Qantas’ decision to announce a $400 million share buyback – taking its losses over the pandemic-affected years to the best part of a survival-threatening $7 billion – says the airline sees something significantly more substantial than glimmers.
There’s no doubt that,along with its finances,Qantas’ brand has been damaged.Kate Geraghty
It is a signal that,after several false dawns,Alan Joyce and his board are convinced that Qantas is now more firmly on the runway towards normal operations. It suggests that,while the airline’s performance is still being affected by COVID,its responses to those disruptions are improving to the point where management is confident that the worst is behind it.
Qantas,and Joyce, by unions,passengers and other critics for the delayed and cancelled flights,lost luggage,rising airfares and endless queues at airports that have occurred as the industry struggles to ramp up operations again,having largely been mothballed through the pandemic years.
While that criticism has been highly focused on Qantas,,it has ignored the fact that the issues Qantas is experiencing.
Every major airline and airport in the world is experiencing the same challenge of trying to return to pre-COVID capacity and find the workers needed to meet demand. Travel demand exploded suddenly as the major economies re-opened while still experiencing high levels of COVID transmission and illness.
For Qantas and its peers,restarting and re-staffing operations that had been shrunken through the pandemic years – and had to be essentially shut down if insolvency were to be avoided – would have been complex enough without the acute labour shortages and COVID-related absences that all Australian businesses are experiencing.
An average of 320 pilots a day are unavailable because they are in isolation,or otherwise ill. Absences that are 50 per cent greater than before the pandemic would complicate the management of airlines even if demand for travel hadn’t returned so rapidly.
Revenue from Qantas’ leisure passengers came in at 125 per cent of pre-COVID levels in the June quarter and revenue from business travel was at 90 per cent of pre-COVID levels – despite the disruptions.
The mismatch between that demand and the capacity of Qantas – and Virgin – to manage it with their downsized and thanks to COVID and the winter flu season volatile pools of employees is the reason the return to air travel has been so problematic.
Qantas’ response,as it has been for other airlines,has been to take capacity out of its system so that it has a notional excess of staff to cover for COVID-related issues that can’t be planned for.
Qantas survived the pandemic,with some assistance from the federal government,because it has had strong financial disciplines and is financially conservative.
When surging demand meets reduced capacity,airfares rise. The higher load factors and yields the airlines are generating offsets the revenue foregone by their reduced schedules.
That strategy is also enabling the airlines to recover jet fuel costs that have soared since Russia’s invasion of Ukraine. Qantas’ fuel bill is expected to be about $1 billion more this financial year than it was in the pre-pandemic 2019 financial year,despite the reduced international schedule.
It is also buying Qantas the breathing space to hire more people – it has hired about 1500 since April – and upgrade its infrastructure to improve its interactions with its customers and their baggage.
Qantas sees less turbulent skies ahead after three years of heavy losses. James Brickwood
Its cancellations have been steadily reducing – they are below 5 per cent this month – and Qantas expects them to be back at pre-COVID levels next month. On-time performance is trending similarly,as are the statistics on mishandled baggage.
There’s no doubt that,along with its finances,Qantas’ brand has been damaged by the frustrations of its customers. But what’s interesting – and generating optimism within the company – is that it isn’t hurting demand for Qantas’ services.
As Joyce says,the issues have affected Qantas’ physical operations,not its commercial business,which is now experiencing record levels of demand.
If the operational issues get resolved,Qantas expects to return capacity to the domestic market and,indeed,run at 106 per cent of its pre-COVID capacity in the second half of this financial year.
The international business will be slower,and is more impacted by the higher fuel costs and by the time it takes to bring wide-bodied planes back into service. It will operate at about 65 per cent of pre-COVID capacity in the first half of 2022-23 and,Qantas hopes,at 85 per cent in the second half.
Qantas survived the pandemic,with some assistance from the federal government,because it is financially conservative. It raised $1.4 billion from shareholders at the onset of the pandemic and another $800 million from property sales.
Those prudent decisions,along with a reduction in Qantas’ cost base that is tracking towards $1 billion,helped reduce the group’s debt from $6.4 billion at its peak to $3.9 billion – its lowest level since the global financial crisis in 2008. They have created the financial capacity for the share buyback that Qantas announced with its results,underlining its confidence that,finally,the worst of the pandemic is behind it.
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