Why you should have seen it coming – Qantas ‘dying’

A320 and A380
Photograph: AirSpace user afkabruce98

There should have been no surprise at Qantas chief executive Alan Joyce’s speech last Thursday that the venerable carrier is setting up a task force as it is financially “falling significantly short of where we should be” and Joyce not wanting to see Qantas “decay”, leading to the media headlines of Qantas “dying”.

All Joyce did was put into words what numbers have long been telling.

In the financial year ending 2009, Jetstar contributed A$107m and Qantas a paltry $4m. Yes, that was four million for Qantas, but hard to permanently judge amongst the financial crisis.

The red flags–mine, at least–went up last August when the carrier announced a $468m pre-tax annual profit. How was that bad?

Seventy per cent of that profit was from Woolworths, who Qantas had reached a new deal with, giving the carrier a huge financial boost as new members rushed to join and companies bought frequent flyer points from Qantas. That figure will fall as the initial rush slows down.

The balance sheet for the 2009/2010 year was improved courtesy of QFuture, the company’s cost-reduction programme that delivered $533m in savings. QFuture is now half-way through its three year life and will need a sequel to keep the balance sheet trim.

At the bottom were the airline profits: $67m from Qantas and $131m from Jetstar, making Qantas, not the no-frills carrier, the problem child, with no plan announced to make it shining again.

(To that extent, Joyce last Thursday announced a wide-ranging “task-force” headed by Lesley Grant “to explore options that will invigorate the business, generate new and profitable markets, and protect our jobs and assets.”)

Another warning sign was last February’s announcement of Qantas stripping first class from 747-400s and decreasing business class seats on forthcoming A380s, the cabins traditionally giving airlines their highest yields.

Those financial numbers are rudimentary in that they do not tell the actions, or lack thereof, of Qantas to secure its position. In subsequent posts I’ll look at those actions in detail.

I should note cynics might suggest Joyce’s speech was an effort to galvanize public support for the carrier as it begins negotiations with labor unions.

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4 Responses to Why you should have seen it coming – Qantas ‘dying’

  1. glen towler February 6, 2011 at 8:27 am #

    It has struck me that Qantas has always been a over priced airline trading on its past as the one of the oldest airlines in the world. I have never flown with them so can’t comment on the service. But seems to me that Jetstar is giving people what they want cheap airfares.

  2. Marty February 6, 2011 at 8:52 am #

    Some have always accused Qantas of wanting to move towards a model more closely aligned with Jetstar. Perhaps their financial position will give management the leverage they need to continue with the ongoing Jetstarisation. Joycey had a wry smile on his face as he delivered that news. Perhaps his command of the company is starting to make sense…

  3. Will Horton February 6, 2011 at 9:53 am #

    Qantas, like all legacy airlines, needs to reduce its costs. It is immensely fortunate to have as a learning example Jetstar.

    So far in the “Jetstarisation” of Qantas, Qantas has tried to keep the change (cost cutting) behind the scenes without it too directly affecting front line passenger service.

    Now we’re seeing that front line service affected. The most significant may be the new and unpopular A330 domestic seats on Perth runs. All of this creates a very nice atmosphere for Virgin Blue to move in with its A330s that will undoubtedly feature a premium class better than QF’s. To top it off, Virgin’s low-cost basis means it is more lean, which is exactly what Qantas is trying to do with “Jetstarisation”.

  4. Will Horton February 6, 2011 at 9:57 am #

    You’re on the money, Glen. The key thing to note is that for nearly a decade Qantas has been nearly the only carrier for corporate travelers who purchase high-yielding tickets. Jetstar and Tiger are cheap but now Virgin Blue is looking to move in to the middle space between people who want higher, real service (Qantas) but at a more affordable price (Jetstar). Or you might be of the view Virgin is looking to become a direct alternative to Qantas.

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