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CEO of Qantas talks with Leigh Sales -

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CEO of Qantas talks with Leigh Sales

Broadcast: 21/08/2008

Reporter: Leigh Sales

Qantas has celebrated a 40 per cent jump in net profits for the year, only one month after problems
with plane safety and industrial disputes plagued the company. Qantas boss, Geoff Dixon, reveals
his company has commissioned research to find out how the recent events have damaged the once
enviable reputation.

Transcript

LEIGH SALES, PRESENTER: And earlier, I spoke to Geoff Dixon at QANTAS's Sydney headquarters.

Geoff Dixon, thanks for joining 'Lateline'.

GEOFF DIXON, OUTGOING CEO, QANTAS: Great Leigh.

LEIGH SALES: How do you reconcile today's announcement of a 44 per cent increase in net profit with
your very consistent message that QANTAS is facing tough times?

GEOFF DIXON: Well it is facing tough times, I mean I think every airline in the world's facing
tough times. And I think most people acknowledge that.

I mean the company has gone very well. But we put a lot of investment to make sure we can make that
sort of money, and we're reinvesting most of it in our shareholders, or our people, or particularly
in aircraft and product. So, that's what it's about business, is to try and work your way through
tough times.

LEIGH SALES: So how have you been able to get that profit given the very big challenges that are
out there?

GEOFF DIXON: Well, we have a two brand strategy which we spoke about today, that's both Jetstar and
QANTAS. And I think we're one of the few airlines in the world, if not the only one, that's been
able to successfully establish that.

That has given QANTAS, itself, I mean the QANTAS our brand a very big opportunity to concentrate on
high yield markets. While it's given Jetstar the opportunity to go with the leisure market with a
lot less cost. And it really does work, and we've shown it can work.

LEIGH SALES: When you axed 1500 jobs one week and a few weeks later post a very good profit,
doesn't that lend weight to union claims that employers are coming second to shareholders?

GEOFF DIXON: I don't think that because the profit we just posted was done in the previous 12
months and it was done in an environment where our fuel costs were probably 30 or 40 per cent
lower, than what they're going to be this year.

Also you've got to remember that in the last six years we've doubled the size of this airline and
added around about 10,000 jobs as well, 8 to 10,000.

So I don't think you can just take it in isolation. And also I think it's very important to know
that the jobs we do have to reduce, and a lot will be by attrition and voluntary redundancy, will
enable the greater majority of our jobs, maybe 35,000, to be more secure.

LEIGH SALES: So is it inevitable that you're not going to see a profit like that next year?

GEOFF DIXON: We said today we thought the profit would be in line with what analysts have got as a
consensus, and that is around about, as a middle rung, about 750, $750-million.

I don't think any airline can repeat a profit like that in the current environment, which I think
we'll have fuel, costs, well over $1-billion more this year than they were last year in that
result.

LEIGH SALES: Will there be more jobs to go on top of that 1500?

GEOFF DIXON: No we don't expect so, we are hoping that won't be the case, and we certainly, besides
what people are saying, particularly the unions, we try and preserve jobs.

We are a growth story, one of the few airlines in the world that is a growth story. On top of that
we created Jetstar, which has also got many new jobs.

So look, I don't resile from the fact that it's hard on people to be made redundant, I do say look
at the full picture.

LEIGH SALES: To deal with the increasing cost of running the business QANTAS has done a number of
things, including raising ticket prices, cutting staff and cutting routes.

Is it the customers who are bearing the brunt of the pain of running a business in this environment
rather than shareholders?

GEOFF DIXON: I don't think that's the case. Once again, what Australia needs is very successful
companies and it needs a very successful airline because this country does need air travel.

We are not just doing things to consumers, we've created two airlines, you've got Virgin Blue is a
very good airline. You've got other low-cost carriers, Tiger in the market now.

And what you do get in Australia is very safe airlines. You get very profitable airlines that they
can reinvest in the product. You get a lot of low fairs right throughout the market and as I said
you get very high standards of service.

We reinvest most of the profits, we give some of it to our shareholders, which they deserve, and if
they didn't invest we wouldn't have an airline at any rate. We do have very good conditions for our
employees and then we reinvest in the product. And I think we've got a track record on it.

LEIGH SALES: There might be some customers watching tonight though who've perhaps been held up or
delayed or something and who might feel a bit disgruntled thinking, oh well they just made this big
profit, how come their planes aren't running on time.

GEOFF DIXON: That's short term in some ways because up until the time we had a dispute with our
licence engineers, we had, I think, and I will stand to be corrected but I don't think I will need
to be, the best on time performance consistently of any airline in this part of the world.

