tip off

Qantas distracts before the big questions on Thursday

Qantas appears to be preceding Thursday’s announcement of a much-flagged “real money” statutory loss for the financial year to June 30 with textbook media manipulation diversionary stories. Since Monday this has included:

  • Lingerie model Miranda Kerr becomes the face of a yet-to-be-reannounced relaunching of the Qantas Club loyalty program (tick: young male executives)
  • The refurbishing of 16 aged 767s that were supposed to be retired by delayed Dreamliners by 2010, which will turn up from late next year but go to Jetstar instead (tick: adult executives tempted by Virgin’s new jets with leather seats)
  • Free wi-fi in major domestic terminals (tick: nerds and unaccompanied minors)
  • CEO Alan Joyce opts out of bonuses, dropping his pay from $5 million to an estimated $2.3 million (tick: angry shareholders)
  • Qantas pilots are stood down for arguing about takeoff calculations at Dallas Fort Worth as a thunderstorm approached (spot the story that undermines costly legacy pilots before new route cuts to Qantas long haul are announced at the financial results conference).

Thursday will not be pretty for Qantas. It’s losing money, its share price has been trashed, it’s in the middle of a fare war with resurgent Virgin Australia and Tiger attacking the quality and price ends of the spectrum, and Jetstar may no longer be working as intended to curb the competition.

The Joyce strategy — not investing in Qantas long haul until it becomes sustainably profitable in two to four years time — comes when its international competitors, and those damned Virgins, are growing at around 5-6% per annum, meaning that if the flying kangaroo isn’t getting new stuff in that period of time, its enemies will be maybe 25% bigger, and have taken away market share Qantas might never recover.

The rumors about an Emirates rescue plan for Qantas have reached the point where the UAE giant has taken control of the agenda, tersely noting it is only interested in doing code shares, setting a six-month, now five-month deadline for the Australian carrier to get over it and do the deal.

Considering the time ACCC approvals and the political discussion may take, that’s a very tight deadline. Uncontroversial code share or alliance deals typically take longer than six months for regulatory approval. The tick is clocking.

As it is for the Jetstar Hong Kong venture, and as it no longer does for the much-hyped but discontinued attempt to base a premium single-aisle carrier in Kuala Lumpur, a city to which Qantas doesn’t fly, if we don’t count Jetstar Asia, which is emphatically not premium anything.

But can Joyce bring better news on Thursday? This remains possible. The recent Qantas decision to pull three Jetstar flights off the Gold Coast route, and add three full-service Qantas 737 services after it abandoned the routes four years ago, has been grasped as evidence the airline has realised the patience of its core customers, higher fare paying business and discretionary travellers, has run out when it comes to Jetstar, and run away to Virgin.

The underlying theme of Qantas’ statements of guidance in recent times has been consolidation, not expansion — which may be ill-timed given the massive expansion of its competitors, but may also be prudent given the broad-scale economic uncertainties.

That is a difficult proposition to juggle. Its most profitable activity, selling frequent flyer points to third parties, ultimately depends on being a large and highly-rated brand, not a smaller brand diluted by a two-brand strategy.

Joyce stands to gain investor support in delivering the already promised increased transparency to the Qantas financials on Thursday from its earlier decision to divide the domestic and international divisions into business units with their own CEOs and managements. It really depends what costs get allocated to which division, and how they are related to the loyalty program.

Does Qantas have any more capital cost increases, or decreases? Will there be more new jets than previously announced, or fewer?

If there are any more feel-good stunts between now and Thursday morning, the news is likely to be worse, not better, all around.

4
  • 1
    Mike Smith
    Posted Tuesday, 21 August 2012 at 4:20 pm | Permalink

    The tick is clocking” ? Indeed. And not long before it becomes a cross with the public.

  • 2
    Tom Jones
    Posted Tuesday, 21 August 2012 at 7:30 pm | Permalink

    Alan Joyce may have won some brownie points with loud mouths last year when he treated the customers with contempt but it gave those same customers motive to look around. Qantas cannot recover under his leadership. He is the one that should go not the pilots and engineers.

  • 3
    izatso?
    Posted Wednesday, 22 August 2012 at 12:56 pm | Permalink

    even this. they need it to not succeed. look at the fake management. Joyce will never work again, bar sinecure, a la Costello.

  • 4
    Bill Williams
    Posted Thursday, 23 August 2012 at 11:33 am | Permalink

    Time is Alan Joyce’s enemy because the longer he stays in the job, the more decisions actually made on his watch can be evaluated against real outcomes. He can’t dodge the fact of today’s loss……. especially when the $200 million he spent on his narcissistic grandstanding while grounding the fleet would come in fairly handy now.

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