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ANALYSIS: Former execs seek to steer Qantas in a different direction

Former Qantas chief executive Geoff Dixon seems set for a clash with his one-time protégé, the carrier's current boss Alan Joyce, over his connection to a consortium that is pushing for a stake in the airline to force a change of course.

In what could be interpreted as a shot across the bow, Qantas has terminated a joint marketing agreement with Tourism Australia, saying its chairman, Dixon, has a conflict of interest because of his involvement in the consortium.

"This conflict has arisen from the involvement of Tourism Australia's chairman with a syndicate that is actively canvassing fundamental changes to the Qantas Group strategy, including the proposed partnership with Emirates," says the airline.

"Qantas cannot continue to collaborate with an agency whose chairman is a member of a syndicate committed to unravelling Qantas's structure and direction," it adds.

This is the carrier's first acknowledgement that Dixon, along with former chief financial officer Peter Gregg and high profile businessmen including Mark Carnegie, Lindsay Fox and John Singleton, is looking to steer the airline in a different direction.

The consortium is said to favour an alternative strategy for the carrier's loss-making international operations, which has had major network reductions under Joyce's leadership. Qantas also awaits regulatory approval for a major alliance with one-time competitor Emirates.

It has been suggested that Gregg, in particular, is more in favour of an alliance with Oneworld alliance partner Cathay Pacific or another Asian carrier, which could have greater financial rewards than the Emirates deal.

An analyst from Citi who spoke to Flightglobal says working more closely with Cathay, which has been a long-time competitor to Qantas, could have some positives for how it addresses the Asian market, but there was still merit in the Emirates alliance.

"Emirates is a good brand, Cathay is a good brand too, but Emirates is more aggressive," he says.

The other major changes the consortium would like are to spin off Qantas's frequent flyer loyalty business and its budget franchise Jetstar, which could net the airline up to A$2 billion ($2.1 billion).

"Their single goal I think is to make money, and the way to do that is to get the market to appreciate the value in the Qantas Group," says the analyst.

By separating the businesses, the consortium could show that the sum of the parts is worth more than the approximate A$3 billion market capitalisation that the Qantas Group now has.

It is no secret in industry circles that during their final years at Qantas, Gregg and Dixon closely watched the initial public offering (IPO) of Air Canada's Aeroplan loyalty programme, and the subsequent success of this standalone company compared with the Canadian airline.

Separating Jetstar may prove to be more difficult. The analyst points out that Jetstar's growing footprint in Asia, where it has just launched operations in Japan and is planning to launch a new joint venture in Hong Kong in 2013, may be viewed warily by investors. This is despite the brand's track record of profitability.

There are also concerns that while Gregg and Dixon may be happy to float Jetstar, Qantas would still need to retain significant control over the budget carrier, possibly holding 51% post-IPO.

The analyst says this would discourage many institutions from investing in the airline as it would effectively remain a Qantas subsidiary.

Without such controls, however, an independent Jetstar could pose a serious competitive threat to the Qantas brand, something that has been avoided up until now.

So far, the alternative plan has not gained much traction among Qantas's institutional shareholders, with the consortium understood to have acquired only a small stake in the company.

"There is not enough shareholder support for a strategy such as this, which is more short-term," says the analyst.

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