tv Bloombergs Studio 1.0 Bloomberg June 9, 2019 3:30am-4:00am EDT
david: one of the world's oldest airlines line the world's longest routes, a brand known across the globe, but less than a decade ago it was hemorrhaging cash, spiraling toward collapse. it has been transformed. i am david tweed. this is "bloomberg turnaround." join me to see how alan joyce got qantas flying high again. ♪ >> qantas' turnaround is really a textbook example of what can
be done within the airline industry. david: in 2018, qantas reported a profit of 1.2 billion u.s. dollars, its largest ever. shareholders were awarded with buybacks and dividends of $360 million, while employees were showered with $50 million of bonuses. that was a far cry from the $2.7 billion loss announced in 2014. >> there is no doubt. today's numbers represent the year that has passed that we have now come through the worst. alan: how do you do? nice to meet you. welcome to qantas. david: nice to be here. tell me about the turnaround. what were the main elements? how did the plan evolve? alan: we had probably the perfect storm there around 2013. the conditions are important because we had high oil prices.
they reached over $4 billion, the highest we have seen. we have simultaneously tried to take massive market share and -- similarly had a competitor trying to take massive market share and being funded by a number of foreign airlines, extensively funded. we also had, because of a very high aussie dollar, a lot of international carriers flying into australia. it was a perfect storm in all of our businesses. david: joyce announced a $2 billion cost-cutting program, everything from faster aircraft turnarounds to saving fuel from optimizing routes. the workforce shrank by 15%. the fleet was simplified. boeing 747's were retired ahead of schedule, replaced by a-320's. schedules were changed to maximize the use of qantas'
remaining a-380's. they dropped unprofitable routes like perth to singapore. other routes would change to match demand. joyce himself took a 36% pay cut. it was one of the most remarkable aviation turnarounds in history. in 2020, qantas marks its 100th year. to get a sense of that history, i went to the qantas heritage collection at sydney's domestic airport. it is near gate 13 at terminal three. you can go there while waiting for a flight. >> these are the two visionaries . who are they? >> these are the founders of qantas, hudson fish and paul mcguinness. david: the airline was born in
1920, founded by two veterans of gallipoli, the disastrous world war i campaign is often regarded as a crucible of the australian nation. hudson fish and paul mcguinness established the queensland and northern territories aerial services to provide air transport over the huge distances of australia's north. but even then, they have international ambitions. just before world war ii, qantas moved from its territories in queensland to sydney. >> they moved down from brisbane to sydney. they packed up the entirety of the office and flew them down. queensland to sydney. in one weekend. david: where was the runway? alan: the runway was at rose bay, which is at sydney harbour. the first international airport is on sydney's harbour. david: this is rose bay, where qantas had its first international airstrip. it is still used as a terminal. planes would take off from here on the long journey to singapore. the great hulking, flying boats
would slowly gather speed, faster and faster until their 32 meter wings lifted them out of the water like huge, graceful waterbirds soaring into the blue yonder. during the decades after the war, qantas established itself as australia's premiere carrier. ♪ david: embedding itself into the national psyche. by the early 2000's, qantas's domestic rival collapsed, and a new entry came into the markets in the form of virgin blue. qantas decided to establish its own cutprice airlines, and a young irishman was chosen as ceo. staret star, -- at jet
joyce managed to create what was , probably the first successful cutprice airline subsidiary of a full-service parent. he chose a headquarters near melbourne, far from the qantas headquarters in sydney, and proved himself an able negotiator. >> one of the reasons the low-cost subsidiaries never work , apart from the fact that all the clever consultants said they wouldn't, was that there was always massive conflict in terms of cannibalization, self cannibalization of the product in the mainstream carrier. that was where it required more than the ability to set up a low-cost carrier, but also to negotiate all the different issues of network, of pricing. and fight your way through your biggest enemy, which is your parent in many way. david: success at jetstar opened the door to another, the flying kangaroo itself. but joyce was soon under attack from all sides. ♪ david: still ahead, we talk to alan joyce about the most controversial event in his
century, the flying kangaroo was an essential link for australia and the rest of the world. as the century progressed, qantas was buffeted by international competition and unrest at home. alan: we have decided to ground the qantas international and domestic fleets immediately. i repeat, we are grounding the qantas fleet now. there will be no further qantas domestic or international carriers anywhere in the world.
