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.