Qantas: the canary in the mine for Australian business?

So today Qantas announced it lost $235 milllion in the first half of this financial year (vs. a mere $109 million for the first 6 months of the previous financial year). And off the back of that the CEO has announced 5000 job cuts. The full SMH article on the topic can be found here.

I can't help but think the struggles of Qantas mirror the own challenges our economy faces, it just happen to be very high profile and toward the front of the queue (hence it makes a rather good & useful canary in Australia's own economic mine shaft).

Rewind 6 years and Qantas was an exceptionally successful business - It made $970 million profit in 2008. Things have changed since 2008 though. The Aussie dollar has gotten stronger (it's spent much of last year over $1US vs 60 to 80 cents in 2008) and that makes going overseas far more attractive to tourists (which doesn't automatically help Qantas - there are a plethora of international airline options, unlike flying domestic ) and makes the cost of keeping jobs in Australia very expensive (compared to offshoring them, which other airlines routinely do). Even high skill roles can be done and done well off shore, often as cheaply as 10-20% of what you'd pay locally.

It's not just the cost either. There's a quality issue. Customer Service roles have traditionally been seen as rather entry level and menial in Australia. Offshore they are a highly sought after career option. Here you kind of make the best of who is left, offshore you pick from the cream of the crop. Hence one often has incredibly mixed customer experiences dealing with local customer service depending on whether you get someone keen and switched on, or someone only working there under sufferance because they can't find a"decent" job. I seem to see many a friend bitching about Qantas customer service on social media.

The numbers I've been told are quite striking. Most international carriers make about $80-90 per passenger per flight. For Qantas, it's more like $10. That's a wafer thin margin.

Labour costs & quality and the high Aussie dollar are making Australia uncompetitive (look at SPC, Toyota, Holden - this goes beyond Qantas). The bad news is this has the potential to go well beyond these businesses - Banks, Telcos and IT vendors have been doing it on the quiet for years, just without the  publicity. Companies are realising just how portable many roles are (even high skill ones), and many offshoring businesses have refined their business model, so offshore is no longer a euphemism for bad service. Often quite the contrary.

For the last 10 years the mining boom has buffered the so far limited the impact of offshoring. Mining has created more jobs than have been lost offshore. But with the mining boom now on the wane, we might realise the full impact. I can't believe that we waste so much time and effort worrying about turning back refugee boats and repealing the carbon tax. We need to work out what Australia can do well into the future, focus on that & articulate that vision to the people and the global business community.

Other than that I'm not 100% sure what the solution is. The Aussie dollar dropping helps, but it's not the fix on it's own. Australia needs to become cheaper place to do business, and I also think people need to reset their feelings on what represents a good salary, reasonable career progression and a decent job. If we don't do it, I have a nasty feeling the market might do it for us.

The difference 1% makes

2014: There's plenty to be encouraged by if you're a job seeker. I've usually been rather cynical about recruiters spouting next year will be better, as often there's nothing more underpinning it than plain old hope this year will be better. But business confidence is up in the recent CBA Future Business Index - that's a good sign. Indeed the index is at an all time high point. Admittedly the index is only 3.5 years old but nonetheless. Our business is also rather busy given the time of year (Jan/Feb is historically a flatspot in recruitment land - too many hiring managers away through January) and the recruiters we are speaking to have similar stories.

As much as these signs bode well for the year ahead, we still sit at 5.8% unemployment,so don't expect the phone to be going nuts or salaries to be on the march for a while yet. I'm still quite amazed how much easier it is to find quality, experienced people when unemployment sits at or close to 6% as compared to 5%, and we'll have to whittle that 5.8% down before the market hits top gear.

And that means it will remain nigh on impossible to secure a move AND a step up with a salary increase at the same time. That kind of thing only happens at the top of the market.