Devil´s Advocate. Qantas is doing the right thing.

[harvyk]

I do have to wonder if things for Qantas wouldn't be as bad if the A380 and 787 delays hadn't happened.

I don't think things are really that bad, I think the big problem is they have the eternal pessimist at the helm... The only time I've ever heard him be positive is right before he then says "but we could be doing more"... It's kinda strange, most CEO's base their strategy on enthusiastically explaining how good things are (at least in public, in private they may be nervous wreaks), and yet AJ seems to thrive on publicly talking down QF's success to the point that it may become a self fore-filling prophecy.

I'm pretty sure he has spent his time with an agenda which benefits from shaking confidence in QF, it's the only explanation (that I can think of).

 

[yohy?!]

burning up so much loyalty and brand value just to bust unions of staff who will retire anyway soon and to play around with so called 'amaaaaazing' LCC franchises that make no money?

sorry but you're really defending the indefensible marketing and spin doctors do not a successful company make

 

[AnonymousCoward]

I didn't have a problem with your other points but sorry can't agree with your first. I do agree that companies have a duty to their shareholders and need to run a successful profitable company. However you seem to feel it is one or the other whereas I see it as irrevocably linked. You cannot have a successful company ( and thus happy shareholders) unless you have a majority of happy customers.

Savers (i.e. those who have money to invest) have a plethora of options - bonds, stocks and so on. Unless an investment option provides an acceptable level of return based on the risk, investors will moved their money elsewhere.

Now, *how* a company can make money can vary immensely - it can be:
- cheap prices (Walmart),
- excellent customer service (Nordstrom),
- superior manufacturing quality (BMW),
- exclusivity (Louis Vuitton),
- consistency of product (McDonalds),
- ubiquity (Visa, MasterCard) and so on and so on.

Ryanair is an example of a company that doesn't really care too much for customer satisfaction - yet it still profitable.

Without profits, a for-profit company will not exist - the shareholders will take their money elsewhere.
Now, as to how to obtain those profits, there are *many* possible strategies - it boils down to competitive advantage. You don't have to keep "customers happy" - you just need to provide a compelling reason to buy your product.

So while I wouldn't say your first point is totally wrong, I think you don't fully understand the customer /business dynamic.

Well we might have different views of that. But, I think Porter's competitive forces model and so on are still perfectly valid today, and provide a more robust theoretical framework that just "keep customers happy". Keeping customers happy doesn't automatically result in profits, and without profits (and adequate profits, consummate to the level of risk involved), there will be no company full stop.

 

[JohnK]

I agree with most of your points raised juddles!

I think a few others have mentioned a few key points

- Why Qantas is no longer fuel hedging
- Too many people employed in middle management positions
- Senior executives overpaid in relation to the performance of Qantas
- Qantas is reactive not proactive
- Cutting costs doesn't have to mean cutting routes

 

[Flying mermaid]

Savers (i.e. those who have money to invest) have a plethora of options - bonds, stocks and so on. Unless an investment option provides an acceptable level of return based on the risk, investors will moved their money elsewhere.

Now, *how* a company can make money can vary immensely - it can be:
- cheap prices (Walmart),
- excellent customer service (Nordstrom),
- superior manufacturing quality (BMW),
- exclusivity (Louis Vuitton),
- consistency of product (McDonalds),
- ubiquity (Visa, MasterCard) and so on and so on.

Ryanair is an example of a company that doesn't really care too much for customer satisfaction - yet it still profitable.

Without profits, a for-profit company will not exist - the shareholders will take their money elsewhere.
Now, as to how to obtain those profits, there are *many* possible strategies - it boils down to competitive advantage. You don't have to keep "customers happy" - you just need to provide a compelling reason to buy your product.



Well we might have different views of that. But, I think Porter's competitive forces model and so on are still perfectly valid today, and provide a more robust theoretical framework that just "keep customers happy". Keeping customers happy doesn't automatically result in profits, and without profits (and adequate profits, consummate to the level of risk involved), there will be no company full stop.

