Business

Can Australia's Qantas fix its financial troubles?

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Media captionThe BBC's Phil Mercer reports on the challenges facing Australia's flagship airline

Much loved but increasingly shunned by Australian travellers, Qantas is in deep trouble.

Soaring fuel costs and aggressive competition from state-funded or low cost rivals have sparked mass redundancies and eye-watering financial losses.

The airline's annual accounts have become a horror story of decline as it tries to chart a path back to profit and sustainability.

The aviation sector in Australia has become saturated, leaving Qantas facing unrelenting competition on both its international and domestic routes.

Overseas flights out of Perth, the capital of resource-rich Western Australia, have been stopped, and other routes have also been abandoned.

As a result, many now believe that increased investment from overseas is key to its survival.

Foreign ownership

Image copyright AFP
Image caption Domestic passenger numbers have been falling at Qantas

Qantas has already begun to go down that route by forging an alliance with Dubai-based Emirates, a major rival to many regional carriers.

It has entered into a code share deal with China Southern Airlines that will allow the carriers to share passengers across domestic and international routes.

China's biggest airline is also reportedly planning to buy a stake in its Australian partner.

More significantly, Australia's flagship carrier has been trying to persuade politicians in Canberra to ease regulations that limit its foreign ownership to 49%.

Their attempts have so far failed though, even as travellers continue to desert the national carrier and opt for cheaper fares on budget rivals.

"If you look at the number of passenger airline miles that Qantas is flying, they are diminishing, and diminishing, and diminishing," John Roberts, a marketing professor from the University of New South Wales told the BBC.

"There comes a point where you can't shrink any further, and so where does this shrinking stop? I think it probably stops with Qantas being taken over, or by foreign capital coming in."

Brand revival

So what is the best way forward for this famous old Australian company?

Clearly opinion is split, but experts believe it must adhere to four fundamental marketing principles to revive the brand.

The airline must be different from its rivals, it has to resonate with and be understood by consumers, as well as be regarded for good quality service or value.

But recent moves by the airline known as the Flying Kangaroo seem to be cultivating more negative feelings.

This week the carrier announced that its economy passengers would receive their meals in small boxes, rather than on a tray.

"Looks a little cheap" Mr Roberts responded. "People still love Qantas but they are disappointed with its current performance."

Image copyright AFP
Image caption Qantas chief executive Alan Joyce says they are facing incredibly tough conditions

Trade unions, which have threatened strike action over job cuts, blame Qantas management for a series of disastrous financial results.

The Transport Workers Union has said it has the right to withdraw labour, and that its members "refused to be bullied" by Qantas chief executive Alan Joyce.

But there is growing acceptance by the group representing the majority of Qantas pilots that unpalatable measures are needed to resuscitate an ailing enterprise.

"No-one likes to see any redundancies but in many respects Qantas needs to change. It needs to transform, it needs to be competitive," said Nathan Safe, president of the Australian and International Pilots Association.

"It needs to go through a little bit of pain initially like we are going through now with the redundancies, with the losses."

Mr Safe added that Qantas also needed to buy more fuel-efficient aircraft to lower its operating costs.

"It needs to build a base from which it can grow into the future and it needs to be able to justify to the banks and to the shareholders injections of capital so it can re-equip the fleet," he said.

Qantas has been criss-crossing the skies over Australia and beyond for the best part of a century, but is now struggling to cope with unprecedented challenges.

For the famous Flying Kangaroo, the months ahead promise to be fractious.

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