Sinking share price leaves carrier ripe for a takeover

About $20 million a day. This is the price that Alan Joyce is willing to strip from Qantas and its shareholders to beat the unions into submission.

The bombshell decision to ground all planes - except Jetstar and its regional carriers - has been pitched by Joyce as the only available option to save the wounded kangaroo from being half gone in 12 months and tens of thousands of jobs potentially at risk.

Tough times have long been a recurring theme at Qantas, and the latest round of challenges - rising oil prices, natural disasters, competitors that are government owned and therefore don't have to pacify shareholders, industrial action and midair emergencies - is nothing new.

..What is new, and is now the biggest threat to the airline, is the damage to its brand. The big winners from this will be its competitors, who are already starting to dance on Qantas's shallow grave.

Joyce recently accused the unions of running a ''kamikaze'' campaign that was likely to drive customers to competing airlines. The grounding of flights without notice is a bigger kamikaze campaign, and if allowed to continue for a month would wipe out its entire 2011 profit base of $552 million. It would also create enough bad blood among customers that they would choke on it.

This is the country's national carrier, it is the backbone of the multibillion-dollar tourism industry, and for that reason Fair Work Australia or the Gillard government needs to find a solution - and fast.

The reality is Qantas's survivability and its brand is more complex than the union battles that the company has been embroiled in for the past nine months. It boils down to a few factors.

First, a decision by previous management not to invest in 777 planes, which are more fuel-efficient than the many old planes Qantas continues to fly and which most of their competitors are now using. This made Qantas less competitive at a time of rising fuel costs. To try to compensate for poor decision-making, Joyce embarked on a strategy to try to reduce labour costs and cut international routes by Jetstar-ising the Qantas brand.

This can be readily seen by the number of Jetstar ads on TV, the number of new, more fuel-efficient planes allocated to Jetstar and the black art of accounting which doesn't make it clear whether Jetstar pays for all its own costs or some are carried by Qantas. Put simply, Jetstar has a more flexible and lower-cost workforce so the Qantas management team are trying to attack the labour-cost side of the business.

Nevertheless, while it is true the disputes have cost the airline $68 million as well as done untold damage to the brand, Qantas is one of the few profitable airlines in the world and it is the only airline to boast an investment-grade credit rating.

Indeed, Qantas reported more than half a billion dollars in profits in the latest financial year, which was far better than everyone had expected and was 46 per cent higher than the previous year, despite the $224 million hurt caused by the many natural disasters, including the Queensland floods, the Japanese earthquake and the Chilean volcanic ash. If it hadn't been for these, its overall profit would have been a whopping $700 million-plus.

The reality is all its businesses are doing well, except the international airline business, which Joyce says is losing more than $200 million a year. It is this business that some argue is helping bankroll some of Jetstar's costs.

The two biggest costs for an airline are labour and fuel. Qantas's labour bill across the empire was $3.7 billion and fuel was $3.6 billion in 2011. Fuel costs can't be controlled but labour can - if the unions can be crushed. Qantas pilots are paid more than some regional counterparts, and that is what Qantas wants to change.

With some of its bigger institutional shareholders putting pressure on the board to restore dividends after none for two years and lift its share price, which is trading below $1.55, a far cry from the $5 peak it hit before the global financial crisis, Joyce and the Qantas board decided to make industrial relations the weapon to cut costs and maintain margins and yields. In doing so they have driven the share price into the ground, making it a sitting duck for a takeover.