I'm not an economist either but I'll have a crack at a few things that I can work out that have changed.
Qantas had a monopoly on outbound traffic across the Pacific. Anecdotally, 25% of their profit came from that route. Subsequently, Virgin offered some competition, which was relatively small, but demonstrated to the public that Qantas was gouging. Qantas had to drop their fares to match Virgins (or thereabouts) resulting in the Pacific no longer being as profitable, or possibly not profitable at all. Add to that the poor choice of aircraft, delayed 787's which ultimately went to J* anyway, inefficient 747's and gas guzzelling 380's whose viability rely heavily on business traffic at a time when business class fares are under downward pressure. All this has resulted in the death of that cash cow.
Domestically they held an effective monopoly after the demise of Ansett. Virgin was not a competitor in the business market, where most of the profits are made, so Qantas had a seemingly endless stream of high yield traffic to fill the coffers from the domestic side and prop up the increasingly unviable international side of the business.
As for the rest of the international side, the demise of Qantas mainline international has broadly coincided with the rise of the middle east and chinese carriers.
15 years ago Emirates had 1 daily 777-200 flight to Melbourne, that was it. Today I think they have around 80 odd services a week to Australia. A large portion of that used to be Qantas passengers.
Add to that, Etihad and Qatar from the middle east, then a few Chinese carriers, Scoot, and Air Asia X, amongst others, and you can see that Qantas has come under extreme pressure to retain market share.
Qantas traded heavily on their safety record. As enviable as it was, it was also a product of a pretty benign flying environment, combined with good maintenance and good training. But as we know, accidents are called accidents for a reason, and eventually everyone has one. Qantas had theirs in Bangkok and it shattered the illusion. That one was particularly damning because it was unequivocally pilot error(albeit with plenty of other contributing factors).
So the Qantas pedestal had been lowered a little.
Following on from that was the A330 dirty dive, the oxgen bottle departure that could have easily been a hull loss, and the QF 32 in Singpaore. The QF 32 was no fault of Qantas and should have restored the status of Qantas pilots as the crew demonstrated the highest levels of professionalism. Unfortunately the 24 hr news cycle doesn't cover that bit too well. As a result of all of the above, Joe public has less reason to choose Qantas, and all the previously mentioned airlines are now viable choices, so price has become much more of a determining factor than it used to be. Qantas used to be able to charge a hefty premium because of its safety record and perceived quality, it no longer has that luxury and has to be more competitive with the new entrant carriers.
As more and more people chose to fly on other airlines based on price, word starts to get out that these cheaper airlines are actually OK, and in the case of some, like Emirates, actually provide a vastly superior product. Word of mouth spreads and more people are happy to fly on an Arabic or Chinese airline, putting more downward pressure on Qantas passenger numbers and revenue.
As Qantas revenue drops, they still have the same infrastructure to support, much of which was created during the good times when the business (like many others) became fat and lazy. Their fixed costs, many of which were created during the good times, are now a weight around their neck, this includes wages.
Then Virgin morphs from an LCC to a full service carrier that is a genuine competitor to Qantas in the domestic market. Not just in the low end of the market, but importantly in the high yield business sector. Because of Qantas reputation, frequency, and frequent flyer points, the drift of business passengers from Qantas to Virgin is not massive, probably in the order of 15-20%, but critically the competition from Virgin has put enormous downward pressure on the price of business fares. So even though Qantas has maintained a fair amount of its business customers, they are all paying much less for their tickets, so revenue is down even further, but the infrastructure, fixed and variable costs are still high.
Add to this, pre GFC the Australian economy was thriving off the back of the mining boom. Those riches flowed to all areas of the economy and punters were spending with gay abandon. Then came the GFC which was a big reality check on everyone, followed closely by the end of the mining investment boom. Both private and corporate travel reduced as a result. Right on the heels of this came Borghetti and the transformation of Virgin.
As Virgins offer improved, so did load factors, requiring Virgin to add more capacity to cope with the increased demand. As this was happening, Alan Joyce steadfastly committed to maintaining his 65% capacity line in the sand. So what this meant was that for every 1 aircraft Virgin added to meet demand, Joyce added 2 into a business that had declining demand. The result has been massive over capacity, more so for Qantas than Virgin. Further downward pressure on yield and revenue.
One can only assume that Joyce thought that Virgin would run out of cash before he did. On face valued that was probably a reasonable expectation if he thought that Borghetti would not be able to find additional cash. Then came the cash injection from Etihad that resulted in AJ going nuclear and forecasting the collapse of Qantas.
It would appear now that Qantas has accepted that Virgin is not going to run out of cash, so rather than try and outlast Borghetti in a war of attrition, it would appear that he has retreated from his 65% line in the sand and is now attempting to try and run the business the way any business needs to be run. And that is get your costs under control and do what you can to increase revenue.
So to answer your question in short, what has changed is that Qantas share of the market and probably revenue has dropped substantially but the cost base has not kept pace.
There is no doubt in my mind that at least some of the loss of market share is a result of some poor management decisions, but a lot has been from things outside the control of management, such as Virgins reinvention, the GFC, increasing access to foreign carriers etc.
Whether Joyce's venture into Asia was folly or not, it would appear to me it needed to be tried. In the face of ever increasing competition in an Australian market that offers no opportunity for growth, and being under increasing attack from foreign carriers on the International front, there is a certain logic to looking at markets that are not as developed as Australia in countries with growing economies to try and exploit the first mover advantage.
The other argument of course is that he should have stuck to his knitting and just continued to be good at what Qantas did, which was provide a good product that Australians loved.
Having dropped the ball on that though, I doubt that it can ever be recovered. Certainly not in time to save the business from where it currently sits.
Given that, in my opinion, I don't see any quick way to increase revenue either domestically or internationally, in the face of ever increasing competition, of the things the Company can control, the fastest way to reduce the flow of red ink is by cutting costs, which he is doing on a grand scale.
There is no doubt J* has taken a lot of revenue from Qantas, but I think that horse has bolted. Even if J* was shut down tomorrow, most of those passengers will not go back to paying the old exorbitant Qantas fares. They fly J* (mostly) because they like the price, not the product.
For Qantas to prosper it needs to find out what its market is and tailor itself to suit in both size and service. At the moment it is too big and too expensive. Before anyone jumps down my throat at the too expensive comment, it is inextricably tied to the size. There is a point where capacity and load factor allow reasonable prices to be charged. As soon as the capacity in Australia allows fares to recover to a reasonable level, both Virgin and Qantas will return to profitability. Cost cutting will not save either of these airlines, it will just change the date at which they return to profit (or go broke). That's assuming at some point in the future the two CEO's return to a rational approach to business.
My two bobs worth.
Hard hat on. Preparing for incoming.
