Leigh Clifford leaves Qantas in good shape

As Leigh Clifford’s approaches the end of a near 50-year career in Australian business, he is more than willing to have one final shot at the union movement.

A week ahead of stepping down as Qantas chairman, the former hard man of mining is worried that Opposition Leader Bill Shorten will take the country back to the bad old days, when industry-wide agreements suffocated business innovation.

“I’d have to say one of the issues when we’ve had 27 years of economic prosperity is that people can’t remember what life was like back in the ’90s,” he says in an interview at the Qantas head office in Mascot.

“I’ll give you an example – remember the coal industry? We used to have nationwide strikes and we’d agree a nationwide set-up.

Leigh Clifford is worried about the ACTU push, led by secretary Sally McManus, for industry-wide bargaining.
Leigh Clifford is worried about the ACTU push, led by secretary Sally McManus, for industry-wide bargaining.

James Alcock.

“And of course all that did was stifle investment, it made some businesses uneconomic and people lost their jobs.”

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Clifford, who thinks it would be a grave mistake for Shorten to adopt the Australian Council of Trade Unions’ policy of industry-wide bargaining, is one of the few business people to have fought the Construction, Forestry, Mining and Energy Union and won.

While in charge of Rio Tinto’s coal mines in the Hunter Valley in the late 1990s, Clifford was successful in removing a range of crazy work practices that effectively transferred management control of the workforce from the company to unions.

The practices included unionists being paid to shadow every external contractor working on site, unions deciding promotions through seniority rather than merit, non-union staff being banned from operating any equipment and strict demarcation of simple tasks.

One famous case witnessed by former Chanticleer columnist Alan Kohler involved a unionist with the highest level of seniority being paid to hose out the showers – because that’s the job he chose to do.

Clifford says he and Qantas chief executive Alan Joyce have a robust but close relationship.
Clifford says he and Qantas chief executive Alan Joyce have a robust but close relationship.

AAPIMAGE

The coal union battle ran for about four years, cost Rio Tinto tens of millions of dollars and, ultimately, involved compromises on both sides.

But the end result was more flexible work practices and a vastly more profitable business. Rio’s terms and conditions were later adopted by BHP, making the entire sector more productive.

Industrial revolution

This history will sound familiar to anyone who has watched the transformation of Australia’s aviation industry over the past decade.

Leigh Clifford took on the unions during his time at Rio Tinto.
Leigh Clifford took on the unions during his time at Rio Tinto.

CASUAL CAS

Alan Joyce, the former Jetstar executive chosen by Clifford in 2008 to lead Qantas, used a strategy of shock and awe to fundamentally change the airlines’ relationship with the three separate unions representing engineers, transport workers and pilots.

Joyce, with the full backing of Clifford, grounded the Qantas fleet on October 31, 2011.

This cathartic, game-changing industrial relations confrontation led to calls for Joyce to be sacked. But Clifford was rock solid in his support.

“The grounding was the only time I’ve seen Leigh take a poll of the board. He said it was a management decision but that the CEO should know he has the board’s support, so he went around the table and the support was unanimous,” Joyce says.

Sydney Airport during the Qantas grounding in 2011.
Sydney Airport during the Qantas grounding in 2011.

Lee Besford

The grounding was a turning point in the history of Qantas, according to Joe Hockey, who is Australian ambassador to the United States. He was in opposition when the fleet was grounded but later played a critical role as treasurer in turning down a Qantas request for government help in 2014.

“Leigh Clifford is a member of the rapidly disappearing club of strong, decisive, fearless chairmen who, even in the face of heavy criticism, will stand by their chief executives if they believe it to be right,” he says.

“He can not be intimidated and I think the best example of that was when Qantas grounded their fleet. There was not a cigarette paper’s difference between him and Alan Joyce publicly.

“It was one of the most courageous corporate decisions made in the quarter-century I have been in public life. Even when there was powerful political blowback from the government at the time they did not cower.”

Uni Blacks celebrate their first Premier division flag in 40 years.
Melbourne amateur AFL team Uni Blacks has a rich history in the city.

Supplied

Clifford says the transformation of Qantas under Joyce’s leadership is vindication of his decision to appoint him ahead of a range of other candidates.

Robust discussion

“I’ll be judged by how the community and the market views the capability and success of the CEO that I appointed – and I reckon I get a tick on that regard,” Clifford says.

The two have a relationship that includes robust discussion.

“We’ve had a good relationship, we speak often, I’m pretty candid, but I think publicly there ought not be any separation,” he says.

“I’d have to say that that’s been a pretty successful relationship. I am also a strong believer in you shouldn’t fight for the microphone, I believe that the CEO ought to be the spokesman for the company. When you fight for the microphone, you know, differences arise.”

