Alan Joyce buckles in for a second Qantas turnaround

The Qantas CEO's last program turned airline losses into record profits, but how much of this new challenge is beyond his control?

By Angus Whitley, June 28 2020
Alan Joyce buckles in for a second Qantas turnaround

Alan Joyce pulled Qantas back from the brink once before. Now he’s signed up to do it again, but under much tougher circumstances.

The Irishman’s first revamp produced one of the fastest transformations in Australian corporate history. In the three years to 2017, Joyce turned unprecedented losses at Qantas into record profits by slashing jobs, costs and routes. Investors gorged on special dividends, share buybacks and a fivefold jump in the stock price.

But can he repeat the feat amid the worst crisis the world’s airline sector has ever seen? Qantas said yesterday Joyce has agreed to stay on as chief executive officer until at least June 2023 to oversee another three-year recovery attempt as the coronavirus paralyzes global travel.

So far, Joyce is following his playbook of old. He plans to cut at least 6,000 jobs, about 20% of the workforce, while some 15,000 employees will remain furloughed. He’s grounding the entire fleet of 12 giant Airbus A380s for at least three years and deferring a backlog of other aircraft deliveries.

“It reads like another transformation,” said Daniel Mueller, a fund manager at Vertium Asset Management in Sydney. “I don’t see any reason not to back him. He’s done one and now he’s going to do another.”

Joyce, who’s led Qantas since 2008, knows where to squeeze out costs and should be able to hit his expense-cutting targets, Mueller said.

Hard choices

History shows Joyce can live with unpopular decisions. In 2011, he grounded Qantas’s entire fleet worldwide to tackle a labor dispute at home. That left 80,000 passengers and 17 heads of state stranded.

This time round, Joyce aims to reduce $15 billion in costs over three years and then deliver A$1 billion in annual savings from June 2023. Job cuts will target about 1,500 people on the ground including baggage handlers, at least 1,050 cabin crew and at least 220 pilots.

At the same time, Qantas is raising as much as $1.9 billion in capital, including an institutional placement of $1.36 billion.

Still, this is nothing like the situations he’s turned around before.

Joyce could be hamstrung by outbreaks of infections in Australia that deter passengers at the domestic business, which has long been the profit engine of the company.

He also said yesterday that international travel won’t return in any substantial volumes until July next year. So not everyone’s convinced he can prevail.

Out of control?

“The operating outlook remains highly uncertain,” Citigroup analysts said in a note. “The path to recovery will be impacted by a multitude of factors beyond Qantas’s control.”

Those risks include a delay to the resumption of travel within Australia, where movement between some states is still restricted amid continued virus flareups, and the impact on the bottom line of cheaper airfares, Citigroup said.

Key to success will be a recovery at the domestic business and continuing profits at the loyalty division, Anthony Moulder, an analyst at Jefferies Group said in a note.

Qantas doesn’t face the same competitive threats that have scuppered carriers in other markets. It is the dominant airline in what’s essentially a two-player market. The main competitor, Virgin Australia, collapsed in April under close to $7 billion of debt and is being auctioned by administrators.

Joyce’s turnaround plan “will make Qantas a stronger business, able to further increase profitability as traffic returns over the next few years,” Moulder said.

This article is published under license from Bloomberg Media: the original article can be viewed here

Angus Whitley

Angus Whitely is a Sydney-based business reporter with Bloomberg

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 526

"Qantas doesn't face the same competitive threats that have scuppered carriers in other markets. It is the dominant airline in what's essentially a two-player market."

That may be true for the domestic market and is agreed.

However, the real question is whether Australians will sit back without international service for some 12 months, when Qantas competitors from all around the globe will happily offer their service to a non-operational Qantas' customers from October / November onwards.

You raise a compelling point but here's the problem:

With Project Sunrise, QF is in the position to offer a unique product that no other airline would want to (the Euro airlines have no reason to buy small subfleets of aircraft capable of reaching Oz nonstop).

Even if they effectively leave the international market for years, when they come back they'll have something no one else can offer. And they'll skim the highest-yielding passengers for doing so.

QF's cash cow has always been domestic (since they get monopoly/duopoly rents on both the FSC and LCC markets). They can survive. Virgin, if they go for the mid-market positioning, can survive as well. When international comes back, presumably both can survive, but we'll need to see.

Qantas

19 Apr 2012

Total posts 1048

Kimshep there are not that many Qantas customers that can travel out. The other airlines are moving Australian residents in (with quarantine) and non Australians out. I am sure Qantas has modelled this and found not enough profit in it to bring back all the people to make it happen. Note most of the competition are state owned airlines that can subsidise this to gain possible? market share in the long term.

Eli
Eli

30 Jul 2015

Total posts 97

Perhaps its time for a new CEO with fresh ideas?

Virgin Australia - Velocity Rewards

24 Aug 2011

Total posts 769

Wouldn't be much point, unless AJ wants to move on to another challenge. Although we don't fly QF I greatly respect him as he has a brain like a computer and an incredible mathematical background. Add that to QF's outstanding ability to analyse data from all points relevant to their business - they are in the best position to determine what's right for them. Which generally doesn't match what a lot of armchair CEOs think should be done :)


Hi Guest, join in the discussion on Alan Joyce buckles in for a second Qantas turnaround