In the light of the Qantas $120m fine and restitution, the boards of Woolworths and Coles will now realise that, if they were found guilty of misleading discounts, the financial penalty could be much greater. A great many more people were impacted in the retail affair.
I can’t emphasise too strongly that the alleged facts in the Woolworths and Coles false discount case that is being mustered by the Australian Competition & Consumer Commission chair Gina Cass-Gottlieb are totally different to Qantas.
But the level of penalty that the ACCC demanded of Qantas to avoid a court case set a benchmark that reflected a growing global and local community distrust in the activities of large corporations and their boards.
And so in the US we are seeing a move to break up Google. The New York Times reports that among the proposals that will be brought before the courts are that Chrome or Android be broken off the company; that mandates are established, so Google makes data available to rivals; and that the company be forced to abandon default deals like those it has with Apple.
In Australia, there is a strong movement with political backing to split Woolworths and Coles so to create greater competition. Similarly, there is a movie to stop Bunnings becoming an effective monopoly in the distribution of building materials if it uses its retail buying power to wipe out suppliers to the building trades.
If Woolworths and Coles are found guilty of deceptive practices in retail discounting, or they follow Qantas in a settlement where they admit to such practices, then a Google style move to split the companies will gather greater momentum.
In the case of Qantas, there was no break up threat, but there was a likely extra ramification.
The admission of guilt means that almost certainly Qatar will be allowed to take 25 per cent of Virgin and be able to increase competition on the Qantas international routes.
The industrial relations legislation has forced much higher labour costs on the Qantas domestic and international routes. Virgin’s domestic costs are also boosted by the government legislation.
Because of the impact of Qatar and other low-cost competitors, Qantas may not be able to pass on the extra costs in the international arena except in its very long haul premium international services which require specialised aircraft.
Unless productivity can be improved, that means the government legislated additional labour costs will need to be recouped from domestic Qantas passengers, and already we’re seeing fares rise outside special deals.
The introduction of Qatar equity will help stabilise the Virgin financial base, but Virgin will want to make money and so will almost certainly follow Qantas.
And so the cost of the industrial relations legislation will be borne by domestic passengers outside special deals.
Given the stakes are so high for Woolworths and Coles, they will be very tempted to continue their current policy of fighting the ACCC case in the courts. Among their defences will be the fact in many cases the particular products that were impacted had faced big cost rises. This led to price rises, which were then discounted to achieve higher volumes to reduce the cost impact by increasing productivity.
It’s a retail practice that is used around the world but, understandably, many Australians saw it as creating misleading discounts. Today’s community attitudes means the ACCC will lead a ferocious court case.
What unites the Qantas, Woolworths and Coles cases is that the boards of the companies didn’t have the local community knowledge to alert their management of the dangers their practices were creating.
Perhaps by coincidence, there is a similarity between the Qantas Woolworths and Coles boards. Each board was almost equally divided between males and females. That’s a good thing, but at least in the case of Qantas and Woolworths, they both created what the community would regard as “Woke boards” with strategies that embraced the directors’ personal views.
A good example was the voice referendum, where the directors imposed their personal views on company strategy. Those views were different to the views of a majority of their customers.
Qantas and Woolworths had directors with overseas airline/retail experience but didn’t have old-fashioned “politically incorrect” Australian transport/retail operators .to warn them about the dangers of the cancellation/ discount product strategies.
The Qantas board was of course dominated by the long serving CEO Alan Joyce. Nevertheless, it is a sobering thought that the $120m outlay Qantas has paid represents more than $10m per director as at the 2023 annual report.
Qantas has only $10m in shareholders funds, so the $120m outlay represents 12 times shareholders funds. The company uses fares paid in advance plus a large Commonwealth Bank line of credit as equity. That’s the next challenge.
More Coverage
Join the conversation
McGuigan winemaker Australian Vintage rehires sacked CEO
The embattled winemaker has rehired the CEO it sacked only five months ago, with Craig Garvin declaring he will put growth back on the agenda.
Read more
Guzman y Gomez’s local sales beat expectations
The Mexican-themed fast food chain has bolstered its credentials as a high growth stock to post better than expected sales growth in its flagship Australian operations, as diners swarm its $3 tacos and brekkie burritos.
Read more