24 August is a rebirth, not death, for Qantas

QF 744 SYD navigate obstacles.JPGNavigating the challenges



For those of you digging through wardrobes to find your best black attire and recalling years of memories to pick a few salient points to eulogize Qantas on 24 August when chief executive Alan Joyce announces a re-structure for its international division, you would be better off to stop what you are doing and instead get a bottle of champagne ready–or, more appropriate to Qantas, a bottle of wine from its epiQure club, as the restructure is not a death but a rebirth.

In the past 15 years Qantas International has only achieved returns, however that is calculated, in three years. Fully government-owned carriers could continue on that path, but Qantas is not such an airline. It is an airline that is at a convergence of factors it needs to act on and be realistic about–as do its customers.

The most recent is Virgin Australia’s move in to the domestic corporate market, which has generated Qantas high profits. Last year the frequent flyer programme contributed approximately 70% of pre-tax profits, with much of that thanks to the new Woolworths partnership. On the savings front, QFuture delivered in savings $533m–more than the pre-tax profit–but QFuture only runs through next year.

The signs have been present but Qantas actions have not. Those familiar with the situation say the 2008 record profit of $1408m pre-tax fueled complacency across the carrier and only recently has the carrier seen “more courage from management”.

That is not the verdict naysayers, who trump Joyce as the cause of all problems, would like to hear. Joyce inherited, not created, the majority of problems. Despite criticism, which led chairman Leigh Clifford to publicly defend Joyce, Joyce is setting out to–finally–be the executive to create a suitable Qantas.

Unprofitable routes that do not improve the bottom line directly or indirectly cannot continue. Joyce has said everything is on the block, which has led to some curious rumours, like the Johannesburg route being cut. Given it was the group’s most profitable international route last decade, followed by Papua New Guinea and then Los Angeles, sources say, its axing is unlikely.

Elsewhere routes may be changed, re-directed, or taken over by the much-derided Jetstar. That is a reality of what is financially needed. Boeing 777s will not solve the problem. Network opportunities have been missed, either for passing Etihad over ties with British Airways, or for lack of a partner willing to collaborate, such as with Cathay Pacific.

New opportunities, such as Malaysia Airlines joining oneworld, and strengthening of existing relationships mean the cause is not lost.

It is early days for the Asian, and Chinese in particular, boom. In one example, in 2009 China Southern introduced three direct weekly flights from Melbourne to Guangzhou. Last year it went daily out of Melbourne, and is shortly due to announce a double daily service.

As much of a threat as the Middle Eastern network carriers are and are made out to be, their future is young. Emirates is eying 100 weekly flights to Australia and while it has a sizable A380 fleet in service, the onslaught of deliveries is yet to begin.

Both are challenges and opportunities for Qantas to combat. The recent past may have been lacking, but it has been a short period, unlike the future.

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7 Responses to 24 August is a rebirth, not death, for Qantas

  1. David S July 27, 2011 at 8:28 pm #

    Will,

    You should check your facts, Qantas Mainline stop flying to Papua New Guinea early last decade and as such hasn’t turned a loss or profit for sometime.

    The concern that I have is, will Qantas have a big enough enough International route network to support itself come August 24th. If you cast your mind back to mid last year you will remember Mr Joyce stated that Qantas International’s network cannot be reduced any further otherwise it will self destruct. Yet here we 12 months later and he is just about to take the axe to the network. Will his forecast come true? I for one hope not

  2. Will Horton July 28, 2011 at 11:25 am #

    Hi David, QantasLink still serves Port Moresby.

    As for international cuts, the decision’s approach must balance any unprofitable flying with strategic importance. Cutting a loss-making international route may mean Qantas could lose domestic traffic, where it makes it (flying) money.

  3. Rufus July 28, 2011 at 4:37 pm #

    I hope Qantas remembers that much of the allure of its highly profitable frequent flyer business is the possibility of redeeming points to go to glamorous international destinations. The more these are cut, the lower the appeal of the FF programme.

    Otherwise, finally a fairly balanced perspective. The Australian public who rant against off-shoring, cheap foreign labour, service cuts and attempts to get around the Qantas Sale Act are the same public which is choosing to fly on EK or SQ, which are wholly foreign and employing cheap foreign labour, and not subject to any of the same restrictions which affect Qantas. Unfortunately the restructure is simply a recognition of this competitive environment.

  4. Will Horton July 28, 2011 at 5:33 pm #

    Any long-haul international destination Qantas cuts will still be served by partners, although perhaps it will be necessary to take a convoluted routing, which could increase the number of points needed to redeem a ticket to that destination.

  5. David July 28, 2011 at 9:14 pm #

    It certainly is a fine line as to how much you cut versus the knock on effect to FF and domestic. Rumour has it that New York is being axed becuase AKL-LAX is being transferred to Jetstar. So that means Qantas will be giving up a profitable route because they won’t have the right aircraft in LA. Is that going to be a right decision? I guess time will tell.

    Will, with regards to Port Moresby, I do realise that Qantaslink serve the route but I thought your article was about Qantas Mainline.

    Cheers

    Dave

  6. Will Horton July 29, 2011 at 11:11 am #

    Ah no worries about Port Moresby, Dave.

    The JFK sector from LAX is interesting. My understanding the route is mainly about cargo, not pax. Whether it’s still profitable to operate with a 747 (as it has in the past) remains to be seen.

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