Notam

Remember the #fairgo4qantas Twitter hashtag and online petition? “Virgin has raised over $300 million in capital from Etihad, Singapore and Air New Zealand. This will result in Virgin being over 80 per cent foreign-owned. We can’t let them wreck this industry by running up huge losses to try and put Qantas out of business,” the petition read.

“We must not let three foreign government-backed airlines take control of Virgin and ruin the Australian aviation industry for which we have fought so hard. Make your voice heard and sign the petition below to the federal government. ” Late 2013 was an extraordinary time for Australia’s airline industry, its most tumultuous since the collapse of Ansett over a decade ago. Qantas and Virgin Australia were locked into a capacity arms race in the domestic market, as Virgin sought to add frequencies on key routes, especially to Perth, as it raced to become competitive with Qantas in the high-yielding business market. Virgin wasn’t chasing capacity growth as such, but every time it added a new frequency it as a consequence added capacity. Then in response Qantas too would add capacity to maintain its stated “line in the sand” 65 per cent domestic marketshare.

As a consequence there were far more seats available than the Australian market could sustain, and both airline groups were suffering losses. But it looked as though Qantas, by virtue of its size and deeper pockets, thought it could outlast Virgin, win the capacity wars and strategically weaken its rival.

Virgin was certainly weakened, so much so that it had to reach out to its international airline shareholders to raise capital. That was a shock to Qantas, that had no such recourse itself.

What followed was the pretty clumsy #fairgo4qantas campaign, aimed first at lifting the foreign ownership restrictions enforced on Qantas by the Qantas Sale Act and then seeking federal government debt guarantees for Qantas debt.

To its credit, apart from a minor change to the Sale Act, the federal government rebuffed calls for a debt guarantee, leaving Qantas to sort out its own problems.

And has it ever.

Barely 18 months later, thanks to its cost-cutting “transformation” plan as well as external factors such as a dramatic fall in oil prices, not to mention rationality returning to capacity growth in the domestic market, Qantas has bounded back into profitability. For the 2014/15 financial year not only did the airline report a half billion dollar net profit, and promise its first

That’s a remarkable $1. 6 billion turnaround in profitability in 12 months.

return to shareholders in years, but it also announced a confidence-inspiring order for the Boeing 787, a $2 billion investment in Qantas’s future as an international airline.

Central to that turnaround was the transformation program first flagged in December 2013 and then publicly detailed in February 2014.

Yet another cost-cutting program seemed a reflexive action from Qantas, as it has been continually cutting costs and restructuring since its privatisation two decades ago. Surely more must have been needed? A rethinking of strategy, a plan for growth? But this one was deeper and further reaching than most, as the airline announced plans to shed 5,000 staff, retired older aircraft, deferred new aircraft deliveries, restructured its network and maintenance operations, and sought 18-month wage freezes.

As Qantas absorbed the pain of that restructure, and continued to digest the domestic capacity glut, the nadir came when the airline group announced a record $2. 8 billion loss for the 2013/14 financial year. Much of that figure came from writing down the value of its Airbus A380 and Boeing 747 fleets to the value of $2. 5 billion. But Qantas still posted an underlying loss of $646 million. That is a lot of red ink.

And then just 12 months later Qantas has bounded back, posting an underlying profit before tax for 2014/15 of $975 million.

That’s a remarkable $1. 6 billion turnaround in profitability in 12 months. Not only have Qantas Domestic and Jetstar resumed their places as the profit generators within the Qantas Group (alongside Qantas Loyalty), but Qantas International is making money too for the first time since the global financial crisis, it’s fortunes swinging from an underlying EBIT loss of $497 million in 2013/14 to an EBIT profit of $297 million.

It is an impressive achievement, and one that has come about because Qantas, under CEO Alan Joyce, has stayed the course.

Through all the tumult of the last two years, and all the calls for his head, Joyce has been unwavering in his commitment to his plans and vision for Qantas. And those plans and vision are now delivering. A profitable Qantas Group that is more nimble, flexible and responsive than it has ever been in how it manages its fleet and network, a company that is at the leading edge in the adoption of technology to drive efficiency and improve the customer experience, and an airline that is again investing in new products, lounges and fleet, the kind of investments that will allow it to attract higher yields as a premium carrier.

It appears Qantas under Joyce has reached a new cruising altitude.