About 10 years ago the-then Qantas CEO James Strong said that one of the keys to its historic success as a carrier was getting right its choice of jets.
Strong was right. Qantas avoided the Comet, the DC-10, the MD-11 and A340s, all of which inflicted competitive harm on carriers that tried to use them against Boeing 707s and the 747 family in their heydays.
But this morning Qantas finds itself surrounded on the once lucrative routes between Australia and the US by airlines that are capitalising on the biggest fleet blunder it ever made, in choosing NOT to buy Boeing 777s.
Air New Zealand, Virgin Australia and Delta Airlines have brand new 777s that cut the heart out of the operating costs of aged Boeing 747s, and overnight the US Department of Transportation has approved Virgin Australia adding a wide-ranging trans-Pacific alliance with Delta to one that it already has with Air New Zealand for trans-Tasman connections.
Qantas has no answer to this, short of urgently getting some 777s, for as far ahead as anyone can see with clarity. Qantas has Airbus A380s, which despite the QF32 incident, perform exceptionally well and are very popular with travellers. But it chose to use Boeing 787s, which may not be usable as non-stop Pacific jets for many years, to set up a two-brand shuffle of fleet with its Jetstar brand that would have retired several years ago the ancient and costly-to-run 747s that supplement the A380s.
The 787 failed. Something that is hard for many analysts to come to grips with. It failed. It will take years to fix the “plastic fantastic” jet to a standard where 787 Dreamliners can fly the Pacific non-stop, and even then, possibly not any more economically than the 777.
The dual-brand strategy and the fleet-planning strategy have combined to put enormous pressure on an airline that seems to have a child-like trust in Boeing being able to produce a super-light ultra-long-range plastic jet that is in fact a calamity that has delivered on none of its promises, something that any prudent airline would have worked out about two years ago when the gaps between game-changing rhetoric and the dismal reality widened alarmingly.
The 777s are a different proposition. They are a reliable and highly efficient supplement to the A380, as Singapore Airlines and Emirates, the two most formidable competitors Qantas faces on its network, have proven in abundance in recent years with a commonly demonstrated profitability and flexibility that shames the Australian flag carrier.
The approval of anti-trust immunity for the Virgin Australia-Delta alliance doesn’t, however, automatically make Qantas poor and its Australian Virgin competitor rich at its expense. It signals instead the end to super profits on the US routes where Qantas had earned its dominance and now finds its commercial alliance with American Airlines under efficient challenge from the Virgin-Delta combination, just as the Virgin-Etihad alliance that took effect earlier this year adds to the problems Qantas has on the kangaroo routes to the UK with Singapore Airlines and Emirates.
When Qantas ordered the 787s in 2005 it saw them as restoring its competitive capacity on those routes, a strategy that has evolved into basing Jetstar configured 787s in Singapore to reclaim those supposedly leisure routes to the likes of Amsterdam and Manchester, where full-service Emirates thrives but Qantas helplessly regards as impossible to make money out of with a full-service product.
But the 787s were due in 2008! Qantas/Jetstar has no idea when it will get anythat can fly a useful load non-stop to anywhere relevant in Europe.
While Qantas dithers with dreams of a two-brand, off-shored plan to expand Jetstar, and translate its lower costs and standards to Qantas, its former executive general manager John Borghetti is expanding Virgin Australia as a single-branded national alternative onto routes for which Qantas doesn’t have the jets to serve, now, or any time soon.
Qantas can’t have been surprised by the approval of the Virgin-Delta deal. Yet it doesn’t have an answer. It isn’t paying dividends. And it is under real pressure from industrial action from its engineers and pilots.
Something has to give.