Along the way, Joyce has been forced to learn some of Clifford’s old-style aphorisms such as the following: “We need to keep pad and bat close together”, “As smooth as a gravy sandwich”, “As cool as the other side of the pillow”, “Tell me the time, not how to build a watch” and “It’s like fishing in a puddle”.

Joyce says Clifford is not a micro-manager.

“He trusts people to get on with the job,” he says. “He’s very supportive but he expects results, and that’s the way it should be.”

Apart from the grounding, there was another occasion when Clifford and Joyce were bound together in crisis. It happened in late 2013 and early 2014, when the capacity wars between Qantas and Virgin badly affected profits.

The capacity wars pitched Qantas against the half a dozen international airlines backing Virgin. Many of them were government-owned with very deep pockets and no apparent concern about profits.

Clifford says Virgin was “incinerating” capital and severely impacting Qantas’s profitability.

Joyce and Clifford lobbied the government to change the Qantas Sale Act, which limits foreign buying of Qantas shares to 49 per cent of the total. They also asked for a government guarantee of the airline’s debt.

“Now, it really opened up the question of the Qantas Sale Act,” Clifford says.

“We would like the ability of foreign shareholders and Australian shareholders to own shares in the company like they do in any other.

“I remember I had discussions with Tony Abbott at the time. We didn’t reach agreement on it so life went on. There was no one coming to save us so we had to do it ourselves and we’ve put ourselves in a very strong position.”

The then-treasurer Hockey says he did two due diligences on Qantas at that time as part of the request from the airline for a $4 billion debt guarantee.

“There was a 50-50 chance that we could get there,” Hockey says.

“We could just not bring ourselves to support what they wanted and as soon as they recognised that they moved on. They knew we were serious when we didn’t bail out SPC Ardmona and when we stopped subsidising the car industry.”

Business pragmatism

Hockey says that in the end, everybody understood the government could not take on the liabilities of an airline, especially given the experience of the Ansett collapse.

This episode showed Clifford’s business pragmatism. He was willing to abandon his commitment to free market principles and seek government help in order to save an Australian icon.

As it turns out there were some technical changes to the Qantas Sale Act but there is a still a 49 per cent cap on foreign ownership, which inhibits the ability to raise capital.

Clifford has not blindly supported every high profile or controversial action taken by Joyce. Just as he canvassed the board about the grounding, Clifford conducted his own poll of Qantas shareholders and customers before supporting Joyce’s very public support for same-sex marriage.

“I was supportive of the same-sex marriage,” Clifford says.

“I’d have to say, like a lot of people, if you asked me 10 years ago, I’d have said, ‘Why do we need this?’ But I’d come to the view, the whole world’s moving like this.”

Clifford’s polling of customers and shareholders found a groundswell of support for same-sex marriage.

“I then sat down with the board and I told them the result of my findings and they said: ‘Look, we understand Alan’s position, but we’re satisfied that you’ve done a fair broad sounding of let’s say of our constituency.’

“I then said to Alan, ‘Now, Alan, a lot of business people are signing up to this.’ Then I said: ‘Be arm-in-arm with the rest of your supporters.’

“Well, of course what happened, Alan’s standing there and the rest stepped back. And, Alan became the face of it and quite often he was saying nothing, but there’d be people saying, ‘I’m sure he’s saying,’ virtually putting words in his mouth.

“But it’s gone and it’s passed … the sun still come up in the morning and the world’s moved on.”

Strategic shifts

During Clifford and Joyce’s early period as chairman and CEO, the Qantas strategy jumped around a bit. In December 2008, the company investigated a possible merger with British Airways as part of a plan to build its international business and become more efficient.

“When we looked at it, British Airways had greater challenges than us,” Clifford says.

“You know, it was quite clear that this was going to magnify the problems, not solve them.”

Clifford says the focus on what would or would not work internationally was important because it led to hard questions.

“When we decided it [British Airways] was not going to work we said: ‘Well, what are the options for us to fix this international business?'” Clifford says.

“Out of that came the Emirates deal and frankly, that was fantastic.”

The Emirates deal resulted in Qantas downgrading its Singapore hub. But that is now back along with Project Sunrise, which involves Qantas having long-haul flights to key international destinations.

“We’ve put our international business in a much better position with the re-fleeting and the Melbourne, Perth, London route, which has put the UK network in a much stronger position,” Clifford says.

This conversation naturally leads to questions about the future of aviation and where Qantas will be in 10 years’ time.

“Well, look, I think firstly, the amount of global travel on aeroplanes is going to increase dramatically and Asia is where that’s going to be huge,” he says.

“I think that what Qantas is doing is we have had to rationalise our fleet for efficiency and to meet the market. We have now got the fleet in Jetstar A320s and 787s and they meet the Jetstar requirements.