It comes down to a proper definition of happiness doesn't it? Obviously in the Ryanair model those customers have said their happiness is getting a very cheap deal and they are "happy" to trade away the frills and customer service in order to achieve the price they want. At some point in order for a company to succeed it needs to satisfy the customer - whether that be with good service, or a cheap price or whatever the business model of the company is. If a company does not meet that aim and has a majority (and please note I used the word majority before, as no company will always keep everyone happy all the time) of people who are unhappy they will not remain successful or profitable, unless they are a monopoly. I am not much into theory - my degree was pure Maths and IT, so all I have is 30 years of running a business and no doubt it is very specific and I shouldn't be generalising. However any statement that says customers don't matter only shareholders makes my skin crawl

 

[drron]

Juddles I like your thread.
First I confess to having left QFF in 2006 going over to AA.I put my money where my mouth was.Whenever I can I buy AA ticket stock not QF.
I do think AJ is blamed for a lot that he is not responsible for.The A380/B777/B787 decisions were all made before he was CEO.
However one decision really makes me feel AJ is not the right person for the job.He complains that QFi is not competitive yet he puts a new more efficient plane into JQs fleet and not QFi.
That decision is his to own and if QFi is reduced to just DBX/LHR/LAX/DFW then the blame is on his head.

 

[burmans]

Ryanair is an example of a company that doesn't really care too much for customer satisfaction - yet it still profitable.

Personally I think this idea is overdone, despite the bagging of Ryanair from some parties (usually people that have never flown Ryanair) there are plenty of people who wouldn't fly without them and they keep on flying them each year, so they can't be totally dissatisfied.

 

[serfty]

Personally I think this idea is overdone, despite the bagging of Ryanair from some parties (usually people that have never flown Ryanair) there are plenty of people who wouldn't fly without them and they keep on flying them each year, so they can't be totally dissatisfied.

I think that relates to the "- cheap prices (Walmart)," bracket ...

 

[Happy Trails]

If Qantas is doing the right thing, it's going about it the wrong way.

 

[reubee]

[/FONT]

There are numerous inaccuracies with what you've written but it comes down to one simple fact.

There would be no negative comments if Qantas was doing the right thing.
[/COLOR][/SIZE]

I was once told, that if no one is complaining about your price then it is too low. So no matter what you do, you should expect some negative comment.

With regards FF schemes, if you were to play devils advocate, come up with some ballpark figures. What percentage of the fare should be expensed to a loyalty scheme. Picking a number out of thin air, say 2%. Then ask yourself what is the missed revenue of what your reward costs. So say difference between SYD-LHR economy and business return is $3000 vs $10,000, so $7000. So if you think you should be able to spend your points on a guaranteed upgrade economy to business, SYD-LHR return, ask yourself the question, have you spent 7000/.02 or $350,000 with Qantas or partners acquiring those points? I have no idea if the 2% is accurate, (and there is always if the seat goes empty no one wins argument, hence upgrade requests acknowledged at short notice), but if someone complains about a FF change or ruling, do that quick back of the envelope question and try and figure out the benefit vs the cost involved.

 

[michaele]

With regards FF schemes, if you were to play devils advocate, come up with some ballpark figures. What percentage of the fare should be expensed to a loyalty scheme. Picking a number out of thin air, say 2%. Then ask yourself what is the missed revenue of what your reward costs.

While I agree in theory, that leaves out the additional (very tangible) revenue having a loyalty program creates, from booking additional flights with the carrier instead of BFOD.

 

[MEL_Traveller]

I was once told, that if no one is complaining about your price then it is too low. So no matter what you do, you should expect some negative comment.

With regards FF schemes, if you were to play devils advocate, come up with some ballpark figures. What percentage of the fare should be expensed to a loyalty scheme. Picking a number out of thin air, say 2%. Then ask yourself what is the missed revenue of what your reward costs. So say difference between SYD-LHR economy and business return is $3000 vs $10,000, so $7000. So if you think you should be able to spend your points on a guaranteed upgrade economy to business, SYD-LHR return, ask yourself the question, have you spent 7000/.02 or $350,000 with Qantas or partners acquiring those points? I have no idea if the 2% is accurate, (and there is always if the seat goes empty no one wins argument, hence upgrade requests acknowledged at short notice), but if someone complains about a FF change or ruling, do that quick back of the envelope question and try and figure out the benefit vs the cost involved.