Very, very good. We went through a dispute that involved stoppages, overtime bans and what have
you, and it was with our network, and that takes quite a while to get back into proper running
order.

I said today with our investor briefing, I said in a press conference today, we acknowledge that in
the past eight weeks we have made it very difficult for our passengers. But I also know that we
were named among the top three airlines for customer service voted on by over 15 million passengers
worldwide only two weeks ago.

Look, we have had problems, we'll get over those problems, but this is a very, very good airline.

LEIGH SALES: Do you blame all of those problems on that dispute with the engineers?

GEOFF DIXON: Yes, but I don't blame the engineers for that. We went into the dispute. Most of our
punctuality issues in the last eight to 10 weeks was during the dispute and also the issue we have
now of getting our network back running normally.

Now what I do understand is we had a lot of support from corporate Australia during the dispute.
They are finding it hard to understand why as soon as the dispute was settled, we haven't got
straight back into normal punctuality, it does takes a long time to get the thing working properly
again.

LEIGH SALES: You mentioned earlier QANTAS being a very safe airline, and obviously that's been a
point of discussion recently, so let's talk about some of those things.

Starting with the explosion which forced the emergency landing in Manila on 25 July, there's been a
string of safety-related incidents affecting QANTAS planes.

After three events in one week you were quoted as saying it wasn't extraordinary. Is that still
your view?

GEOFF DIXON: That is my view and I don't necessarily concede they were safety-related.

QF 30, the accident in Manila, obviously, as serious as you could get. The flip side of that, our
technical crew - meaning our pilots and our cabin crew - were internationally lauded for the way
they responded. And I think that's very, very important.

We have on average three aircraft turn backs every month in the QANTAS mainline. We have had two or
three in a very short period of time. Our record on this is well above world average.

Most airlines routinely, big airlines like QANTAS, do have issues where aircraft have to turn back.
That's really why we do have around about 6000 engineers and maintenance people looking after the
aircraft. Aircraft need to be fixed. Aircraft go wrong, like everybody else. But we also put safety
before schedule. It really is a motto within QANTAS, we are very conservative.

LEIGH SALES: The Union says that it's concerned about safety because of cost cutting, because of
job losses, because of maintenance being done overseas.

QANTAS itself says safety is paramount, as you've just said, who are we, the flying public meant to
trust on that?

GEOFF DIXON: I think you can trust us. And I mean that. We undergo, as an airline, and that
particular department of the airline, well over 100, close to 150 audits a year. It's done by the
regulators, it's done by other airlines, it's done by ourselves.

We have a very, very safe airline, and very conservative processes. I don't care what the union
says. They've also said their members would never ever, ever let an aircraft fly out if they didn't
feel it was safe. So they can't have it both ways.

We invested or spent last year $1.4-billion; we believe that is well above our peers on
engineering. There are obviously issues that the union would like to bring up. They do not want any
aircraft maintenance done offshore.

QANTAS has for 50 years been getting maybe 10 to 20 per cent of its aircraft maintenance done
offshore, has to do that because we could not have all the facilities here. I think why they
particularly want to talk about it now I don't know, but I'm assuming it's to do with negotiations
with us.

LEIGH SALES: CASA's safety audit of QANTAS is due out within the next 10 days or so, are you aware
of the content of it?

GEOFF DIXON: No, I am not, but I'd be very, very surprised if they found any systematic problems
with the maintenance operations in QANTAS. I mean only three weeks before they had renewed our air
operators certificate.

Look, it is in our interests for us not to compromise on safety, safety in an airline, and QANTAS
being a very, very good airline, it runs for everybody, the board, management, regulators, other
airlines, engineers, pilots and what have you.

I mean, do remember, as I said earlier, in the accident, the explosion we had on the aircraft
coming out of Hong Kong that hand landed in Manila, our crew responded as if they were trained to
perfection. We obviously are not downgrading training. As a matter of fact, last year we spend
$275-million on training.

LEIGH SALES: How do you explain then out of the blue all of this focus on safety?

GEOFF DIXON: I find that, I am not blaming the media, but I said today it has been a media focus,
you know that.

It was a very, very bad accident that we had in Manila, we responded very well to it. We had a
couple of turn backs; I think people focused on it.

You've got to remember something here, there was a front page headline, full front page story in an
Australian newspaper, one of the biggest newspapers said "rust bucket", that was 24 hours after the
incident in Manila. It had nothing to do with corrosion in that aircraft, and CASA came out within
24 hours to say "there was no corrosion". Now things like that have a way of snowballing.

