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Qantas CEO looks to the two-year turnaround

By David Flynn     Filed under: qantas, alan joyce

Qantas CEO Alan Joyce has warned that the airline faces tough times and tight margins in the coming months, but is keeping his focus on the promise of a dramatically renewed Red Roo in two years’ time.

“We’ve always made it clear that long term gain can't be achieved without the short-term cost of transition” Joyce told investors at a Macquarie Australia conference in Sydney this morning.

“There will be cost impacts within the second half of FY13, which is typically the weaker half in each year, as we implement our strategy.”

"But as we look forward to FY14 we will reap the benefits from modernising our fleet, operations, maximising our partnerships, taking down costs, upgrading our product and services, and staying ahead of the competition."

Joyce flagged one major hit on the airline’s international balance sheet as “the $50m impact of transferring our hub from Singapore to Dubai” under its partnership with Emirates, and also called out “costs and losses associated with the start-up and ramp-up of Jetstar Japan and Jetstar Hong Kong."

International bookings get a boost

However, Qantas is already reaping the first fruits of the Emirates alliance, which some analysts expect will deliver earnings gains of over $100 million a year for Qantas.

“We saw a significant increase in bookings to Europe on the joint network in the first nine weeks of sales, compared to the same period last year” Joyce said.

Even in the second week of ticket sales on the new Qantas-Emirates network Joyce reported that Qantas sold four times the number of seats to Barcelona than the same week a year earlier, 13 times as many seats to Munich, 14 times as many seats to Copenhagen and 17 times as many to Milan.

Travellers are also keen on Gatwick, London's second airport, which Joyce has previously cited as one of Qantas' “best performing destinations outside of London Heathrow” in terms of tickets sold.

Read: London Gatwick – Qantas' new business traveller alternative to Heathrow

Emirates bookings outstrip BA

Qantas is also seeing an upside on domestic flights booked through Emirates, which now sells to some 32 Australia cities as codeshare flights with Qantas.

“The number of Emirates customers booked to travel on Qantas domestically is also well ahead of our previous partnership with British Airways” Joyce observed.

In the first month of ticket sales, Emirates’ passengers booked more than 5,000 domestic sectors, compared to a reported 1,600 domestic sectors booked through BA in all of 2012.

Domestic competition

Despite that fillip, Joyce sees that continued competition from Virgin Australia will impose a short-term drag on the outlook for Qantas Domestic.

“We are resolute in maintaining our profit maximising 65% market share" Joyce affirmed, “however we still face a tough environment with a high degree of capacity growth in the market, pushing down yields and profitability.”

“While we do not expect any improvements this half, capacity growth is alleviating, which will lead to a healthier domestic capacity position in FY14.”

At the same time, Qantas’ investment in new aircraft and the ongoing retirement of older planes is resulting in a younger and more cost-efficient fleet.

By the end of next month, Joyce claims, “for the first time in approximately 20 years, the group’s average fleet age will be below eight years.”

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About David Flynn

David Flynn is the editor of Australian Business Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

 

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1 on 3/5/13 by TheRealBabushka

Interesting figures that Joyce have quoted. I'm interested to know if those bookings to CPH,BCN, MUC and MXP were flights on EK metal for both legs of the journey or on QF metal to DXB and EK metal onwards?

If it's the former, are these pax, who would have ordinarily booked with EK but saw an opportunity to clock QFF points by booking with QF instead? In which case, it becomes a cannibalisation of the EK market share. How is EK compensating for it?

Or are these pax who would have booked with carriers other than EK or QF?

2 on 3/5/13 by pungpui

i'm surprised that the average age of the fleet is now, for the first time in 20 years, under 8 years.  Given the 767's are fading a slow death, and that the onboarding of A380 and 787's has slowed down (or even cancelled), seems surprising how this was not achieved sooner if at all.

1 on 5/5/13 by Waynec

Hi there, QF has added quite a number of 737-800 to their fleet throughout the years and for every 737-800 it adds, it removes a 737-400. It also withdrew a number of 767s from its fleet.

Going forward, the A330 replacement for 767 will bring fleet age down further.

3 on 3/5/13 by PLATY

Hmm, a little critical evaluation night not go amiss, David! Do you want to have a go at that or do you need some help

1 on 3/5/13 by David

Hi Platy: thanks for the kind offer, but this article was written as an objective news report on Joyce's statement, not an analysis or an subjective opinion piece.

As with all AusBT articles, we encourage readers to have their say on the news we report – these little comment boxes are just waiting to be filled with your own take on this story.

So, just head up to the big "HAVE SOMETHING TO SAY? POST A COMMENT NOW!" box and start typing. (Do you want to have a go at that, or do you need some help?)

1 on 4/5/13 by PLATY

David:

This web site is an amazing resource and a great credit to all involved. One of its great strengths is in its breadth of coverage, which make a ready resource on such a wide range of topics.

I'm just not sure that paraphrasing a QF press release is objective news reporting (aside from the elementary Joyce said "this" and "that") - do you get an opportunity to question the powers that be at the airline when writing such a piece?

I guess I'm just weary at reading airline "spin" wherever I read any travel/aviation stories and there may be opportunity for a slightly more refreshing approach.

That aside, your site is a very valuable resource for travel information.

2 on 4/5/13 by PLATY

PS. As already noted above by the RealBabushka, the figures quoted require substantial qualification!

