Australian Financial Review, Page: 22
By Andrew Cleary
Friday, 24 August 2012
Alan Joyce had a line yesterday and he was sticking to it: no matter the record loss, most airlines around the world would love to be in Qantas’ position.
The upbeat Qantas chief was referring to the company’s dual-brand strategy that has fostered a profitable low-cost carrier in Jetstar and helped reinforce the premium airline’s dominant position in the domestic market. But the position Qantas International is in buffeted by high fuel prices, suffering an uncompetitive cost base, and at war with its own employees is one shared by a host of legacy carriers around the world.
Regional rivals including Cathay Pacific and Singapore have taken a very different course of action.
The response of both has been to accelerate the retirement of older, fuel guzzling aircraft and usher in next generation models as fast as possible.
However, Qantas is extending the lifespan of its 747 jumbos and 767s with cosmetic makeovers that do nothing to change inferior operating economics. And now it has cancelled the delivery of $US8.5 billion worth of Dreamliners, the aircraft Joyce as recently as June argued was partly to blame for Qantas International’s dire state due to their delayed arrival.
What Qantas has gained is a shortterm reprieve from ratings agencies and investors worried about the prospect of a capital raising.
What it has lost is the chance to recapture momentum among Australian outbound flyers as a product and brand leader. Qantas is betting that its international arm can survive four more years as a capital light business even as its rivals throw more capacity and the latest aircraft types on the same routes out of Australia.
It is a dangerous assumption that when Qantas International has met its financial milestones, having ceded market share and customer loyalty along the way, it will suddenly be able to win back customers who have switched allegiance in the medium term.
Management is, in effect, asking investors to believe that while the longterm success of the domestic outfit depends on a rigid adherence to a 65 per cent market share, the international business will be able to shrink its way to profitability and then re-emerge as a growth engine. It’s a tough line to swallow.