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Sent: 08-11-2011 10:27:06
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Qantas Deals with Corporate Life Cycle

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

The Qantas shutdown is the latest reminder that markets change and companies must adapt if they are to survive.

Around the world, airlines are facing pressures to adapt to new commercial conditions. The largest and longest established carriers have been among the most threatened of the airline species. High fuel prices have aggravated their plight. The capital costs of new airline acquisition impose an ongoing burden.

More competitive labour markets have also meant that the most recently established airline companies can operate with cost advantages over those whose labour costs were set in a different competitive environment.

People are becoming used to the idea that a national airline may not be a sustainable option. Americans got used to Pan Am and TWA being chewed up by their competitors despite their pioneering status. In their place came Peoples Express and later JetBlue. The Canadian airlines had to adjust and, more recently, European national carriers have had to amalgamate to survive.

At the same time, the Australian market has also changed. TAA and Ansett used to rule the domestic skies. Neither could survive on their own. Nor could Qantas as a single purpose international carrier. Having established Jetstar with a new cost regime, it was not a big leap for Qantas to shift some of its activities to Asia.

The airline experience is another example of the corporate life cycle. In the past month, Eastman Kodak, once the dominant influence on photography and a pioneer in the digital photography technology embedded in all our handheld devices, was close to commercial failure. Only its treasure trove of intellectual property might save it.

Ironically, the predicament faced by Kodak was playing out as Steve Jobs was being posthumously installed as digital divinity. The talk is that Apple is different; that it alone will n ot succumb to such pressures.

Thomas Edison - a nineteenth century precursor to Jobs and Bill Gates - is reputed to have said that every town in America would one day have a telephone. Even the brightest can fail to understand the dynamics of the market. By the mid 1990s, the leading edge executive accessories were a Palm device and a Nokia mobile phone.

Palm no longer exists as a separate entity having been absorbed by Hewlett Packard before being dropped as a solution entirely. Nokia yielded its dominant position in the mobile handset market for professionals to Blackberry. Blackberry is slipping fast in favour of Apple as the telephone ceases to exist as a single purpose telecommunications device.

Microsoft, the dominant global software provider is nowhere to be seen in mobile computing despite some peripatetic attempts. Mobile leadership had been taken by Apple which is now in a dogfight with Google for ascendancy.

Technology is not the common factor. Today, BHP Billiton is the world's largest mining company. It did not always command this position. What happened to the companies that used to be the biggest miners? One hundred years ago, the Guggenheim family was building a global mining enterprise that eventually straddled north America, south America, Australia and Africa. Today, it is nowhere to be seen.

As they contemplate Qantas, Australian policymakers should recognize that corporations have life cycles of their own. The life span of a company will depend to a large extent on how flexibly it can respond to changes in its markets. The more easily it can change its cost structure and innovate its product offering, the more likely it will be to survive.

With little ability to control commercial outcomes, the modern day government should probably be more concerned with the next generation of businesses and refrain from spending much time lamenting the last.

The best and brightest government ministers and their opposition counterparts should be given roles looking to the future. Portfolios dealing with productivity, science and trade should be the training grounds for prospective leaders and not the so-called senior economic roles whose influence comes from the power to decide how the benefits of the national economy are shared.

Ironically, economists would usually agree that what goes for economic policy is often the least important facet of national economic performance. Companies finding innovative solutions to meeting consumer needs are critical for economic progress.

It is a shame to see companies like Qantas with strong national identities struggling but the greater good might require that we let it move on as best it can. The evolution of Qantas into a regional airline carrier blurring the national connection with Australia is regrettable. It would be good if it could stay unsullied by commercial priorities. Unfortunately, the world we live in has little place for such sentimentality.


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