Graham Newton talks to Qantas Group CEO Alan Joyce about the carrier’s ongoing determination to forge an industry-leading position.
How badly has the pandemic affected the Qantas Group?
The numbers are stark. We’ve lost A$16 billion in revenue since the pandemic started and the losses from this financial year and last will be around A$4.7 billion. It could have been much worse had we not acted quickly to minimize the damage.
But we are now seeing really positive signs of a sustained recovery domestically. Australia has done a remarkable job of controlling the virus and even though international borders are closed, we’re in a relatively fortunate position because of the size of the domestic market here.
The recovery is being driven by leisure travelers but even our corporate and small business travel market is back above 75% of what it was pre-COVID. Qantas and our low-cost carrier Jetstar expect to be operating more domestic capacity in FY22 than we did pre-COVID with 45 new routes added to our network that we weren’t flying before the pandemic. We’ve also had a travel bubble between Australia and New Zealand for the past few months.
What have you done to reshape the business?
We’ve put in place a three-year plan to reduce our costs by A$1 billion annually. We have already implemented A$600 million of ongoing savings in the first year of that.
We also tapped the debt and equity markets. We are one of only eight investment grade airlines, so we were able to access debt markets throughout the pandemic at attractive rates. Because of the strength of the recovery of the domestic market in Australia, we have already started paying down some of the debt and repairing the balance sheet. But given the depth of this crisis, it’s going to take time.
You’ve lost or stood down some 16,000 people. Are you worried that aviation will lose key skills and its overall appeal to jobseekers, making it hard to scale up as demand quickly returns?
Losing staff has been incredibly difficult. There are people I know well who have worked for the company for more than 30 years who have lost their job due to this crisis.
The Australian Government has recognized that losing key skills is a risk for the industry the longer international borders remain closed. They’re providing support to airlines to ensure skills are maintained and that we have the people and aircraft ready to ramp up flying when international borders do reopen. This funding is also being used for regular payments for stood down workers.
The Australian Government has taken a particularly tough stance on the virus. So, what are your hopes for a restart of international travel beyond New Zealand, and the conditions that may be attached to international travelers? We are planning for the resumption of regular international flights to and from Australia by the end of December 2021, in line with the vaccine rollout here. Keeping the community safe has to be the top priority, but the fact we have highly effective vaccines means we can keep them safe once vaccines are rolled out, so that has to be the focus.
We don’t want Australia left behind when the rest of the world opens up. It is likely Australia will open up more travel bubbles with other countries before all international routes are opened back up. We think most governments are going to require vaccinations for international travel. We surveyed our customers and almost 90% think it’s a good idea to require all passengers to be vaccinated for international flights to and from Australia.
Airlines also have a duty of care to provide a safe environment for our customers and crew.
What has become of Project Sunrise?
We are still committed to our plan to operate non-stop flights from Melbourne and Sydney to London and New York. When COVID hit we were just weeks away from ordering the aircraft. We had picked the Airbus A350 as our preferred aircraft and we’d negotiated a deal with airports and had done a deal with our pilots.
We think post-COVID the demand for direct long-haul flights will be extremely high. The business case is stronger now because people are going to want more direct flying. We think it’s going to be one of the big moments in Qantas history. It was the first airline outside of the United States to get a jet aircraft in the 1950s. We created business class in the 1970s. We look at our big moments and we are pretty proud of the fact we’ve led the world, and the position that has put Qantas in.
How important has cargo been to your bottom line?
The drop in international passenger flights has created a huge shortage in cargo capacity, which has increased the value of freight space, and at a time when e-commerce is surging.
Qantas has been able to make the most of this opportunity and has been using some of its passenger aircraft as dedicated freighters. It drove Qantas Freight to a record result for the first half of FY20. It’s acted as a natural hedge against the falling passenger revenue from Qantas International.
While this will ease when more international passenger services resume, much of the increased demand for e-commerce is expected to continue.
Is there a danger that airlines’ fight for survival will cause the industry to lose focus on such issues as the environment and diversity?
It’s true we’ve been focused on survival but that doesn’t mean we are moving away from our commitment to the environment or diversity.
Qantas is committed to capping its net CO2 emissions at 2019 levels and reach net zero emissions by 2050. And we will invest tens of millions into developing a sustainable aviation fuel industry in Australia.
Our passion and targets for more diversity has not changed. We know both are important to our people, our investors, and our customers.
Will the industry of 2024 look the same as the industry of 2019?
I think that we will see a number of airlines merge or fold, it’s the unfortunate reality of the impact of COVID. And many more people will want to fly point to point rather than transit through hubs. That’s not always possible, so there will still be a place for the hub and spoke model, but overall the share of point to point travel will increase. That will present challenges and opportunities for airlines and is why we remain really excited about Project Sunrise.
The pandemic is also going to drive the switch to digital throughout the whole journey. Whether it’s check in, customs, or border control, customers are going to prefer contactless options, and we as an industry need to make sure we’re responsive to that trend, because it’s not going to revert once the pandemic passes.
What are the lessons learned from the crisis in terms of airline strategy and leadership?
I think that the pandemic has forced airlines to re-evaluate their entire business and question everything. That’s been painful at times but some of the changes we’ll carry forward because they are very positive. For instance, airlines usually have a summer schedule and a winter schedule. During COVID, Qantas and Jetstar have had new schedules at least once a week because of the ever-changing travel restrictions. We’ve developed systems to manage all the changes that would have been unthinkable a year ago. This ability will benefit us well beyond COVID.
In terms of leadership, the pandemic has reinforced two things for us. First, the importance of making quick decisions, even if you don’t have the usual level of certainty you would like. You have to be prepared to set a course and change direction quickly if the situation changes. And secondly, it’s reinforced the importance of being transparent and honest with customers, shareholders, suppliers, and staff, even when you don’t hold all the answers. It builds trust and confidence, and ensures they understand why you’re making the tough decisions when the time comes.