'award' seats are typically seats the airline doesn't expect to sell. So they were going to get zero revenue from it anyway.

What they have done is create additional revenue for that empty seat either by you flying on paid fares, or obtaining points some other way such as through credit card spend (etc).

There is no lost revenue to the airline in giving away the seat. Only, in some cases, greed in trying to get more people to spend more money to get the one same supposedly 'free' seat.

 

[medhead]

That upgrade might also allow them to get another $3000 from selling the economy seat to someone else.

 

[sydks]

'award' seats are typically seats the airline doesn't expect to sell. So they were going to get zero revenue from it anyway.

What they have done is create additional revenue for that empty seat either by you flying on paid fares, or obtaining points some other way such as through credit card spend (etc).

There is no lost revenue to the airline in giving away the seat. Only, in some cases, greed in trying to get more people to spend more money to get the one same supposedly 'free' seat.

That is only true of Qantas current upgrade system where they only confirm upgrades close to flight departure when they know the seats would be empty anyway, which is why they do this. What many people argue they should do, confirming upgrades at time of request (which could be months out from flight) means that there is a real opportunity cost for the full revenue difference of that seat. The flight in question may well have sold out on its own in the higher cabin, but seats have already been given away to upgrades.

 

[MEL_Traveller]

That is only true of Qantas current upgrade system where they only confirm upgrades close to flight departure when they know the seats would be empty anyway, which is why they do this. What many people argue they should do, confirming upgrades at time of request (which could be months out from flight) means that there is a real opportunity cost for the full revenue difference of that seat. The flight in question may well have sold out on its own in the higher cabin, but seats have already been given away to upgrades.

no.

There is no reason why upgrade seats can't come from the same allocation as award seats.

So you could either claim the business class seat as an outright award, OR, apply for a confirmed points upgrade.

Either way, the seat is one QF does not expect to sell.

Allowing last minute upgrades gives the airline more flexibility, but shouldn't be confused with any original FF allocation (which by the airline's own admission, they know pretty accurately how many seats will or won't sell).

Under the current system QF appears to be maximising product for their benefit. They'll sell an award seat, and then also sell an upgrade if they have any left. They get two bites at the cherry.

 

[medhead]

It's funny how the connection between classic awards and upgrades is not acknowledged. We saw this a few times in the Marginal ASA discussions as well. It serves as a reminder of the lack of knowledge about the system.

 

[harvyk]

It comes down to a proper definition of happiness doesn't it? Obviously in the Ryanair model those customers have said their happiness is getting a very cheap deal and they are "happy" to trade away the frills and customer service in order to achieve the price they want. At some point in order for a company to succeed it needs to satisfy the customer - whether that be with good service, or a cheap price or whatever the business model of the company is. If a company does not meet that aim and has a majority (and please note I used the word majority before, as no company will always keep everyone happy all the time) of people who are unhappy they will not remain successful or profitable, unless they are a monopoly. I am not much into theory - my degree was pure Maths and IT, so all I have is 30 years of running a business and no doubt it is very specific and I shouldn't be generalising. However any statement that says customers don't matter only shareholders makes my skin crawl

You have to remember that with a large number of people who chose to fly LCC's the choice is not so much between carriers, it's a choice between flying an LCC or not traveling at all and as such they will simply pick any flight / carrier which goes from where they are, to where they want to get to at a reasonable time. Happiness comes from the fact that they are able to take a holiday to a destination they want to visit. The logo on the tail of the plane does not matter at all.

