I know just cutting and pasting newspaper articles isn't the best thing to do, but I thought this one was worth doing. Sourced from http://fly.to/ansettstars , but originally published in The Australian.
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WITH the outcome of next week's creditors' meeting a near certainty, the battle between Qantas and the new Ansett has already started.

During the past two months Lindsay Fox and Solomon Lew have called the chiefs of most of Australia's large corporations and have received a favourable response.

Lew and Fox are promising attractive deals for corporate accounts and say many CEOs were upset by high Qantas fares in the weeks after Ansett crashed.

Lew and Fox believe the contracts Qantas has signed with corporations won't hold up when there are two genuine airlines bidding for business and they make attractive proposals.

This top-level approach to Australian corporations is part of a four-pronged marketing plan as Lew and Fox prepare for one of the most dramatic business encounters Australia has seen.

Fox, Lew and their American partners are putting around $500 million on the table with more to come if necessary. Two families have put their reputation and money on the line to challenge one of the world's top airlines, which has a 90 per cent market share.

The winners will be corporate and leisure airline travellers plus the myriad accommodation, tourist and other industries that will benefit from the extra travel that will be undertaken in Australia as a result of the lower fares. And an Australian icon will have been saved.

When Fox and Lew launched their bid for Ansett they were accused of taking taxpayers' money and robbing Ansett creditors by making a low bid. But no one says that now because there is no government help and the risks are understood.

The pockets of Fox and Lew and their American partners will need to be deep because they will be tested by Qantas and Virgin. But Ansett has the potential to be extraordinarily successful in the long term.

The key to restoring Ansett is to have a world-class cost structure that enables a break-even point with a share of the market that is attainable. Then you need a marketing plan to attain that break-even revenue.

Fox and Lew believe their business model will achieve both aims. They can break even at between 20 per cent and 25 per cent of market share at competitive prices, compared to the old Ansett, which needed around 50 per cent with its bloated cost structure. Fox and Lew aim to get that 25 per cent by using four basic strategies.

The first is to approach CEOs. Fox and Lew must convert the CEO support they have to airline bookings. They are offering business class, valet parking, lounges and all the extras that come with a full-service airline.

It is also vital for Ansett that Virgin, which is even lower cost, does not become the second business airline.

The second marketing strategy is easier. International airlines generate about 15 per cent of the Australian domestic market and currently they have no choice but to give Qantas the business.

Ansett will be part of the Star Alliance and Fox and Lew expect to get almost all the non-Qantas international business, taking them to more than half their break-even requirement once the airline is fully operational.

Given the business support they believe is coming, the traffic from the international airlines underpins their basic proposition.

Third, Ansett has one of Australia's best customer bases. It had 2.7 million people involved with its loyalty program and they had 70 billion points outstanding.

In the next few days, Fox and Lew will announce an offer to Ansett frequent flyers that they believe will attract many of them back to the airline.

Fourth, they are planning a strong media and internet marketing campaign. But Ansett does not have to undertake a huge brand awareness campaign because Fox and Lew believe its name is entrenched in the Australian community and is a priceless asset.

These four marketing pillars are at the heart of the strategy that Fox and Lew have prepared. On the cost side, the key was to get the top aircraft at the best price and to have world-class work practices.

Fox and Lew are not prepared to enter into a direct cost comparison but the Airbus leasing deal and enterprise bargaining arrangements they have lodged indicate their costs are about one-third those of Qantas. Qantas will need to renegotiate arrangements with its pilots, stewards and general staff to match the agreements Ansett has struck.

Qantas chief Geoff Dixon is aware of the challenge but the belief that Fox and Lew's Ansett rescue will not get off the ground is deeply entrenched in the Qantas organisation. They query why two men with the wealth of Lew and Fox would put so much at stake and take on a company of the size, skills and power of Qantas.

But Qantas people are in for some surprises. Lew and Fox reached the point of no return a long time ago, although the deal is still subject to creditor approval and a myriad other requirements.

