- Qantas broke the law and sacked people when they shouldn't have.
- Qantas might have sold flights that were already cancelled.
- Qantas’ board is in ‘economy’ rather than the Chairman's Lounge.
- Qantas needs to spend big on fleet renewal.
- The new CEO has an opportunity to enact change.
Qantas, the Spirit of Australia, has been in the news recently far more than it would have liked.
They have said goodbye to Alan Joyce, been taken to court by the ACCC, lost in the high court and been forced to extend the covid credits. All of which has put increasing amounts of pressure on the Board, Chairman Richard Goyder and new CEO Vanessa Hudson.
Let’s have a look at what has happened.
The High Court Decision
The background to this decision is fairly straightforward.
Due to Covid19, Qantas decided to outsource its ground handling operations at 10 airports. This meant that around 1700 employees were sacked.
The transport workers union took Qantas to court. They alleged that Qantas broke the law* by taking action when the workers couldn’t. The were 2 reasons why the workers couldn't take action:
- The current enterprise bargaining agreement had not yet expired; and
- Covid.
Essentially the Transport Workers Union alleged that Qantas punched their employees in the face whilst their hands were behind their back. A dog act.
In their defence Qantas said that the action was taken because of commercial imperatives. I.e their entire fleet was grounded because of covid19.
The first judge in the Federal Court found that whilst Qantas had commercial imperatives, Qantas punched them whilst their hands were behind their back. Aka a dog act and an act that broke the law.
Qantas appealed.
At the appeal, the Full Court of the Federal Court agreed with the Transport Workers Union that Qantas had broken the law.
Qantas then appealed to the High Court.
In scenes that I can only imagine were akin to Darryl Kerrigan’s reaction in the Castle, the High Court dismissed Qantas’ appeal and affirmed that Qantas broke the law. Like Darryl in the Castle I assume Michael Kaine the National Secretary of the TWU shouted “you little ripper”.
Simply put, the action taken by Qantas was against the law. They punched the workers in the face when the workers’ hands were tied behind their back. An act known as a “dog act”.
The result is that they will have to pay compensation to those affected employees.
SME Takeaway: Employment law in Australia is super complex. Get advice. Actions you take can come back and bite you in the ass.
*The core question was whether Qantas contravened s 340(1)(b) of the Fair Work Act 2009 (Cth) ("the Act"). Section 340(1)(b) notes that a person must not take adverse action against another person "to prevent the exercise of a workplace right by the other person".
ACCC Action
Qantas must love the courts as much as Clive Palmer does because on top of the employee issue which has been through the system, the Australian Competition and Consumer Commission has taken Qantas to court alleging false, misleading or deceptive conduct in relation to the advertisement of flights.
The ACCC (Australian Competition and Consumer Commission) alleges that Qantas kept advertising and selling tickets to flights that had already been cancelled.
The ACCC note that “We allege that Qantas’ conduct in continuing to sell tickets to cancelled flights, and not updating ticketholders about cancelled flights, left customers with less time to make alternative arrangements and may have led to them paying higher prices to fly at a particular time not knowing that flight had already been cancelled.”
The action has some fairly major implications especially given the extraordinary profit made by Qantas during the period in which the alleged action took place.
Qantas faces hefty fines and reputational damage as a result of the actions.
Simply put, the ACCC alleged Qantas deliberately deceived the market, making it harder to get flights, decreasing time to choose and increasing costs per flight as a result.
Like the High Court decision, we might be tempted to think that this has no application to SMEs but that is not the case!
SME Takeaway: Be careful what you say. Be mindful of actions you take. If in doubt, get some advice.
Flight Credits
On top of the two court actions above, Qantas have had to do a u-turn in relation to Covid credits.
Whilst this is good news for Qantas consumers, it isn't great news for Qantas shareholders. The credits have a book value of $570M which now sits on the balance sheet. Ideally Qantas would have quietly disposed of these and removed the liability.
This just lumps further pain on Qantas and in particular the Board.
This does sound very large but the principle is critical to all business owners. Any business that takes deposits should have them noted on the financials so that it is clear what obligations are owed and what funds are available as free cash.
SME Takeaway: Account properly. Understand how deposits work and where they fit into the financials.
Governance Issues
I love governance and I assume so does Richard Goyder but right now Mr Goyder would not be enjoying his seat, even if it is in the Chairman’s Lounge.
Essentially his last few months have not been great.
Alan Joyce decided to step down. Whilst a polarising figure, Alan has been considered a titan of the airline industry leading a national privatised carrier to profitability and steering it through the Covid19 pandemic largely unscathed! But he has not had the best reputation when it comes to industrial relations and certainly appears to favour his shareholders' returns over the goodwill of the employees.
Finding Alan’s replacement was always going to be tricky. It appeared that they successfully negotiated that with Vanessa Hudson, the former COO, stepping up to the plate. Cue drama!
Her first 30 days have been anything but fun. The High Court loss, the ACCC allegations, the balance sheet corrections and a fleet renewal plan to top it off! These are decisions which are quite frankly out of her control and should fall at the feet of Joyce and the Board.
Mr Goyder, Mr Goyder, we are paging Mr Goyder for a flight to the Senate. You can almost hear the airport pager.
Ultimately the Board is responsible for the good governance of Qantas. It is a big business and there is no way that the Board could possibly know or be informed about all the minor details but one does need to question what actions were taken after the knowledge of these issues became apparent.
The criticism levelled at the Board and particularly Mr Goyder which I believe to be fair is that the Board allowed Mr Joyce to sell off 90% of his shares even when they were aware of the request for information made by the ACCC. They may not have broken the law in allowing Mr Joyce to realise his shares but one needs to ask whether the action adheres to the ASX’s 8 principles of corporate governance. It certainly doesn't pass the pub test.
My Thoughts
Qantas is battling. There is no denying this. Vanessa Hudson has some heavy lifting to do to right the plane so to speak.
Personally I do not see how Mr Goyder can hold his position. Whilst I do not think the blame should rest solely at his feet, I think the publicity win related to a Board clean out will be more enticing to institutional shareholders.
I think Qantas is in for some further turbulence. The above issues are largely superficial and immaterial to their financial performance but manoeuvring the fleet renewal program will not be. Big assets require big spend. I am not sure that the economic conditions and reinvestment programs will continue to support its current level of profitability.
Notwithstanding this, Qantas have a great product (most of the time), a great brand (most of the time) and a new CEO who has an opportunity to put her stamp on the national carrier.
Flying Kangaroo or Road Kill? I guess time will tell.
