A Qantas A380 departs Heathrow for Sydney via Singapore. Photographed by AirSpace user apgphoto.
Except for the shareholders who won’t be receiving a dividend, the Qantas Group’s fiscal year 2010 annual results, announced today, seem magical.
The Group brought in $610m less revenue than last year but made (after taxes and interest) $277m more in profit. But delving deeper concerns are aplenty.
Qantas (the airline) had a much better result, contributing $67m to the year’s pre-tax and interest profit compared to last year’s $4m. But Jetstar once again was the breadwinner, contributing $131m to the year’s pre-tax and interest profit compared to last year’s $107m. Proponents would argue the results vindicate the Group’s two brand strategy and poise Jetstar to reap higher benefits once B787s join the fleet and the carrier expands further, which they do.
The problem is the future. While the Group increased its overall profit, it did so on passenger yields falling 7%. Costs were mitigating factors: fuel cost decreased, as did “manpower” (read: redundancies and off-shoring maintenance and other services), and the carrier’s financial savings programme QFuture delivered an impressive $533m in savings. But that cannot go on forever.
Anymore off-shoring and CEO Alan Joyce will end up in India, QFuture only runs for two more years, and oil’s rollercoaster ride (more thrilling than a 747 flying with a hole) is making evident now more than ever that alternative fuels are necessary but airline pickup is not fast enough.
Airline yields are constantly decreasing, hence the need to cut costs. New B787s and other fuel-efficient aircraft will help but not go all the way. Within the Group’s results is a hint of the future: Michael O’Leary is right.
The Ryanair chief wants to one day have $0 fares but be profitable from ancillary revenue. While on Qantas window shades may remain and pay-as-you-go loos remain far away, Qantas has found its ancillary revenue in a partnership with the Woolworths Group, known primarily for their namesake supermarket.
The agreement with Woolworths, under which Qantas Frequent Flyers earn points for their purchases at the supermarket and other outlets, helped the Qantas Frequent Flyer programme contribute $328m of the Group’s $468m pre-tax and interest profit. That’s 70%. The remaining 30% came from the supposed stalwarts, the carriers Qantas and Jetstar, and also freight and travel agency services.
In America, US carriers brought in more than $2 billion in revenue from bag fees last year, but there’s an argument they are not true full-service carriers. In the face of decreasing yields, how will the Qantas Group continue to bring in LCC’s trademark ancillary revenue while still maintaining full-service? How will other carriers do it?
After last year’s financial results, in which Jetstar far outperformed Qantas, Steve and Grant over at Plane Crazy Down Under joked Jetstar wasn’t a Qantas airline but rather Qantas was a Jetstar airline. Now that the Woolworths partnership and the Frequent Flyer programme in general have outperformed the carriers, is it time to ask if Qantas is a Woolworths airline?