Qantas: The most remarkable turnaround in aviation history?

Qantas
Chris Sheedy By Chris Sheedy, CA Today

25 February 2016

Twelve months ago Qantas shareholders were calling for the CEO’s sacking, but the company just announced record profits. How did Irishman Alan Joyce get the airline to fly so high?

A rollercoaster ride is not the preferred imagery when thinking of an airline, but that is exactly what Qantas shareholders have experienced over the last decade.

When Alan Joyce came on board as CEO in November 2008 the share price averaged just below $2.50. Six years later, in February 2014, that same share price was wallowing at $1.16.

Joyce famously grounded the entire Qantas fleet worldwide on October 29, 2011, as a reaction to disputes between the airline and trade unions. The bold, and some say reckless, move attracting the ire of travellers and cost the airline around $20 million per day. Virgin Australia, seeing a great PR opportunity, put on an extra 43,000 seats over the coming weeks and offered discounted fares to those affected by the Qantas grounding.

By February 2014 Joyce and his management team were in Canberra begging the Federal Government for handouts. Thousands of layoffs and an alliance with Emirates had not slowed down the company’s spiral and the business was at a point that was considered rock bottom. The government, spoken for by Treasurer Joe Hockey and on an austerity drive of its own, refused to offer any bail-out funding.

What Qantas has achieved under Mr Joyce’s leadership is one of the most remarkable turnarounds in the history of the aviation industry.

In August 2014 Joyce announced a $2.8 billion full-year net loss, which included a $2.6 billion write down in the value of its international fleet and an underlying loss of $646 million.

And so it appeared that Joyce’s wild gamble, the grounding of the airline, had failed miserably. Nothing, it seemed, could revive the flying kangaroo.

The turnaround

Then, in February 2016, Joyce announced a record first-half underlying profit of $921 million, a 234% surge in the six months to December, including net profit of $688 million. What caused such a sudden turnaround?

First and foremost, market analysts say, has been the dramatic fall in the price of oil. This alone has gifted to Qantas a $448 million benefit in the half-year. Even better for the future, the airline’s hedge profile means those lower fuel costs will continue throughout the rest of the year.

The domestic business has excelled, as has low-cost Jetstar, as the falling Australian dollar encourages greater inbound tourism, particularly from China.

And the end of the capacity war with Virgin Australia, the expensive battle that was declared over in late 2014 - one that meant both airlines were flying domestic aircraft with too many empty seats - has itself introduced greater efficiencies across the domestic business.

The domestic business has excelled, as has low-cost Jetstar, as the falling Australian dollar encourages greater inbound tourism, particularly from China.

In the meantime Joyce, whose personal fortune has blossomed as his total pay packet has tripled to almost $12 million, has been recognised globally for the restructure he managed. In October last year the CAPA Centre for Aviation awarded him the CAPA Airline Chief Executive of the Year at their annual ceremony. Qantas itself was also awarded the CAPA Airline Turnaround of the Year.

What Qantas has achieved under Mr Joyce’s leadership is one of the most remarkable turnarounds in the history of the aviation industry,” said Peter Harbison, CAPA’s executive director. “The restructuring is particularly noteworthy as it was intelligently implemented without the benefit of Chapter 11-style bankruptcy protections.”

Over three years the market value of Qantas has risen from around $2 billion to around $8 billion. The share price, from its low point in 2014 has risen to around $4. It is still nowhere near the $5.60 per share bid for Qantas made by Allco Equity Partners and Macquarie Bank back in December 2006, but until the oil price rises dramatically again it seems Joyce has finally found a reason to smile.

Joyce’s confidence is being reflected in his current behaviour. At a recent press conference he joked with ABC reporter Peter Ryan. “I think there is an inverse relationship," Joyce said to Ryan. "The higher the Qantas profit goes, the lower the attendance of journalists. My aim in life is to get the attendance down to zero, and this morning we hit the lights out in terms of profitability."

Image credit: Peter Gudella / Shutterstock.com

About the author

Chris Sheedy is one of Australia’s busiest and most successful freelance writers. He has been published regularly in the Sydney Morning Herald, Virgin Australia Voyeur, The Australian Magazine, GQ, In The Black, Cadillac , Management Today, Men’s Fitness and countless other big-brand publications. He is frequently commissioned to carry out copywriting and corporate writing projects for organisations, including banks, universities, television networks, restaurant chains and major charities, through his business The Hard Word.

Topics

  • Business
  • Australia

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