Flying Above the Turbulence, Qantas Chief Executive Officer Alan Joyce, Australia-Israel Chamber of Commerce

Sydney, 08 December 2008

A sincere thank you to the Australia-Israel Chamber of Commerce. You are a great conduit for the exchange of ideas in Australian public life.

Today I am glad to have this opportunity to set out how the new leadership team at Qantas plans to manage through these challenging times, and even more importantly, how we are going to position Qantas for success in the future.

Of course, I am only too conscious of the significance of the task. I am honored to play a part in the 88 year story of Qantas, with its rich tradition of commercial aviation leadership, and special place in our national life.

You know, I don't think I've met a single Australian without a view on Qantas. Many have been exceptionally generous to me with their thoughts and advice.

But that's a sign of the passion that this unique company inspires in the Australian community. And believe me, it is a passion shared by the people of Qantas. You can see this in action when we have a chance to help out fellow Australians, like last week, when our special services to Thailand brought a thousand Australians safely home.

The history of Qantas is full of twists and turns. Qantas has been in private and public hands. Through war and peace. Through blue skies and natural disasters. Through boom and bust.

Qantas has survived and succeeded through all these challenges. We have been able to do this because of one of our core strengths - our capacity to manage change. To anticipate change; to respond to change; and to lead the way on change. And to do this while maintaining our commitment to the highest aviation standards.

Through our long history this company has been in the aviation front-ranks in everything from decisions on fleet purchases, through product and service innovations, to the technologies and systems that underpin aircraft safety and performance.

As a result we have two exceptionally strong airlines in Qantas and Jetstar. The global passenger survey, Skytrax, has listed Qantas among the world's top airlines for the past six consecutive years. Last year, Jetstar was voted among the top three low cost airlines. To have not one but two of the world's top airlines is only a dream for most airline groups.

And while each airline is hugely valuable in its own right, the whole is even greater than the sum of its parts. Qantas and Jetstar span a full spectrum of service offerings and a mix of regional, national and international networks. So we have many options.

Plus we have the power of our broader portfolio. We now have a very substantial holidays business, a freight enterprise, and a high potential Loyalty program counting one quarter of the Australian population as members. So we can deploy our resources far more flexibly than some of our main competitors to match changing customer demand.

Nevertheless, like all airline groups around the world, right now we face the short term task of responding to the challenging economic circumstances around us.

We have downgraded our profit expectations for this financial year from the bumper performance last year. We have announced decisions on staffing reductions and on reducing capacity. We are scouring the business to improve productivity and find efficiencies. There is no question that if tough decisions need to be made, they will be made.

We certainly have the flexibility to do more if required.

Meanwhile, all our major competitors are cutting capacity; all are expected to see a significant profit drop this financial year; and we shouldn't be surprised if many report losses.

But for me and my leadership team the focus is not just on the short term.

Our approach is to manage the short-term challenges so that we can stay on track with our long-term plans. Our goal is to ensure that Qantas is in the best possible shape to rebound and capitalize fully when market conditions improve. That's why we have welcomed the recent indication from the Government that its National Aviation Policy approach will be pragmatic, positive and forward-looking. We share that approach to the future.

And here I want to address the issue that is occupying a lot of attention right now. As you know, we have confirmed that we are exploring a potential merger with British Airways via a dual-listed company structure. We are in these discussions because a merger has the potential to create the global scale that would allow us to grow and enhance our services, and deliver significant revenue and cost synergies - all to the benefit of our customers, our employees and our shareholders.

But the fact is: these are still only talks. There is no guarantee that any transaction will be concluded. There are a number of significant matters that still need to be resolved, including agreeing an appropriate merger ratio and resolving issues around BA's pension fund and the broader economic outlook.

Qantas comes to these negotiations from a position of strength. We will only proceed with this transaction if we are assured that it will maximise value for Qantas shareholders.

Meanwhile the broader logic for consolidation is strong. The aviation world is in flux right now. It is caught between the old post-war national model and a more global basis for the industry. The future aviation environment is likely to resolve into three types of carriers: hub carriers, mega-carriers and niche carriers.

Well, we are the far end of the world, so we will never be a hub carrier unless Antarctica becomes the new Europe. We do have the option to be a niche carrier - a very strong and profitable one, but nevertheless outside the major global groupings. And then there's the opportunity to participate fully in the globalization of the industry through mergers. Consolidation gives airlines greater scale in what is a volatile and highly competitive industry. However if we are to step into a particular deal, it needs to be the right deal for us.

There's been a bit of fear and loathing about what participating in global consolidation might mean for Qantas. What I can say to all Australians is this: whatever happens, Qantas will remain majority Australian-owned, the vast majority of our employees will always be Australian, and Australia will remain our headquarters.

We are comfortable with the Government's stipulation of majority Australian ownership under the Qantas Sale Act, and we are pleased that the Government is reconsidering other restrictions relating to ownership under the Act. Our fantastic brand is built around our Australian identity and our special role in Australian life - that's a big part of what makes us attractive to potential partners. This will never change.

And I also want to stress that consolidation is just one of the items on our agenda and we will not allow the current discussions to distract us. The global competitive environment is getting tougher. We need to stay focused in all aspects of our operations if we are to deserve the loyalty of our customers and outperform our competitors.

* We need to ensure that all our customers understand our core commitment to safety.
* We must continue to be a leading user of technology right across the Group.
* And we must set new standards of excellence in customer service.