david: alan joyce was appointed chief executive in 2008. just as the australian dollar started to climb, attracting international competition, the oil price started to increase, and some of qantas' dozen or so unions began industrial action. >> it was a difficult time. we were coming out of a global recession. and all airlines were doing pretty badly. the airline business, of course, is riddled with unions. qantas had about 15. each of them has a considerable amount of power, because you can easily ground an airline by withholding services, which is a massive impact. david: joyce took his own drastic action. he closed down the airline. the reaction was harsh, the consequences reverberated nationwide. >> the government overall is concerned about the extreme
action taken by qantas that had stranded tens of thousands of passengers far away from home. >> having the balls to do it was a massive thing at time. it has sort of faded into history now. had he not done that at the time, qantas would be very much a pale picture of what it is today. david: i want to go right back to the most controversial thing of your career, which was the lockout. why was it necessary? alan: you probably were aware that we had gone through more than a year with workforce groups working in unison with each other. we started to lose a lot of money because there was a lot of action happening. we started to lose $20 million a week. we could have given in to demands. this was 2011. we believe those demands would have restricted qantas and would
not have allowed qantas subsequently to do the turnaround. david: after the lockout, the workplace relations tribunal canceled actions on both sides. now the unions would have to resolve their disagreements by arbitration. it meant that qantas could get back to work. in 2012, qantas signed a partnership with emirates, allowing them to deliver passengers to dubai, where they could plug into dozens of routes in europe. >> it gave qantas access to the routes beyond dubai, which was a massive contrast to what qantas had. they had london and frankfurt at that stage. david: just as the deal was settling in, they watched the price fall.
joyce announced his transformation program to a chorus of public criticism. david: you became one of the most vilified chief executives in australia. you had people calling for your resignation. no one was supporting you, except the board. how did you keep the board on your side? alan: i remember that poll. i was on the tv program "sunrise." they said i was announcing the turnaround plan, what we were doing to improve it. he said in the high 90% of people want you to resign. my answer was, it is not a popularity contest, and if you think doing the ceo job is a popularity contest, you should not be doing it. i'm here to work for the board and the shareholders. and they are fully supportive. david: how did you get the support of the staff? alan: we figured some of the principles around the
transformation just could not be a focus on financial outcomes. and actually had two other things going at the same time. it had to deliver great customer outcomes, and we could not take anything from the customer, and we had to engage our people. another stakeholder, because the iconic brand that we are was the general public. so we spent a long time managing, communicating, and talking to all the stakeholders to bring them together. david: personally, how did you take it? did you sleep? alan: actually quite good. i worked at aer lingus in my first aviation job. one of the things they trained management in was mindfulness which is a big thing these days. , and allowing people to focus. when i came home, my partner wanted me to talk about what was in the press, what was occurring. he was reading it. and i didn't because i am home, i'm going to switch off, i am going to block that out. that helped me get through that
period. david: where does that come from? you must have an extreme sense of self belief. where does that sense of self belief come from? alan: my parents have always been my role models. my mother, she is only four foot nine, an irish mother. one of my brothers says she is the best pound for pound fighter in dublin because she has always stood up for the family, to bullies, and she was a determined individual, still is. i always got that sense of purpose from them. neither of my parents finished secondary education. i was actually the first in the history of our family to finish secondary, let alone tertiary education. david: a lot of people listening to us talk right now are wondering what lessons they can take away from what happened during the qantas turnaround. alan: i would say you develop a plan, you get as much diversity and collaboration together.
around the leadership table i have four females and gay men. -- and three gay men. we have a very diverse group. but it is the diversity of thinking and all many different forms. we are passionate about all forms of diversity. we are the leaders in marriage equality here in australia, giving to the lgbti customers we have and shareholders may have. we thought it was an important campaign. david: joyce's outspoken support for same-sex marriage earned him an embarrassing encounter in perth. an anti-gay marriage activist pushed a pie in his face. alan: it was a surprise because i did not know what it was for. the journalist interviewing me on the stage figured it out
before i did and asked me that question. do you think it is because of your support for marriage equality? there was a very angry, forceful thing. it was very much a message of, i want you to stop talking about it. you are a powerful gay man and i am threatened by your insistence on it. my reaction to that is that all bullies, you stand up to them. david: coming up, how qantas eked out cost savings. and we take a look at the ultra-long-haul program, starting in the cockpit. >> how do you do? ♪ david: with qantas back on a
the routes are only possible because of a wave of innovation in aircraft design. alan: this technology changes the game. the perth-london servers that we now operate for a year has been the best service in our 99 year history, the best customer ratings, the best financial performance. we have not made money for 10 years since the global crisis. it made money from day one. we are getting 94%, we are getting a premium on people wanting to pay more to fly direct. we know if it works on perth, it will work from sydney to melbourne, to new york, to chicago, to cape town. david: captain. >> how do you do? nice to meet you. take a seat.
