Qantas back on course

Courtesy Qantas

Courtesy Qantas

AUSTRALIAN flag carrier Qantas is back on course judging by the results of the first six months (July to December 2012) even as its international operations continue to be in the red but with a reduced loss. 

The airline group reported a net profit of A$111m (US$114m), which is almost triple last year’s A$42m. Equally impressive conversely was the drop in losses for the international operations arm to A$91m from A$262m last year. Qantas CEO Alan Joyce, pleased with the turnaround, said: “We are now beginning to realise the benefits of the tough decisions that we have made over the past 18 months

Among the measures introduced were the restructure of the airline operations into separate domestic and international units under different management teams, reduced capital expenditure, route restructuring that would see an increased presence in Asia and rationalizing ground operations to reduce redundant staff numbers.

By and large, these measures have produced positive results although profits from domestic operations declined by more than 33 per cent to A$218m from A$328m a year earlier. On that, Mr Joyce said: “Clearly the Australian domestic market is highly competitive. We have seen elevated levels of capacity growth from competitors attempting to claim market share from Qantas Domestic.” But Qantas still boasts an 80 per cent share of the local market. It is Virgin Australia, more than Tiger Airways that Qantas should be wary about. Virgin has only last year acquired 60 per cent of Tiger.

The good news is improved performance by the international operations arm although it is still in the red. It remains a big challenge for Qantas to not lose passengers to rival airlines that include not just long-time competitor Singapore Airlines (SIA) but new ones from the Middle-East such as Emirates Airlines, Etihad Airways and Qatar Airways. The game is shifting in Qantas’ favour as the authorities prepare to formalize their approval of the partnership between Qantas and Emirates, opening up additional channels to Europe, the Middle East and Africa for Qantas through Emirates. Consequently Qantas is shifting its hub for Europe-bound flights from Singapore to Dubai, a move that is likely to shake up competition on the kangaroo route.  The impact could already be apparent in the second half results expected in August.

But not every measure has been realized according to plan. The programme to focus more on Asia has seen new joint ventures for Jetstar in Japan and Hong Kong (pending approval) and increased flights between Australia and Asian destinations, but Qantas failed to kickstart a regional premium airline to be based in Asia on its own or to generate sufficient interest from potential partners in its proposal. That project could be deemed to be finally dead and buried, yet it may have been a blessing in disguise considering the uncertainty of the global economy not sparing Asia entirely and in light of its partnership with Emirates.

You need big moves to reverse deep losses, and it looks like the flying kangaroo is finally back on course. The question is: Can it uphold the trend? It certainly cannot assume its main rivals will stand on the sideline and do little else but watch passively.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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