Let me say a few words about safety. Our customers and stakeholders have a legitimate expectation that safety is our number one priority. But a confluence of events has shaken the public perception of Qantas, and it is important that we acknowledge these concerns and frankly respond.

For us, nothing is more important than safety. It has been the basis of our company's reputation ever since the first Qantas engineer, Arthur Baird, picked up a spanner in Longreach. On average every one and half minutes a Qantas plane lands somewhere on the planet. I want all our customers to know that they can continue to have trust and confidence in their Qantas.

Earlier this year we had an extended period of industrial action that caused considerable delays to our services - I have no doubt many of you were affected. It was highly regrettable and we do apologise. During this industrial action there was considerable union campaigning, some of it calculated to raise questions about Qantas maintenance practices.

We also saw two serious events involving emergency diversions - QF30 in Manila and QF72 in Learmonth, Western Australia.

Sandwiched between these events and subsequently, we have seen an increasing number of reports about everyday occurrences that affect all airlines all over the world. Quite ordinary events - like minor technical faults that require attention before departure, and aircraft substitutions - have received disproportionate and even alarmist coverage.

Together they have led to a vague but dangerous perception that the rate of engineering issues at Qantas is increasing, that we are less careful on maintenance standards, and even that we are shifting all our maintenance offshore.

None of this is true.

The two serious incidents, QF30 and QF72, were both related to manufacturing and design faults - nothing to do with Qantas engineering. This has been confirmed by the investigating authorities. CASA has also examined our engineering and maintenance operation and found no increase in the rate of incidents.

The delays associated with the industrial action were a matter of operational reliability - not a fall in our standards and not a problem with safety. It has certainly taken us some time to bring our network back to full punctuality - longer than we would have liked - but we have now significantly recovered.

And Qantas undertakes the same proportion of maintenance work offshore - between 10 and 20 per cent - as it has done since the jet era in the 1960s. The offshore issue is a red herring. Many of the world's major airlines undertake maintenance at the same reputable bases in Singapore, Hong Kong and Manila that we use. You don't see the Australian media declaring that Singapore Airlines, Cathay Pacific or Lufthansa have compromised their reputations by doing so. Nor have we.

But none of these facts should in any way imply that we are complacent. We will we never be anything other than totally vigilant on safety. We spend $1.4 billion per year on maintenance. We have around 6,000 people employed at Qantas Engineering to maintain and service the fleet of Qantas aircraft. Our safety culture is rigorous, transparent, and fact-based - and we always look for opportunities to improve.

Importantly, we are actively securing the skills base for the years to come. We have 259 engineering apprentices, with a further 120 commencing shortly.

Now, we fully understand that Qantas will always be under intense scrutiny. We accept this. And over the next 12 months, we will be working to bring the public's perceptions closer to the reality - that Qantas remains 100 per cent committed to safety, and that our engineering and maintenance standards are equal to the highest in the world.

As we go forward, a key objective for us is to drive our technological investments even harder for the benefit of our customers.

Last year we spent about three per cent of total revenue on information technology and this year it will probably be a higher proportion still. We are spending not far short of half a billion dollars on IT per year - which makes us one of the biggest IT spending companies in Australia.

One example: our new generation departure control system implemented this year is a world first, representing a step-change for the global aviation industry. It is far more intuitive for our staff, makes our customer service consistently better, improves on-time departures and ensures that our most loyal customers can be instantly recognized and rewarded.

Another example: we want to ensure that our customers can connect with us anywhere, anytime and using any device. In August this year, we were amongst the first airlines in the world to launch a version of our website that is optimized for customers using the Apple iPhone. This month we followed up with a Blackberry 3G version, and in 2009 we will be expanding both the number of mobile devices and the range of services offered to our customers via the site.

Our new generation aircraft are extraordinary machines, relying on information technology more than any before. Our 747-400 has less than 50 software systems - while the A380 has closer to 700. Sophisticated on-board systems communicate intelligently with enhanced ground systems to strengthen the safety, timeliness and convenience of all our services.

And if you haven't experienced it yet, let me encourage you to book your A380 flight. It is truly magnificent and a huge effort has gone into the technology backbone of the design to give our customers more control over their environment in flight, and therefore greater comfort.

As we renew our fleet and upgrade our product, we are also investing in major initiatives to set new customer service standards. Last week we opened our Centre of Service Excellence. In this huge college we will bring all our service training under the one roof. It means we can rapidly deliver training programs to frontline staff that match our new fleet and ground product. We are putting nearly half of our employees through exceptional service training in 2009.

The first person to join the training scheme will be the head of Qantas Airlines, John Borghetti. All of our executive team will be undertaking the training. And our executive team is also committed to spending time each month in a frontline service area to experience the world through the eyes of our people and our customers.
Let me conclude.

For Qantas, continuity means constant change, while maintaining the highest standards in all that we do.

We are actively managing through these difficult times and will keep on making the adjustments to protect our business.

We will continue to explore the opportunity for consolidation, as long as it is clearly in our best interests.

We will continue to lead in our use of technology on the ground and in the air.
We will be investing to set new customer service standards.

And, underpinning it all, we will continue to reinforce our total commitment to safety.

So there's a lot to be done. I am fortunate to have a fantastic team around me, and 37,000 passionate Qantas staff.

And I am going to be calling on all that talent and dedication as we secure the present, and build the future for Qantas.

Issued by Qantas Corporate Communication (Speech)