Opinion Is it an alliance or a surrender on the fly?

Will the Emirates tie-up be just another failure? It wouldn't be the first time for Qantas, which has repeatedly failed to respond to international competition in a way that allows it to get ahead of its competitors, argues Frank Zumbo.

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Associate Professor Frank Zumbo

OPINION: What is Qantas up to? It is about to get into bed with Emirates, a powerful competitor that's shown Qantas a few things about running an airline. Is it simply a case of ''if you can't beat them, join them'', or is it the result of repeated failures by Qantas to stay ahead of the ever-changing international aviation market?

The more important question is, will the Emirates tie-up be just another failure? It wouldn't be the first time for Qantas, which has repeatedly failed to respond to international competition in a way that allows it to get ahead of its competitors. While Emirates and Etihad were changing the landscape, Qantas was sticking by its ''oneworld'' alliance anchored by British Airways and American Airlines.

That was a clear mistake, given that BA and American Airlines have been in decline. Does anyone remember what the oneworld alliance means? Have you flown BA or American Airlines lately?

Of course, Qantas did some obvious things, such as cutting back on unprofitable routes and trying to reduce costs. The real problem was that Qantas management had allowed those costs to blow out.

It's far too easy for Qantas management to say that the old government ownership or unions were to blame. Dealing with the unions was always only going to be part of the picture. Self-restraint on the part of management was also critical. Given that safety is paramount you would think that cutting management staff should occur before cutting engineering or operational staffing levels.

With management salaries generally much higher than the wages and salaries of engineering and operational staff, Qantas could actually save lots of money by cutting management staff and salaries. Of course, self-interest could stand in the way of that as the management makes the decisions and are likely to look after themselves and each other.

Here leadership by the chief executive is essential. It takes a tough CEO to cut management staff and their salaries for the simple reason that not only is the CEO part of the management team, but the CEO would need to take a big pay cut first in order to have the moral authority to do the same to management.

Self-interest is always tough to get past. A board of directors, CEO and management are always quick to roll out the so-called ''salary benchmarking studies''. Funnily enough, these studies will show that directors and management are being paid at comparable levels to those at international companies. Coincidentally, those international comparisons are always good for showing that Australian management should be paid more and that the workers should be paid less.

For Qantas, the belt tightening needs to start with corporate headquarters and go right through to all operational staff. Sharing the burden fairly across the whole of Qantas is critical to prevent sagging morale and a rise in staff absenteeism.

A review of staff absenteeism on page 144 of Qantas' 2012 Annual Report is revealing. Interestingly, absenteeism seems to be rising in those parts of Qantas that are seemingly under pressure and falling in those parts, like Jetstar and Qantas Frequent Flyer, that are prospering.

Why are Jetstar and Qantas Frequent Flyer prospering? Well, despite their faults, they generally offer something that customers want.

Ultimately, that's the key message for Qantas. Give the customer what they want and they will come. With Jetstar it's the price of the airfare. Jetstar airfares are ''competitive'' in the mind of the customer. That goes a long way to explain why Qantas International is struggling given that its airfares are ''uncompetitive'' in the customer's mind.

When is the last time you flew Qantas International because it had the cheapest airfares? You probably flew Jetstar or some other airline offering cheap international airfares. Qantas International may not always be the most expensive airfare, but in the customer's mind Qantas International airfares are ''expensive''. Qantas International needs to change that mindset.

Jetstar has successfully positioned itself through competitive pricing, and now Qantas International needs to position its product in the customers' minds. Is it price or service? Qantas International can certainly do much better in both areas. Qantas International can no longer just rely on ''rusted-on'' customers and needs to reach out to those ''swinging voters'' who vote every time they fly overseas.

Urgent action to build brand loyalty which translates into strong and repeated business lies at the heart of what is needed at Qantas International. Customers need to be made to feel ''good'' about flying Qantas or that they are getting a ''bargain'' when they fly Qantas.

Simply getting into bed with Emirates, while seductively appealing to Qantas management, is not the magic bullet. In fact, it's very dangerous for Qantas to let its most formidable competitor get so close. Emirates could end up taking over Qantas.

Would Emirates ever think about taking over Qantas? Well, currently there's a limit on the amount of foreign ownership there can be in Qantas. Funnily enough, Qantas has long pushed for the removal of that foreign ownership limit. Now, that's an interesting coincidence.

Frank Zumbo is an associate professor at the Australian School of Business, University of New South Wales.

This opinion piece was first published in the Canberra Times.