Is Qantas getting its mojo back?
Thursday’s profit result was pretty anemic. At a time when Australia’s banks and Telstra are posting multi-billion dollar profits, Qantas barely broke even, with a $6 million after tax profit. That is a tiny margin on almost $16 billion in revenue, and a world away from the heady days of mid last decade when Qantas was posting record billion dollar profits. And this during a financial year largely free from the major shocks – industrial disputes and groundings, volcanic ash, exploding A380 engines – that has beset the airline in recent years.
CEO Alan Joyce could be forgiven for wondering some days if all the hard work is worth it if the best Qantas can eke out is a $6 million profit, boasted by Boeing compensation payments for the delayed 787s.
And the headline results for the airline’s different operating divisions seemingly aren’t that encouraging. Both Qantas Domestic and Jetstar saw their operating profits go backwards, while Qantas International still made a big loss at $246 million. (That perennial profit centre, Qantas Frequent Flyer, however, posted a healthy 13 per cent bump in underlying EBIT to a record $260 million.)
But for Joyce, the glass is, and has always been, half-full.
For starters, Qantas is back in the black, after last year’s net loss of $244 million (it’s first loss since privatisation). And even though Qantas hasn’t given profit guidance for FY14 due to volatile conditions, it does seem that this new financial year offers plenty of upside. On the domestic front Qantas has seemingly weathered the capacity wars of 2012-13 to emerge with its cherished 65 per cent domestic market share intact.
For Jetstar, its fall in profit did reflect aggressive domestic competition, but also $31 million in start-up costs for Jetstar Japan and Jetstar Hong Kong.
And that problem child, Qantas International, looks now to be turning around. Halving its loss from the previous financial year is a significant achievement, and there is plenty of upside to come as the Emirates alliances beds down (transitioning Qantas’s hub for European flights from Singapore to Dubai cost $56 million in FY13) and the benefits of a re-jigged Asian network start to flow
Then there is the seemingly likely election of a Coalition government next Saturday. The carbon tax, which the coalition has pledged to rescind, cost Qantas Domestic $77 million and Jetstar $29 million in FY13. So that suggests a pretty significant bottom line boost once scrapping the carbon tax (applied to airlines via the aviation fuel excise) is legislated.
So a still dominant Australian domestic market position, a growing Jetstar footprint across Asia, improving fortunes for Qantas International and no carbon tax, as well as falling unit costs, taken together suggest better days ahead for Qantas.
An uncertain global and Australian economic outlook aside, Alan Joyce must be feeling a level of confidence in Qantas’s position as he heads towards the fifth anniversary of his taking command of the company in November.
There certainly seems to be a few intangible signs around that Qantas is increasingly regaining its confidence and getting its mojo back, as the trauma of the 2011 grounding recedes and it gets a better handle on the reborn ‘mini-me’ Virgin Australia.
I first thought Qantas was getting its mojo back when it launched its new cabin crew uniforms earlier this year. This is entirely subjective opinion of course, but the uniforms feature a certain spunk and flair that had been missing from Qantas for a long time. And Thursday’s reveal of new cabin interiors for its A330s only reinforce that perception. For sure, the new interiors are the invention of necessity as Qantas today has multiple cabin A330 configurations – exacerbated by the 12 A330-200s returning from Jetstar – that has lead to product pot luck for domestic business class passengers, particularly on critical transcontinental routes. But the new business class cabin significantly ups the ante, both against Virgin Australia on the transcon market, but also against key competitors Singapore Airlines and Cathay Pacific on flights into Asia. The new business class just doesn’t match Virgin, SQ and CX, it ups the ante, with its fully-flat sleeper seats and generous 1-2-1 abreast configuration that means every passenger gets aisle access. Plus as well as built-in IFE, the A330s will feature Q Streaming, so passengers can watch movies on their own portable devices, like iPads.
Four abreast, fully flat business class seating in A330s is not just the bare minimum type of product upgrade to keep up with the Jones that Qantas has been guilty of in the past, but it is in fact a genuine product innovation.
Even the cabin configuration for the 717s to be used on the critical Canberra routes (also unveiled on Thursday) looks impressively classy and understated, with its dark tones and herringbone seat patterns, plus iPad IFE for every passenger (presumably using recycled iPad IFE hardware from the retiring 767-300s). So configured the 717 looks to offer a pretty compelling competitive offering against Virgin Australia E190s on flights to the capital, offering an aesthetic that suits the conservative Canberra corporate market well – even if it does introduce yet another interior look to the Qantas domestic fleet.
For sure, decisions on much more substantial investments in fleet, like the 50 787 options and purchase orders, remain ahead of Qantas, but classy cabin interiors with world class passenger product are signs of an airline with a spring in its step, and of a company’s whose management has the collective headspace to give product and customer service the attention they need in such a highly competitive marketplace.