“In Qantas, we’ve got from QantasLink, the regional carriers, then we’ve got the domestic using 737s and A330s. Internationally, we’ve got the A380s, we’re phasing out the 747s, which are higher fuel, and introducing 787-9s, which are very fuel-efficient.”

China boom rolls on

He thinks the big opportunity for Qantas and Australia more generally is Chinese tourism.

“We are the 17th most popular destination for Chinese,” he says.

“Sure as hell there’s a lot of Chinese travelling, I think there’s about 130 or 140 million travelling and that’s going to increase, so that will provide opportunities.

“Now, we’re not going to go and fly to 20 cities in China, but with our linkages and our associations with China Southern and China Eastern we’ll be able to service China.”

Clifford says the Qantas domestic business is strongly helped by a revival in the resources sector in Western Australia and the frequent flyer program is a “huge success”.

He rejects the idea that the loyalty program is becoming more important than the airline.

“The reason we’ve got a loyalty program is because we’ve got an airline and I think we can make that loyalty program even more successful,” he says.

Valuation push?

Clifford believes the share market has not fully understood how Qantas has changed under Joyce’s leadership. He says the diversity of businesses under the Qantas umbrella should reduce the amplitude of volatility in company’s earnings.

He says that, in turn, should warrant a higher price earnings multiple. In other words, a higher market valuation for Qantas.

“We had to prove to the market that we aren’t, as I call it, experiencing the amplitudes that we were sometimes in the past.” he says.

“I think the market initially was a bit sceptical. But, you know, I think we’ve shown, we have had record profits for the last three years or so.”

A respected fund manager, who did not wish to be named, said the essential issue facing investors in Qantas was the leverage to the oil price.

“Qantas earns about $1.6 billion and it spends about $3.2 billion on fuel,” he says. “You can hedge that but only about 18 months to two years out. After that you are back to being exposed to the spot price of oil.”

Clifford says Qantas is in a much stronger position than it was when he took over as chairman from Margaret Jackson in November 2007.

“Obviously, we’ve got a challenge at the moment with the oil price,” he says.

“But, you know, the advantage we’ve got with these new planes, they are much more efficient. But we’ve also always got to be very alert to costs in general.

“I think the team and the management team here have shown that they can run a premium carrier and a low-cost carrier and they can take cost out of the business and they’ve done so.”

Clifford has enormous respect in the broader business community. He is one of the elite group of business people who came through Melbourne University. Most of them played in the university’s AFL football side called the University Blacks.

The Blacks alumni include the following CEOs: Robert Champion de Crespigny of Normandy Mining; Russell Jones from Amcor; Ian “Choco” Johnston from Cadbury Schweppes; and David Morgan from Westpac Banking Corp. Another Blacks alumnus is David Crawford, the chairman of South32 and Lendlease.

No nonsense

Crawford says his career path has crossed with Clifford’s many times over the past 50 years, including at Melbourne University.

“He’s a very direct, no-nonsense person,” Crawford says.

“He’s programmed to speak his mind and when he does so they are considered thoughts and make a lot of sense.

“I think he’s done a good job at Qantas, particularly when they got into difficulty a few years ago.

“Having been in the rough and tumble world of the mining industry he was well suited to the task of taking hard decisions and backing them up with good common sense, logic and a great deal of acumen.”

Leon Davis, who mentored Clifford and handed over the CEO reins at Rio in 2000, said Clifford is “undoubtedly one of Australia’s business leaders”.

“Leigh was a straight shooter, Davis says.

“He carried on in that fine tradition when he joined Qantas.

“One of the things people tend to forget about Qantas is that it was a very big government owned company that was privatised with the aim of it becoming more efficient.

“That is very difficult to manage. If it’s done well it looks easy and if it’s done badly everybody knows about it.”

When asked about Clifford, Morgan says: “I think he’s a very good guy and was a very good professional. He did a good job at Rio, which was a well-managed company for a fairly long period of time.”

Asked about Clifford’s sporting ability Morgan, says: “Leigh may not like me saying this, but he was a much, much better businessman than he was an Australian rules footballer. That said, I’m told he is very handy indeed around the golf course.”

Clifford admitted he would have time for more golf but he does not want people to think his career just ended.

“I’m not stepping off the planet,” he says.

Incoming Qantas chairman and former CEO of Wesfarmers, Richard Goyder says he is looking forward to continuing the good work done by Clifford and Joyce.

“I joined the board about a year ago, so I’ve had the benefit of seeing the partnership that Leigh and Alan have built and how the board as a whole functions.”

Both Goyder and Clifford made a point of saying Joyce is not “not going anywhere for some time to come”.

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