How Qantas upgraded itself to bailout class


Cross-posted from Intelligent Investor.

The frosted glass door marked ‘private’ is easily missed by design. But a few minutes spent noting the people that pass through it quickly reveals the power of corporate Australia’s most effective influence machine.

Whilst Qantas Club lounges are stacked with grayed-out sky warriors and hi-vis miners loading up on chips and Cascade, the Chairman’s Lounge is altogether more sedate and exclusive.

Quite sensibly, Qantas doesn’t often comment on it publicly, although CEO Alan Joyce once described it as ‘probably the most exclusive club in the country’.

The political gift disclosure laws however offer an insight into the subtle but extensive long-game strategies the airline uses to influence politicians.

The Chairman’s lounge is invitation only with all new members personally approved by Qantas Chair Leigh Clifford, or so the story goes. Even on a 2013 package of $604,000, critics may feel relieved that Clifford, who, along with his CEO has so neatly supervised the airline’s decline, is confined to admin duties.

There is no joining fee, the lingua franca of membership being more about influence than wealth. Specifically, the extent to which you can influence the wealth of Qantas.

Given the size of their travel budgets it’s likely Australia’s top 100 CEOs are members, along with celebrities keen to avoid the gated throngs.

All of which makes perfect commercial sense, as does having Australia’s 226 federal politicians and senior state representatives – it is thought ascension to these rarefied ranks triggers an invitation – rub shoulders with captains of industry and top public servants on Qantas premises.

Entries from the federal parliament’s Members’ Interest Statements frequently declare complimentary Chairman’s Lounge membership. Prime Minister Tony Abbott and his wife are members, as is his deputy Julie Bishop and Treasurer Joe Hockey, although Malcolm Turnbull appears not to be on the list.

But where Qantas exerts real leverage is in its use of complimentary upgrades. A review of Tony Abbot’s declaration from his time as Leader of the Opposition is instructive.

In mid-2011, Abbott and his wife were upgraded to business on a Qantas flight to the UK. The year after, Abbott’s daughter Louise was upgraded to business, again to the UK, his wife was twice upgraded on flights from Sydney to Auckland, his wife and two daughters were upgraded to premium economy from Sydney to Los Angeles and Abbott himself received an upgrade from Sydney to Jakarta.

In the same year Julie Bishop received Qantas upgrades on return flights from Australia to Africa, Perth to Singapore and Sydney to New York. Bishop also received from Qantas an iPad in 2010 and two bottles of wine around Christmas 2012.

The airline appears scrupulously impartial in handing out these treats. Senior Labor figures like Tanya Plibersek and Opposition Leader Bill Shorten are current Chairmen’s Lounge members and Labor politicians appear just as likely to get upgraded as Liberal figures.

With a Qantas business class return from Sydney to London costing about $9,000, it appears that many politicians and their families are getting tens of thousands of dollars in free travel each year.

The public is right to be suspicious. In offering these favours Qantas may not explicitly expect something in return, and its activities in this regard are perfectly legal, commercial and sensible.

But the activity itself creates a sense of obligation in our politicians. Whether by accident or design, that’s where the power of the strategy lies.

Abbott, Hockey and the rest of Cabinet will argue they aren’t influenced by these gifts. They may say that having received complimentary upgrades from Emirates, Virgin Australia and United they don’t favour one airline over another.

They may also claim that in the period leading up to winning Government and since, they’ve reduced or in some cases eliminated the number of freebies they accept. That position is supported by reports of Tony Abbott declining a recent offer of an upgrade for him and his family, and his most recent declaration.

Trouble is, scientific research suggests these arguments don’t wash.

Way back in 1971 social psychologist Dennis Regan confirmed what most of us instinctively know; that when someone performs a favour for us, whether we want them to or not, we feel a timeless obligation to return it. Even if we dislike the person, the urge to reciprocate is incredibly strong. Cialdini and others have since confirmed these findings.

The best way to avoid an almost irresistible urge to reciprocate it is not to accept favours in the first place. For our politicians now deliberating the fate of Qantas, that’s a point long since past. It’s payback time.

The events of last two weeks, from Joe Hockey’s declaration of the ‘end of the age of entitlement’ to a new and bigger venue for it, suggests our politicians are about to sate their sense of obligation to the flying ‘roo.

Years of investment in free upgrades and exclusive memberships appear set to deliver a handsome return, courtesy of the taxpayer.

Maybe Government assistance for a privately-owned airlines makes sense, although I struggle to see how. But the real issue is how deeply compromised cabinet members are in making this decision in the first place.

Having benefited from Qantas’ gifts worth tens of thousands of dollars, to say nothing of their frequent flyer balances that will be worth zero if Qantas goes under, these politicians should be the last people to decide whether the taxpayer should support it.

What are the alternatives?

Well, we could set the airline industry on an equal footing by abolishing the Qantas Sale Act and let competition do the rest. If Qantas isn’t good enough to survive, why should it?

Should Qantas fail, there would be a queue of airlines ready to fill the void, as Virgin’s share register suggests. The Qantas name, logo and planes would survive, Joyce et al would be replaced by more capable managers, and we could all pretend that Qantas is ‘our’ airline, just like we do now.

You’d think Liberal politicians with an ideological preference for free markets over government intervention would instinctively prefer this option. The fact that they’re so obviously struggling with it demonstrates the power of the Qantas influence machine.

Unfortunately, too many politicians still call the Chairman’s Lounge home to get this decision right.

Disclosure: Are you joking? The author does not own Qantas shares. And the only way he’ll get into the Chairman’s Lounge is dressed as a cleaner.

John Addis is a Director of Intelligent Investor Share Advisor. For help finding profitable stocks for your investment portfolio that don’t need politicians to bail them out, take out a 15-day free membership.

Houses and Holes
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  1. One of the sources of problems in this country is that these b…..ds don’t sit around in airport lounges with the hoi polloi and cramp up in economy class with us. Kudos to Abbott at least on this occasion.
    Mind you I’m starting to sympathise given the number of grubs flying in their singlets with tattoos and smelly armpits and expecting one’s wife to sit next to them.

  2. Having been in the Chairman’s lounge as the guest of a member on several occasions it is not really that great. The biggest benefit is the peace and quiet.
    Agree however that the opportunity for networking is a motivator and, from observation, the cachet that comes with “belonging.”
    By far the bigger concern is the upgrades etc for parliamentarians AND THEIR FAMILIES which is an absolute rort. This should be banned.
    In the interests of balance, it would be interesing to understand whether other airlines such as Virgin offer similar benefits to our elected “leaders”?

  3. Nice piece. Secretaries and Deputy Secretaries of Commonwealth Government Departments, including those that advise on policies affecting QANTAS, are also routinely given membership.

  4. This is simple corruption, but in the new world system, it is called “upgrade”.

    The funny thing is that it is much cheaper for Qantas, but still very effective.