The Fox and Lew camp believes it can get the 25 per cent market share it needs at reasonable prices but to make money it needs either more market share or a larger market. Virgin and Qantas will test it with an all-out price war.

Lew and Fox believe Qantas will not be able to hold its current position with its current work practices. There may be turmoil when Qantas attempts to renegotiate its enterprise agreements to match Ansett. This will give Ansett the opportunity to lift market share.

It is easier to organise a set of enterprise agreements as part of a rescue package when a business is in administration than trying to do it to a successful business.

Nevertheless, in his negotiations with the unions led by ACTU Secretary Greg Combet, Fox tested his ideas on Combet's predecessor, Bill Kelty, who is now a Linfox director.

A revolutionary step was to offer the workforce a 5 per cent equity in the business. If the rescue succeeds and the planned float of Ansett eventuates, in two or three years the workforce will do extremely well.

Fox says the 5 per cent stake is reasonable because in the start-up phase many Ansett staff will work only four days or 30 hours a week. It is not until the airline gets to the required market share and the aircraft deliveries are made that they will convert to full-time work.

Fox believes the profit share will maintain the deep desire of the staff to make Ansett succeed. But it will also make it difficult for Qantas to secure the same work arrangements without making the same profit-share offer.

The Fox and Lew deal with Airbus has been well documented and they believe it will give the new Ansett aircraft costs as low as any airline in the world.

One high initial cost is leasing terminals. The Ansett terminals are constructed for a fleet of around 60 aircraft and the new Ansett will have half that number. The cost of the lease agreements will contribute to the $120 million loss expected in the first year.

An important part of Ansett's prosperity is to use that space. It is a valuable asset because Ansett spent $380 million upgrading the facilities and the terminal lease runs for 20 years. At the end of that time, if it is not renewed, reasonable compensation must be paid.

Former Ansett chief the late Peter Abeles designed the Ansett terminals so they could take overseas aircraft. Fox will look to achieve the Abeles dream but it may be hard to arrange.

Other terminal options are being considered. And if Ansett's market share begins to rise substantially, the unused capacity will be mopped up.

Lew was originally attracted to Ansett because it was a business that in 1998-99 had a turnover of $3.5 billion and half the Australian market. If anything like that revenue could be achieved, the lower cost structure of Ansett will convert it to substantial earnings.

One of the disappointments for Fox and Lew was that Singapore Airlines did not join the consortium. But Singapore Airlines had suffered a series of blows from poor investments in Air India, Air New Zealand and Virgin Atlantic.

Nevertheless, Singapore Airlines and the Star Alliance will contribute to the group. About 23 per cent of Singapore Airlines turnover comes from flights to Australia and the airline will generate enormous traffic for Ansett.

If Fox and Lew succeed and the climate is better, Singapore might buy in. In the end, the overseas shareholder that was chosen to join them was the US group Airline Partners, whose two key owners, David Bonderman and Bill Franke, rescued Continental and America West Airlines.

The group is one of the world experts in airline systems and Lew and Fox are planning to make Ansett's ticketing and booking systems equal to the best in the world.

Fox, Lew and the Americans are injecting $270 million in cash to pay the administrator and they are expecting to lose $120 million in the first year. In addition, working capital is required and they are taking on worker entitle ments.

This involves a cash outlay approaching $500 million and in addition there are substantial lease contracts for aircraft and new systems. If Virgin and Qantas go for a long, drawn-out campaign test, then further big sums will be required.

Fox and Lew will be joint chairmen in the new venture and the new CEO is James Hogan. While there has been a lot of pain, we will look back on the Ansett crash as a great benefit to Australian aviation because we will have an airline industry with some of the lowest costs in the world.

It would not have been possible had Fox and Lew not been prepared to put $500 million on the line to rescue a great Australian icon.
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Robert Gottliebsen writes each day for The Australian and broadcasts nightly on the ABC Asia-Pacific TV network
E-mail: [email protected]
Website: www.theaustralian.com.au/business and click on message board.