History : Tom Ballantyne Page
|What Really Went Wrong At Ansett?
Australian Airports Association
Airports & Aviation Outlook 2002
Held in Adelaide
November 11-12, 2002-10-23
Chief Correspondent, Orient Aviation
Bob Crandell, former President of American Airlines, once summed up the airline business with one of his typically curt assessments: "This is a nasty, rotten business", he declared. Another former U.S. airline chief, Herb Kelleher of Southwest, explained it by saying that if the Wright Brothers were alive today, Wilbur would have to fire Orville to reduce costs.
They're probably both right and the question "What Really Went Wrong at Ansett?" might be answered by saying it was simply another victim of a dirty, rotten business. Of course, nothing is that simple and perhaps the question should be: How could it possibly have failed? After all, this was an airline that, to all intents and purposes, appeared to have almost everything a successful commercial operator could wish for :-
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:
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:
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.
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.
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.
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.