go. Jumping in to �rescue� stranded passengers was a great publicity
exercise. I think Geoff Dixon is the ultimate �stirrer�. He�s very good at
breeding uncertainty amongst the opposition and masterminding manoeuvres
that muddy the waters. The aborted deal to carve up the Australian market
with Singapore Airlines had the mark of genius about it.
The answer is that Qantas played a major role in Ansett�s
downfall, both through the acumen of its management and its ability to get
itself into a position where Ansett was virtually unable to properly
compete. Qantas is not mourning the death of Ansett. I believe it regards
the outcome as a natural progression in the evolution of this country�s
airline industry.
Finally, let me say that in my opinion Government must
conduct a thorough review of Australian aviation policy, both international
and local. It must, for a start, dismantle the Qantas Sales Act because if
it doesn�t, the future of Qantas may also be under threat. We are living in
a global market place and airlines, more than any other industry, operate in
a global arena. That means we have to throw out historic concepts of
national ownership and the straightjacket of rules that are a quarter
century out of date.
Ansett has gone and it is not coming back. May it rest
in peace.