For proof of this, just look at the difference between QF / VA's advertising vs JQ's / other LCC's. QF and VA are more focused on the comforts on board, the fact that you'll get meals / snacks. They show you that their business class turns into a proper bed, that you'll be entertained the whole flight. The full service guys are trying to convince you to pick them over anything else. They already know their customers want to travel, what they are trying to do is convince you to travel with them because it'll be comfortable because you do have a choice of any carrier you like. Whilst yes there is a degree of advertising around destinations they do not have a patch on the LCC's where the destination is the advertisement. Typically in an LCC ad they will show a happy family running along some foreign beach, or exploring an asian marketplace. They do not focus on the getting there, they focus on the what you'll do when you arrive. What they are trying to convince you to travel full stop, and they hope that when you see that the flight to Bali is only $100 you'll start thinking "well Bali looks like fun, and I've probably got a spare $100 somewhere". They also realise that if your getting there budget is maxing out at $100 you probably don't have an unlimited choice of carrier.

* Before you start saying "but what about the JQ ad back in 2009", I realize that there are exceptions on both sides.

 

[MEL_Traveller]

I don't like the idea of forcing people to pay extra on the off-chance they may be upgraded. And even worse, that someone with status can come and take your upgrade at the last minute.

A fairer system would be for qantas to publish upgrade statistics for each and every international flight. It could say 'bronze 5%, silver 7%, gold 30% and platinum 80%'. That would allow passenger to make an informed decision in advance of shelling out more money to be in the upgrade lottery.

better still, they could follow every other major airline in the world and just give us confirmed upgrades.

 

[AnonymousCoward]

'award' seats are typically seats the airline doesn't expect to sell. So they were going to get zero revenue from it anyway.

To be accurate, "expecting no revenue" isn't the same as "getting no revenue". But I take your underlying point.

What they have done is create additional revenue for that empty seat either by you flying on paid fares, or obtaining points some other way such as through credit card spend (etc).

Sure, but all that "extra money" as you call it, simply goes into that big pot called "revenue", and after deducting expenses (including that of fulfilling the seat), results in one big consolidated "profit" figure.

Squeezing some extra revenue out of its award model simply means that QF can afford to have some otherwise cheaper fares or extra beanies in other areas. The only important number, at the end of the day, is whether QF is generating a market-justifiable ROI on capital invested. And if it's not, it should shut-up shop and return the funds to its shareholders.

Running an airline is a hugely capital intensive business, and if this were a normal industry, half the airlines flying today wouldn't exist (instead they are protected by their governments), due to their poor ROI, or even loss making ability, and most people would be paying significantly more for flights than they do today.

There is no lost revenue to the airline in giving away the seat. Only, in some cases, greed in trying to get more people to spend more money to get the one same supposedly 'free' seat.

We need to be careful about throwing around the word "greed" - corporations competing in a (relatively) free market aren't "greedy" - they price at what the market will bear. We don't called consumers "greedy" because they look for the cheapest fare, or try to maximise their utility through choosing the most optimal way of spending their time/money.

If the market was a monopoly or similar, then I concede the point - the monopolist can exploit their market power, and screw the customer rather than running their business efficiently. But I doubt anyone thinks QF is a monopoly.

 

[AnonymousCoward]

It comes down to a proper definition of happiness doesn't it? Obviously in the Ryanair model those customers have said their happiness is getting a very cheap deal and they are "happy" to trade away the frills and customer service in order to achieve the price they want. At some point in order for a company to succeed it needs to satisfy the customer - whether that be with good service, or a cheap price or whatever the business model of the company is.

Sure. But remember, the purpose of the company is to make a return for its owners [1]. The means is via selling a product or service.

Now, if you have no means, then obviously your company won't be successful. But even if you have the means, if you are unable to do this profitably, then you are still no successful.

Basically having "means" is a "necessary, but not sufficient" precondition for having a successful company.

However any statement that says customers don't matter only shareholders makes my skin crawl

No one's saying "customers don't matter" - you're the one that's created that strawman. Certainly customers do matter. As do suppliers. And partners. And regulators. And competitors and many, many other things (though customers are very important)

What's been stated is that "return to the owner" is more important than the happiness of a subset of customers. Because the return to the owner is the purpose of the company - it's the whole point of setting up the company in the first place.

[1] Let's leave aside non-profits, and similar companies, that have other stated aims