Thursday October 02, 2014

Compare the pair – observations on the Qantas and Virgin results

 

John Borghetti

John Borghetti

So Virgin’s first half loss was in fact bigger than Qantas’s on a proportional basis.

Yet in announcing that loss on Friday Virgin Australia CEO John Borghetti was good humoured and relaxed, and spoke of growth and opportunity. In contrast on Thursday, Qantas chief Alan Joyce was sombre and serious in announcing his airline group’s own loss and his latest cost cutting and job shedding plans.

So both airline groups are losing money, but Borghetti’s optimism and Joyce’s pessimism can be best explained by the fact that Borghetti’s loss has largely come from managing growth, while Joyce is now managing decline.

Much of Virgin’s losses can be attributed to growing pains (such as absorbing Skywest and its controlling share of Tigerair), while Qantas’s losses are in large part driven by its shrinking international operation.

Perhaps the biggest surprise of the last two days is that the Qantas domestic, Jetstar domestic and Virgin domestic operations are all profitable – for all the talk of capacity wars of the last 18 months or so – although the level of profitability is down markedly. Still, of the big four domestic carriers only Tigerair, which could really be said to be in a ‘re-startup’ phase following its takeover by Virgin, made a loss.

Alan Joyce

Alan Joyce

But what a mess both airline group’s international services are in – Qantas international lost $262 million, Virgin’s much smaller international operations $29.5 million. And that despite both Qantas sayings its Emirates alliance and Virgin its trans-Tasman operations performed strongly.

The Qantas Group does have its growing pains, too, with its Jetstar franchises in Asia proving increasingly problematic. The strategy of a pan-Asia network of Jetstar airlines is as alluring as the realities of executing it are painful.

How both airline groups have reacted to these losses really tells the story. Qantas is slashing jobs, selling off assets and cutting its fleet growth. Virgin, meanwhile, seems intent on maintaining a steady cruising altitude, flagging no major changes to its operations.

That is because for Qantas the biggest challenge is managing decline in its international for business, whereas Virgin’s challenge is managing growth. Virgin’s restructuring costs will fall away and as it continues to grow, scale will drive down its unit costs. For Qantas international the problem is almost exactly the opposite.

No wonder Borghetti could afford to smile when Joyce could only grimace.

Comments

11 Responses to “Compare the pair – observations on the Qantas and Virgin results”
  1. Glen says:

    I flew with Virgin Aus to and from Darwin and wasn’t impressed at . I am sure that if they had better customer service then maybe more people would fly with virgin. But I guess it is growing pains as it says in the article unlike Qantas looks like that airline is a flat spin and Joyce just doesn’t seem to have a any new ideas on how stop it. The funny thing about job cuts is that the number of people at Qantas grew last year so much for cost cutting.

  2. James from Sydney says:

    “How both airline groups have reacted to these losses really tells the story. Qantas is slashing jobs, selling off assets and cutting its fleet growth. Virgin, meanwhile, seems intent on maintaining a steady cruising altitude, flagging no major changes to its operations.”

    The “Story” is one is owned by foreign governments with deep pockets and the other has to convince banks to trust it will survive.

  3. Random says:

    No good fixing the economics if the basics of brand culture, loyalty, good will and public parochialism are left to rot. Unfortunately most economists fail to realise that they go hand in hand if you want success. This is why Borghetti at VA and Fyfe at AirNZ have thus far been able to carry public opinion through turbulent change…… They have been tackling both economics and brand image together. Unfortunately for QF, despite Joyce ticking the economic boxes (particularly for the institutional investors) he seems to have lost the public & customer when it comes to brand image & culture – which means he is unlikely to ever achieve a good & balanced result for both customers & investors.

  4. Jenny. U says:

    Abolish the Qantas Sale Act and allow increased foreign ownership of Qantas.

    The market is currently uneven due to an inconsistent regulatory framework that only applies to Qantas.

    Foreign owned airlines are investing in Virgin to weaken their competitor Qantas and it is the Australian aviation market that is suffering.

    If the situation continues to the point of bankruptcy, then the Australian market will consist of a single foreign owned airline that doesn’t have a minimum 51% Australian and maximum 49% ownership rule written in legislation.

  5. richard says:

    Alan Joyce is still obsessed with his 65% market share mantra, despite all the bad news. This surely will lead to his demise and quite possibly the demise of the airline. John Borghetti needs not to be as obsessed with market share either, and get sucked into the silly capacity game. It has been proven over and over again, that Australia needs two domestic full service airlines, no more no less. Both their domestic operations are profitable, and they would be more profitable if these two airlines stopped fighting each other. Woolworths and Coles, and the four major banks, don’t continually publicly fight. All are massively profitable.

  6. Marc says:

    If Qantas is bleeding that badly internationally, then for it’s very own suvival, should scrap these flights and onsell codeshare tickets. It’s that bloody simple. There’s no reason to fly to Dubai/Europe with the Emirates tie-up. Qantas is simply getting flogged cost wise flying to Asia, so forget that. It may have a chance just running to/from the US with more efficient 777s or 787s.

  7. Daniel K says:

    The demise of qantas international has a lot to do with their level of service especially compared to its Asian counterparts. Fix the service culture and see the airline transformed.

    Furthermore I think it’s fruitful for the public to understand that a flag carrier like qantas should be a vehicle that draws more people to Australia. Hence why so many full service airlines are strongly backed by their respective governments.

  8. Adrian says:

    QANTAS has probably given up being the flag carrier now it is no longer able to provide an international service for Perth and is reverting back to being a regional operator, Queensland and Northern Territory Aerial Services.
    As for foreign ownership I suspect that it will only make it as Australian as Ford and Holden (We know how well that has turned out.). Why would foreigners invest in a business that Australians are unwilling to invest in?
    QANTAS has to improve as an airline and that is ultimately down to management rather than ownership.
    The public have already voted with their seats.

  9. Rumsey says:

    I am thinking that the use of aviation puns in these pieces can become a little bit tedious: descent, crash, turbulence, and so on and so forth.

  10. Rumsey says:

    It would be interesting to know what specific plans Joyce and Clifford actually have for foreign ownership if the cap is lifted. They clearly have some such plans but will not disclose them ahead of the regulatory change. At the moment the amount of foreign money in Qantas is below the 49% currently available. So what will it be? An Emirates takeover, given the current “agreement”.

  11. john says:

    The obsession with the 65% capacity share is at the core of Qantas Domestics problems!

    What Qantas should be aiming for is a 65% share of frequency, and use more 737s on the Melbourne Sydney Brisbane routes instead of 767s.
    Some of these 737s will come from the invetiable operation of Qantas Link 717s to ports like Townsville and Cairns, and by getting Jetstar onto routes like East Coast to Broome.