Elizabeth Knight and Rob Harris, in The Age, 21 March 2020, with this title ‘Constant shock syndrome’: How the crisis plays out in Qantas and Virgin’s situation rooms’
Sunday March 15, 2020, 2.15pm will be marked in the diaries of Australian airline executives as a pivotal moment. It was the moment when the Australian government dropped the bombshell that all international travellers landing on our shores would be subject to a 14-day quarantine. It was the moment the music stopped and brought our travel industry to its knees.
The major airlines’ chief executives, Qantas’ Alan Joyce and Virgin Australia’s Paul Scurrah, had been tipped off by Transport Minister Michael McCormack that something big was coming. On Saturday night, their respective management teams worked furiously to formulate plans to get customers and their own crews back from international destinations.
From a very large glass room in Qantas’ Mascot headquarters, the carrier’s crisis management team, composed of representatives from each of the airline’s critical divisions, was in overdrive.
It became the bunker in which a corporate crisis intersected with a health catastrophe. Over at Virgin Australia’s two key offices in Brisbane and Sydney’s CBD, its crisis management team was, and is, similarly in full strategy high-alert mode. Up to three times per day the crisis team members at Virgin are being called via their devices to answer the red alert call. They need only press the hashtag button and they are hooked into the meeting.
A chief medical officer is the pivotal operative for both the airlines’ crisis teams. They provide a daily update of transmission rates, deaths and risks to both staff and customers. The next most crucial member would traditionally be the person in charge of networks – he or she deals with decisions on capacity and routes. Yet, with recent events going to the core of the airlines’ viability, the finance function has moved to front and centre.
Bad as the 14-day quarantine was, Morrison upped the ante on Thursday, banning offshore visitors completely – isolating Australia from the rest of the world.
The industry is now in survival mode – suffering from its worst bout of what Joyce terms “constant shock syndrome”.
A travel ban will be placed on all non-residents and non-citizens coming to Australia
Neither Qantas or Virgin are strangers to external shocks. Airlines have long been at the forefront of unpredictable developments – so-called black swan events – and both have the management structure in place to deal with the possibility of an air crash. “After 11 years in the job I am battle worn,” Joyce says. Yet the experience gained from other black swan events “makes it easier to act aggressively and to act fast”.
The response from airlines, including Qantas and Virgin Australia, has been proportionately extreme. Both have grounded their international fleets and the majority of domestic flights.
On Thursday, Qantas’ CEO Joyce made an announcement that even two weeks ago would have been unimaginable – to stand down about 20,000 people, or two thirds of the airline’s workforce, for at least a couple of months and realistically longer.
In a video message streamed to all staff on Thursday morning, Joyce looked sombre but sounded resolute as he explained the sacrifice that many employees would need to make in the interests of keeping the national carrier operating during the unprecedented times.
“I never thought I’d have to stand down two-thirds of our people … this is the worst time we have ever seen in aviation,” he declared.
Battle of the balance sheets
It was a war-like footing that Joyce projected. And Qantas had gone nuclear. But for Qantas it has not just been a battle with the virus. Even in a crisis, Alan Joyce never loses sight of its constant enemy – its arch rival Virgin.
“We are doing everything we can to ensure we’re the last man standing,” he declared in what has become a battle of the balance sheets.
And it’s hoarding cash reserves – deferring the payment of its dividend, cancelling its share buyback and cutting executive salaries.
According to Citi aviation analyst, Jakob Cakarnis, Qantas has unrestricted cash of $1.9 billion, $1 billion in undrawn lines of credit and $4.9 billion of unencumbered” aircraft.
“We are doing everything we can to ensure we’re the last man standing.” Qantas CEO Alan Joyce
As such, Qantas would be one of the financially strongest airlines in the world. But in the short term, the airline will bleed more profusely. In closing down its international operations, the airline has choked off $8 billion in yearly revenue and the 60 per cent cut to domestic capacity could create a further $6 billion hole.
Joyce’s scorched-earth industrial relations response will be needed to ensure the airline will remain sufficiently robust to ultimately reinstate the workers that have been stood down.
Qantas can clearly out-survive Virgin, which has about $5 billion in debt and around $1 billion of cash on its balance sheet.
Unless the government steps in. It has already announced a $700 million assistance package – one which in reality won’t touch the sides for the aviation industry. The increasing prospect of an aviation rescue package was enough to tip Joyce into action on Friday.
The behind-the-scenes tension between him and Virgin boss Scurrah simmering over the past couple of weeks moved to a public bare-knuckled brawl. Joyce came out swinging on the airwaves, urging the government not to “nationalise” Virgin, branding it as “completely unfair”.
He said the government should be treating the aviation sector exactly the same as other industries that have also been devastated by the damage of the coronavirus.
“This is not a game of survivor, this is a global pandemic creating unprecedented challenges for our industry.” ……………Virgin boss Paul Scurrah
“When good companies have managed very well, the government should let them manage their way through this and not look after the badly managed ones – the companies that have been badly managed for 10 years,” Joyce said.
A more measured but clearly offended Scurrah hit back. “This is not a game of survivor, this is a global pandemic creating unprecedented challenges for our industry. This is a global crisis particularly for the aviation and tourism sector and all airlines globally are feeling the pain … now is not the time for rivalry,” he retorted.
“As an industry we need to work together to preserve as many jobs as we can to ensure tourism remains a thriving sector in Australia.”
‘Not the time for rivalry’
“Providing this assistance not only helps our airlines, but also the entire aviation industry, regional Australians in particular and other industries such as tourism and trade, which depend on aviation.”
It may not suit Qantas, but all the noise from the government suggests it has more fuel in the tank to support aviation. And according to Scurrah, Virgin has been “encouraged by recent support from the government this week and comments that they stand ready to continue supporting the industry as a whole”.
He said that if government assistance was needed he said there would need to be “agreed facilities in place today that we know we can trigger”.
But how much exactly is needed? “Nobody has a crystal ball, and we are dealing with the here and now,” Scurrah said.