Qantas works soft news as Thursday’s hard landing looms
This commentary appeared in the Crikey Daily Mail today
Qantas appears to be preceding Thursday’s announcement of a much flagged ‘real money’ statutory loss for the financial year to June 30 with text book media manipulation diversionary stories.
Since Monday these have included:
- Lingerie model Miranda Kerr becoming the face of a yet to be reannounced relaunching of the Qantas Club loyalty program. Tick young male executives
- The refurbishing of 16 aged 767s that were supposed to be retired by delayed Dreamliners by 2010, which will turn up from late next year but go to Jetstar instead. Tick adult executives tempted by Virgin’s new leather sets, in Virgin’s new jets
- Free wi-fi in major domestic terminals. Tick nerds and unaccompanied minors
- CEO Alan Joyce opts out of bonuses dropping pay from $5 million to an estimated $2.3 million. Tick angry shareholders
- Qantas pilots being stood down for arguing about takeoff calculations at Dallas Fort Worth as a thunderstorm approached. Spot the story that undermines costly legacy pilots before new route cuts to Qantas long haul are announced at the financial results conference.
Thursday will not be pretty for Qantas. Its losing money, its share price has been trashed, its in the middle of a fare war with resurgent Virgin Australia and Tiger attacking the quality and price ends of the spectrum, and Jetstar may no longer be working as intended to curb the competition.
The Joyce strategy, of not investing in Qantas long haul until it becomes sustainably profitable in two to four years times, comes when its international competitors, and those damned Virgins, are growing at around 5-6% per annum, meaning that if the flying kangaroo roo isn’t getting new stuff in that period of time, its enemies will be maybe 25% bigger, and have taken away market share Qantas might never recover.
The rumors about an Emirates rescue plan for Qantas have reached the point where the UAE giant has taken control of the agenda, tersely noting that it is only interested in doing code shares, setting a six month, now five month, deadline for the Australian carrier to get over it and do the deal.
Considering the time ACCC approvals and the political discussion may take, that’s a very tight deadline. Uncontroversial code share or alliance deals typically take longer than six months for regulatory approval. The tick is clocking.
As it is for the Jetstar Hong Kong venture, and as it no longer does for the much hyped but discontinued attempt to base a premium single aisle carrier in Kuala Lumpur, a city to which Qantas doesn’t fly, if we don’t count Jetstar Asia, which is emphatically not premium anything.
But, can Joyce bring better news on Thursday? This remains possible. The recent Qantas decision to pull three Jetstar flights off the Gold Coast route, and add three full service Qantas 737 services after it abandoned the routes four years ago has been grasped as evidence that the airline has realized that the patience of its core customers, higher fare paying business and discretionary travellers, has run out when it comes to Jetstar, and run away to Virgin.
The underlying theme of Qantas statements of guidance in recent times has been consolidation, not expansion, which may be ill timed given the massive expansion of its competitors, but may also be prudent given the broad scale economic uncertainties.
That is a difficult proposition to juggle. Its most profitable activity, selling frequent flyer points to third parties, ultimately depends on being a large and highly rated brand, not a smaller brand diluted by a two brand strategy.
Joyce stands to gain investor support in delivering the already promised increased transparency to the Qantas financials on Thursday from its earlier decision to divide the domestic and international divisions into business units with their own CEOs and managements. It really depends what costs get allocated to which division, and how they are related to the loyalty program.
Does Qantas have any more capital cost increases, or decreases. Will there be more new jets than previously announced, or fewer?
If there are any more feel good stunts between now and Thursday morning the news is likely to be worse not better all around.