2 on 4/5/13 by Al

I don't want to risk de-railing this thread PLATY but one of the things I like about AusBT is that they don't go in for critical rants, in these 'news' stories they pretty much report the news, and tell it straight without their own spin or opinion.

And when they do have stories which are a bit 'critical' you can cleary see that too, but also, those criticisms are based on facts and experiences not just being 'armchair CEOs' or wanna-be analysts whose solution to every Qantas woe seems to be 'Sack Joyce' and 'Buy 777s'!

Thankfully AusBT is not like the 'Plane Talking' blog over at Crikey where Ben Sandilands uses almost every article to criticise Qantas and Alan Joyce and find some way to carp on about them.

1 on 4/5/13 by PLATY

Thanks, Al, I think your points are well made. But couldn't there be room for some good old fashioned journalism (somewhere, not necessarily here), which can balance the PR spin with some plain facts? That doesn't have to descend into a one-sided critique.

Joyce makes claim, backs it by some stats - fine, report that - but then go on to seek to qualify those stats - QF increases Europe bookings by 500% (a number in itself which is physically impossible unless they are including the 12 EK flightd as well as the 2 QF flights per day) , but hold on a minute that's off a base of having halved their flights a year earlier, etc...

 

...perhpas the word is analysis rather than critique...not sure

4 on 4/5/13 by Daniell

I don't think you'll 'win' this one, David. It doesn't matter what you write, there are always armchair critics. 

I'd like to pose a general qstn, however............

How many contributors here actually OWN or RUN a business and can understand some of the issues that Joyce is burdened with? I'm no great fan of AJs, but owning a business myself, I can definately understand many of the difficulties when you're responsible for the bottom line and straddled with legacy business practices. Seems Geoff Dixon 'raped' the airline and now someone has to try and fix it.................

1 on 4/5/13 by PLATY

Thanks, Daniell,

For posing the question. Obviously, I can only speak for myself, but I do own and run a business and have done so for over 18 years.

I have also consulted to Australian and international companies many times the size of QF and part of my work has involved preparing materials on the feasibility on multi-billion projects and performing business analysis of companies with legacy issues, so I do have a little perspective on the big end of town (and appeciate the importance of questioning the figures).

For what it's worth, I agree with your position that business can present many difficulties!

I also curious to learn the perspectives of others, business owners or otherwise.

2 on 4/5/13 by Al

I run my own consultancy business, Daniell, and I reckon a lot of people here would be in the same boat. Might be an interesting 'survey' for AusBT to carry out, eh David?

5 on 4/5/13 by JamesM

I know people like to pick on Qantas and Alan Joyce for all manner of things but having flown Qantas quite a bit recently I feel the airline has picked up its game compared to a few years ago, and I can see the sense in what Joyce is saying here.

Look at what he said and think of who he said it to, an investor's conference, he is preparing the market for what he knows will be a softer set of half-yearly figures compared to the previous set. But I can see the reasons for this, as he makes clear in this speech. I also can see how things are turning around for Qantas and I think Joyce is right to be looking forward to a better and more balanced picture in 2015.

1 on 5/5/13 by Waynec

I agree with JamesM on his comments that QF have improved quite a bit over the years.

Some of the fleet problems are beyond the control of Alan Joyce as the chosen aircraft types are locked in years in advance long before his tenure as the CEO. However, AJ could have done better in the interim by negotiating a temporary arrangement with Boeing for leasing/purchasing some new aircrafts at a massive discount to replace the ageing 767s in the fleet.

6 on 4/5/13 by Daniell

Thanks, Platy and Al. It's good to get other people's persepctives, particularly when Joyce himself said that after the fleet grounding he had many private messages of support from heads of business. Only he knows if it was spin or fact. I would agree though that the average fleet age has lowered considerably. There have been a lot of retirements of 747s (just 16 left now, I believe), only 9 734s remain and there have been a considerable amount of 738s delivered of late. Yes, 'Theqantassource' website is rather intersting for airline geeks :-)

I can honestly say that it's extremely rare I have encountered any issues, staff or otherwise, on QF flights. I enjoy flying them immensely. I really do hope that Joyce's plan works and Qantas remains a viable business and grows again. I still feel a great deal of patriotism and loyalty towards them. It's just shame I find it hard to justify their international J fares when I'm paying for it from my own pocket! :-)

1 on 4/5/13 by PLATY

Yes, Daniell, I mostly agree with you on all counts. I have had many brilliant experiences with QF, but also some which I personally regard to be very poor. Generally, my appreciation is for the coal face staff and I always let them know when I think they are doing a great job (on most flights).

On the business level, of course the execs are juggling many issues, and we don't have the figures to make a fully informed judgment.

That doesn't stop personal disappointment when executive decisions are made - for example removing key QF fights from my home town of CNS, which has had an enormous impact on the local community.

My original point was it would be refreshing to see the mightily successful QF PR machine challenged from time time. A little more old fashional journalism from the aviation writers could help.

That said, I am very impressed with AusBT!

 

7 on 4/5/13 by aero-seat

Very surprised at Qantas' growth in European bookings. Just wondering about their domestic competition, Joyce doesn't seem to name many improvements. I was hoping that Joyce might say something on a new business class seat for the transcontinental A330s, that would really boost competition.

8 on 4/5/13 by kash

I have heard about the start up of Jetstar HK for a long time now

 

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