After years of Covid-induced pain which saw Qantas haemorrhage billions of dollars, sack thousands of staff, record dismal on-time performances and frustrate customers with cancellations, lost baggage and eye-watering air fares, Australia’s national carrier is well and truly back in the black.
Qantas delivered an out-of-the-ordinary $1.43bn underlying net profit in the six months to December that was higher than the profit it recorded in a 12-month period leading up to the pandemic.
The airline’s domestic operations underpinned the record half-year profit, with $785m in underlying earnings, compared to $464m for its international operations, and a $177m contribution from Jetstar.
Unveiling the result on Thursday, the chief executive, Alan Joyce, was keen to paint a rosy picture of the future for the airline, which reported a $1.28bn loss just a year earlier.
The financial update was padded with a slew of announcements suggesting the airline is confident that travel-hungry economy passengers have moved on from the issues that saw it plunge 31 places to be Australia’s 40th most trusted brand last year.
Qantas will spend $100m improving its lounge network over three years, including refurbishing and upgrading its international business lounges in Sydney and Melbourne and a luxury first class lounge at London’s Heathrow airport.
It also showed off prototypes of the first and business-class cabins that will feature on its non-stop Project Sunrise flights from Australian east coast cities to New York and London, to be launched in coming years.
All great news for business and premium flyers.
The airline also announced it will spend $500m of excess cash buying back shares from the market, an indication of its eagerness to please shareholders.
So what does Qantas have in store to woo back less-lucrative, everyday travellers burnt by poor service in recent years and who still face high air fares?
Much less, it appears.
Beyond adding a considerable chunk of new discount fares into its system, Joyce’s main piece of advice to cash-conscious Australians has been to “travel on a Tuesday, Wednesday or Thursday” and book early.
“Qantas does charge more than other airlines in the domestic market … because you get more value with Qantas in other areas. And it’s all about value,” Joyce said, addressing customer frustration over air fares.
Joyce was keen to talk up “value”. “A lot of customers will pay that extra to have access to 51 lounges around the world, have access to the frequent flyers, to get free food on board, to get baggage included and to get free wifi,” he said.
But just how many economy passengers will want to pay for lounge access, or are tempted to spend potentially hundreds more on a Sydney-Melbourne flight for free luggage and a bolognese calzone remains to be seen.
When it comes to the question of why air fares are so high, Joyce’s talking points were not new – capacity is the issue.
Airlines are still operating fewer flights and packing them out more, after a rocky year of ramping up operations post-Covid. Carriers say they have had to hold back adding more flights to ensure a more dependable service as they struggle with soaring fuel costs as well as staffing and supply chain issues for parts.
As demand outstripped supply, fares rose, as did profitability. Qantas’s operating margin increased to 15.6%, compared to the pre-pandemic 10% level.
Just how much airlines are hamstrung in this regard is a point of contention.
While jet fuel prices did spike in early 2022 as the crude oil market reacted to Russia’s invasion of Ukraine, prices started dropping from June, according to data from the International Air Transport Association.
In December, the Australian Competition and Consumer Commission put airlines on notice that it was keeping a close eye to ensure they were not deliberately slowing their return to full service so they could keep air fares high.
Others have been more direct in their criticism, and have singled out Qantas. The Rex deputy chairman, John Sharp, has accused his competitor of “shameless price gouging”.
The Labor senator Tony Sheldon, a former leader of the Transport Workers Union, suggested the airline was profiteering with “extortionate air fares”. The union chief Sally McManus said Qantas was the latest example of a company putting up its prices by more than it needs, creating a “greed-price inflation spiral”.
The IBISWorld analyst Jack Fahey said capacity constraints were an industry-wide issue, but noted “it’s a very prosperous time to run a domestic airline”. He said without the now defunct budget operator Tiger competing with Jetstar, there was less to drag prices down.
Fahey predicted air fares would fall during the year, but said that as demand to fly remained so high, there was less urgency for prices to fall. “They’ve been able to keep them high because people are still paying them.”
For its part, Qantas has said it hopes to increase domestic capacity beyond pre-pandemic levels by the end of June, but warned it would take until next year to do the same for its international frequencies.
“What we are seeing is that as we add capacity back in, fares are moderating,” Joyce said, noting it wasn’t just Qantas with high air fares. “Qantas cannot dictate the air fares of the market.”
Regardless, what Qantas can dictate is winning back the respect of Australian travellers.
Despite the airline’s financial strength, Joyce on Thursday ruled out the suggestion Qantas should return the almost $2bn in jobkeeper and other government subsidies the airline received during the pandemic, noting it ran flights on behalf of the government.
“Should we refund that? No, we provided a service,” he said.
Joyce – who himself enjoys a robust pay packet – is also staring down a possible mammoth compensation bill if a last-ditch attempt to overturn in the high court a finding that Qantas illegally outsourced 1,700 ground handler jobs fails.
He now faces a public with higher expectations of his airline, less tolerance for poor service, and a hunger for more affordable fares.
It remains to be seen if customers not travelling business or first class will get that.
