Qantas is Asia Pacific’s new star performer

Courtesy Getty Images

Courtesy Getty Images

THE new star performer of Asia Pacific is Australian flag carrier Qantas. Move over, Singapore Airlines (SIA) and Cathay Pacific. The flying kangaroo posted a full-year profit of A$557 million (US$400 million), a dramatic turnaround from a loss of A$2.8 billion the previous year and an impressive report card for chief executive Alan Joyce. Critics of Mr Joyce, some of whom had called for his resignation last year, may now sing a different tune. Yet could you blame them then, considering the airline’s record loss with little more than Mr Joyce’s convictions to move forward? But if they had been impatient, does this signal the turning point for Qantas on the road to better performance?

Qantas Domestic, Qantas International and Jetstar Group all reported improved performance. Qantas Domestic posted a profit of A$480 million, far exceeding last year’s A$30 million. Both Qantas International and Jetstar Group sprang back into the black. The long bleeding international arm finally made a profit of A$267 million compared to a loss of A$497 million last year. Budget subsidiary Jetstar made A$230, reversing the loss of A$116 million a year ago.

Interestingly, the achievement came on the back of an improved yield by 1.1% despite a relatively flat growth in passenger numbers of only 0.8% from 46.8 million to 49.2 million. Net passenger revenue grew by 3% from A$13.24 billion to A$13.68 billion. A more apparent contributor is the falling fuel price as consumption fell 13% from last year’s A$4.5 billion to A$3.9 billion. But then Mr Joyce pointed out that every airline had benefitted from lower fuel prices, yet none have been as successful as Qantas in the past year. That suggests the honour is well-earned and unique to Qantas, and, according to him, the fruit of the transformation program he introduced some three years ago.

Mr Joyce said: “So every airline gets the benefit, but Qantas is outperforming the market and the rest of the airline groups because of its transformation and it’s only because of the transformation that we have these strong results.”

The transformation program contributed benefits of A$894 million in the past year, exceeding the expected minimum of A$675 million, with all planned initiatives being delivered on or ahead of schedule. The benefits stemmed from non-fuel expenditure reduction, fuel efficiency, and increased utilisation of aircraft on both international and domestic routes. Cumulatively since its introduction, the benefits have reached A$1.1 billion. But the program was not one without pain at its onset, faced with union protests over job cuts and the diffidence of naysayers. Mr Joyce admitted there were some very tough decisions to make. “But because we made the conscious choice to move fast,” he said, “we are delivering one of the biggest turnarounds in Australian corporate history.”

Naturally Mr Joyce would remind his critics that “if it wasn’t for our transformation program, Qantas would not be announcing a profit today.” There are things he could be proud of, among them achieving the Group target of paying down more than $1 billion in debt and turning around the loss-making Qantas International as targeted, the result of restructuring initiatives. However, some critics may still consider Mr Joyce to be blessed by a relatively peaceful year of industrial relations at Qantas, which had in the past been plagued by costly workers’ strikes; the favourable climate of falling fuel prices; and a recovering global economy that boosts the airline’s chances of success.

But give credit where it is due. The transformation program has translated into an aggressive growth spurt for Qantas – seeking partnerships for better network connectivity (WestJet, American Airlines, China Airlines, China Eastern and Bangkok Airways among them), responding to seasonal demands and expanding its reach into lucrative markets, particularly in China and the Americas. Qantas Domestic was able to adjust to shifts in economic conditions and demand, with capacity reductions in mining-intensive Western Australia and Queensland and the introduction of new routes in east coast markets. The running rivalry between Qantas and Virgin Australia that sometimes turned into a bitter spat between Mr Joyce and his counterpart John Borghetti has reasserted Qantas` dominance in the market. Internationally, the excellent results testify to Qantas` shift of the kangaroo route from via Singapore to Dubai in partnership with Emirates Airlines while retaining Singapore as an Asian hub for regional connections.

Few airlines are as successful in branding a budget subsidiary as Qantas, and in complementing its operations. All Jetstar Group airlines reported improved earnings, with the combined losses for Asian operators halved compared to the previous year. While Jetstar Hong Kong’s write-off might have been costly following the disappointing outcome of the Hong Kong Air Transport Licensing Authority’s rejection of the airline’s licence application, it only suggests the local operators’ apprehension of the impending competition.

Qantas was among the early airlines to introduce the new and improved premium economy. New “Business Suites” with lie-flat beds were introduced on reconfigured A330 aircraft on medium haul routes to Asia. In-flight amenities for premium passengers boast high-end brand names, and on the ground, new luxurious airport lounges. The airline will acquire eight Boeing 787-9 aircraft, to be delivered from 2017 to gradually replace five older Boeing 747s. “New aircraft types have always unlocked opportunities for Qantas,” said Mr Joyce. “When our red tail Dreamliners start arriving in two years’ time, their incredible range and fuel-efficiency will create new possibilities for our network.” Fuel efficiency will add to the savings from falling fuel prices if the trend continues.

But what’s really new? SIA and Cathay too have rolled out similar aggressive plans to upgrade and expand (and cost-cut in hard times). Perhaps, more than just the enumerated initiatives per se of the transformation program is the spirit of the program and what the transformation is about. In Mr Joyce’s own words: “Getting our foundations right. Being smarter with our costs; faster with our decisions; more productive with our costs.”

This article was first published in Aspire Aviation.

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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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