LEIGH SALES: So are you saying then that the reporting on this has been inaccurate. Is what's
happening...

GEOFF DIXON: That was certainly inaccurate, that story, absolutely inaccurate. No, I am not saying
it's inaccurate, what I'm saying is there's a perception now being created of a lot more problems
with QANTAS than is in reality.

Now you have seen that doesn't happen in this particular issue, it happens, and you know the media
has sometimes a spotlight then they move on.

LEIGH SALES: So you are confident that what is going on is within the bounds of normal?

GEOFF DIXON: I am not sure what normal means, but certainly I do know that there's no changes in
QANTAS's rate of air turn backs, and in almost every, every measure we have on safety and
operational reliability, we are still very much in the compass we want to be in.

LEIGH SALES: All these things that we have been talking about have caused QANTAS's brand to take a
bit of a battering in recent times, and it's a company whose brand is really a key part of its
success.

GEOFF DIXON: My word.

LEIGH SALES: How are you going to go about restoring that?

GEOFF DIXON: As we would do in any other time we have a problem, we did have an issue, as you know,
QF 1 back in the year 2000, when it had a bad landing, very bad landing matter of fact, in Bangkok.
The media focus was on us after that. They looked at things normally would not be a media focus, an
aircraft turn back, which is just done for absolutely operational reasons.

We have to hunker down and we've got to ensure that we get everything looking right, and being
right and then we start to repair the brand.

I have no doubt over the last eight weeks given some of the articles, the one I mentioned, we have
suffered brand damage. Matter of fact I do know we have, because I have seen research, but I'm very
confident that almost a 90-year-old airline with the reputation it has, with its ethos for customer
service and with the good people it has we'll get our brand back OK.

LEIGH SALES: That research that you have seen, how significant is the brand damage?

GEOFF DIXON: It's not something I would want to put on National television, but it's not
insignificant.

But also very importantly the research company said they felt it was knee jerk, that people read
something and say this, but a few days later they say, "well we understand QANTAS has a great
reputation and QANTAS' performance on a day in, day out basis is superior to most other airlines",
and I think that is the prevailing mood.

But look, you know this, you are a journalist, you know that you get too much spotlight people can
get negative views for a certain period of time. Now if everything continued like that yes, I
understand that would be potentially, but not likely, permanent brand damage.

LEIGH SALES: In a recent speech you said that the global airline industry would inevitably shrink
and be dominated by a few giant international companies because of globalisation and high fuel
costs, is it your belief that QANTAS will remain in Australian hands?

GEOFF DIXON: Yes, I have no doubt about that, I believe QANTAS will be a major player one way or
another in the consolidation which I believe is inevitable.

But I do think it will need different thinking from the Australian public, even from Canberra, from
regulators, that this industry is going to change. It cannot, cannot stay the way it is.

With so much Government ownership, sometimes propping up airlines, so many airlines, fuel costs
almost out of control. There will be consolidation, it's happening now very, very quickly in
Europe, happening with two of the biggest airlines in the world in the United States.

I think QANTAS, after I leave, will take part in it, but there's got to be a maturity in the
thinking about that. QANTAS will always be Australian, the kangaroo will always be there, the
great, great majority of QANTAS's jobs will always be here, because this is where our DNA is. But
believe you me, I think we have to globalise as well.

LEIGH SALES: When you became the head of QANTAS in March 2001 commentators noted that you were
taking over at the airlines industry's lowest ebb, with rising oil prices, a weak Australian dollar
and a slowing international economy.

Given what has happened since and today's global economy do you look back and say, "The good old
days"?

GEOFF DIXON: Not really, but it's been an interesting ride. But this industry is very, very much a
volatile one. And I have enjoyed it. I won't I made a comment I won't repeat it, because it's
probably not good for national television, but I did think back then it was going to be tough.

Now I'm handing over to Alan Joyce, who's a great guy, and I think it's going to be just as tough.
but I will emphasise, QANTAS is in a marvellous position to ride this out.

LEIGH SALES: Any regrets?

GEOFF DIXON: Yeah, I've got regrets, but someone just asked a minute ago, I am not going to put
them on national television.

But look, I don't believe in legacies or things like that, I got a company, worked with a lot of
very good people, I think the company is in very good shape to go forward, and I think if there's a
legacy, that's it.

LEIGH SALES: Geoff Dixon, thank you very much.

GEOFF DIXON: Thank you very much.