david: to make the turnaround work, joyce had to have the buy-in from all parts of the organization. pilots now have to think about more than just flying planes. flight management is a key part of the turnaround. tell us exactly how the flight management works. >> disregards the aircraft -- with regards to aircraft utilization, we have some of the highest utilization of the airlines in the world. over 30 at the moment. they utilize up to 13 hours a day. our networks have finally turned our programs. the aircrafts are flying a fine balance between having them on the ground for required maintenance and utilizing them and increasing revenue. we also did a big piece of work on our 35 minute turnaround. to reduce the turnaround of domestic aircraft, we introduced
dual boarding, and we had a team of front-line people involved in the workshopping around how we could do it. the juggling of cleaning staff, catering, engineering, etc. we have a very precise, precision timing schedule. it happens within 35 minutes. david: i find it interesting that you as a pilot are talking about revenue. is that something new? you have been 35 years as a pilot for qantas. >> this darkly, we only looked at flying the aircraft, but now -- historically, we only look at flying the aircraft. but we know we are in a really challenging environment, so fuel efficiency, we introduced a lot of fuel efficiency measures in terms of running our units on the ground. we have implemented single engine use to save a few kilos. but across the year, across the it all of that adds up.ds up.
fuel saving is very much a part of flying. >> this is central operations. david: qantas' ultra long-haul program means optimizing routes is essential. captain alan dickinson is the captain alan dickinson is the guy in charge of developing the new flight planning system. >> we had a new flight from sydney to santiago, which was probably a good example, in that we could see it dipping down further south than normal. it was able to pick up a jet stream. by just dipping down a little further south and coming north a little sooner than the old system was planning, we were able to save a ton of fuel on that flight. david: when you look at this system compared with the old capricorn system, what sort of percentage savings are we looking at? >> we are hoping to achieve around 1% fuel savings. this is a very new system. we are still in the process of introducing new systems.
but we have high levels of confidence that in the short term we will be able to achieve a 1% saving. david: for fuel prices, 1% is a lot of money. >> and every kilo counts. david: while looking for savings, safety remains a priority. this is the hangar where the enormous a-380 comes in for servicing. it is so tall they had to raise the roof. it is so wide they had to widen the space. this is jacqui scott, a qantas engineer. safety before schedule, that is the qantas motto. >> airbus is a proponent of change. -- airbus dictates when most of the components are changed. if one partcide
needs to be changed out at a thousand hours, qantas says 750 hours. in unforeseen circumstances, we have a little bit extra time. as well as being as safe as possible. david: if joyce is going to make his ultra-long-haul program work, he has to make sure his customers want to take the flights. one way to entice them is the food. >> this is our kitchen. we do events from here. mainly we do all the testing for the menu. david: qantas has got top chef neil perry working with scientists on ways to enhance sleep and hydration for ultra long-haul flights. >> here we have our cocktails. they have alcohol in them of course. but also, our mock tales. mocktails. the whole rehydration is a major focus for us. david: especially on these long-haul flights. >> especially on the long-haul flights. it really is all about not
tricking people, but getting them to drink as much delicious free hydration as they can. we do teas, we do coconut water. david: the chefs are constantly working on creating food that is still delicious at high altitudes. >> we look at that in relation to the long haul. we try to dial the spices in the chili down a bit. spices are not great when you are trying to relax. the idea is we get proteins, starches, leafy green vegetables, legumes, those sorts of things to stimulate sleep. david: if qantas gears up to beginning the longest flight in its history, joyce has to remain vigilant about the risks. >> qantas is not invincible. what we saw in 2012 was a
near-death experience. what they faced was a war on two fronts. you can lose money internationally as long as it is making a lot of money domestically, but both divisions are facing pressure. it is a really difficult situation for them. it could happen again. david: joyce has pledged to stay on as ceo until 2022. the potential risks to the airlines remain at the forefront in his mind. alan: we have been around for 99 years. we are the oldest continuously operating airline in the world. we have always reinvented ourselves. i think we are always on edge. we are always thinking, where could the next disruption come from? what do we need to do to stay ahead of this game? we are always concentrating on that. ♪ ♪
carol: welcome to "bloomberg businessweek." jason: we are here at bloomberg headquarters in new york. carol: in this week's special "sooner than you think issue," has gene therapy outpaced? -- outpaced america's health care system? jason: and the costs associated, they are amazing. the startup that may hold the key to the next generation of artificial intelligence. carol: we begin with a new vision of technological progress.