Qantas faces rivals at home, closed borders abroad

Flag carrier hopes to bring back A380s; CEO sees vaccine passports as a necessity for international travel and domestic competition will be heating up Down Under

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A Qantas A380. CEO Alan Joyce said if international borders open enough, Qantas would bring back its super jumbos from storage. (PHOTO: Shutterstock)

Use this oneDespite all the talk about getting back to “normal” and having meetings in person, the recent CAPA Live event shows that the world, even the aviation world, still depends on the virtual world to connect. The event also showed that as much as things have changed over the past year, the more they’ve stayed the same.

Qantas and its low-cost unit Jetstar have both grounded hundreds of planes due to the COVID-19 pandemic. (PHOTO: Shutterstock)

Everyone speaking at the event agreed that countries with strong domestic networks will see their airlines recover first, international connections remain hampered to say the least by quarantines and stumbles in rolling out the COVID-19 vaccines in various countries, and all agreed that touch-less technology will make greater inroads at airports and all through the travel chain. Finally, Qantas chief Alan Joyce threw a bone to Airbus and said the flag carrier would likely bring back its 12 A380s because “we spent a lot of money on them”.

The view from Qantas

Group CEO Joyce told CAPA’s chairman emeritus, Peter Harbinson, said the domestic situation in Australia was still troublesome, but added that “we’ve had some good dialogue with the states about the different parameters, about putting in a system that gives a bit more certainty…what we’re seeing each time is that the market’s getting stronger and stronger each quarter. Actually now I’ll go through the financial year, in the first quarter of the current financial year, we were at 20 percent of pre-COVID capacity levels. Second quarter, we got to 40. Third quarter, we got to 60. We’re planning on being 80 percent or above for the last quarter. And the demand is improving all the time. But despite the stop and start, people are getting comfortable with what the situation is around borders. They’re traveling. And then each time it looks like when the borders are closed, it’s for a shorter period, the rebound is faster, and more rapid. And so we’re pretty optimistic about where the domestic demand profile is.

“Now, should we be at a 100 percent- plus? Absolutely. Do we want to get there faster? Absolutely,” Joyce said. “Will certainty on the borders get us there faster? Absolutely. So what we’ve said to the premier is let’s have potentially three things in play. The first is a protocol where you, until the vaccine’s rolled out to all the vulnerable groups, that you have a system in place where you can get people home to their home states. But give those 24, 48 hours to allow us to have that guarantee. And we’ve got good reaction, I think, from all the states on that.

“Second thing we’ve said in line with the Business Council of Australia, is that when we get to vaccinating…why would we need to close the borders down again and can we have some certainty and guarantee that because we’ve covered hotel quarantine and hospital workers, there’s no need to, and that we should be okay at that stage. And again, I think this is being worked through National Cabinet and the AHPPC. And then the third thing that we said when it comes to borders is relating to international, which is then what does the opening of international look like and what is the framework that goes around that? The vaccination requirements, the testing requirements, the quarantine requirements? And let’s give a certainty on that because that will allow us to open up international faster when that system is in place,” Joyce said.

Joyce also discussed the domestic competition front with rivals Rex, which is beefing up its jet fleet, and long-time rival Virgin Australia. Asked if he was happy with Qantas holding 70 percent of the domestic market, Joyce said, “Well, the market share will be the market share. What you have is your individual strategies of where your brands, where your businesses are and how they’re doing. And I’ve got to say, if I look at the different segments of the market, which will determine at the end of the day where our share is, on the corporate market, we’ve won, I think nearly 30 corporate accounts in the last few months from a major competitor. Our market share there has typically been over 80 percent, we see that continuing…In the SME market there’s going to be a big battle for that small and medium size enterprise. We’ve been growing market share the last decade. We have enough product and processes in play. We can grow share even further. And in the leisure end of the market, we think there’s a lot of opportunity. Jetstar should be out of COVID a lot bigger than it was going into COVID.”

Competition

Joyce also discussed the competition between Qantas, Rex and Virgin, saying: “Well, it’s clear that when you look at where Rex is positioned itself, it and Virgin are in the same territory they’re fighting in the middle of the market. They have the same aircraft that Rex aircraft or Virgin aircraft, but same product on board. Their operating the same type of strategy in that middle of the market. So, that’s the battle royal there and that will continue I’m sure…and as I said, anytime at competition has raised, Qantas raised the game with competition, that’s come in. We’re doing the same again here. I happened to be more efficient with going through our cost base…We’re going through our product and making  sure our product is the best product out there and leads the field. We’re making sure that Jetstar has the lowest cost base, they offer the lowest airfares and we’ll continue to do that. And we think that strategy has been successful now for nearly 15 years, it will be successful going forward. And then we’ll just watch what happens with the competitive dynamic as we’ll play our best game, but when the Qantas group plays its best game, it always wins. And I have no doubt that will be the case on this occasion…I like to simplify it by saying if you keep your customers happy and they have no reason to move, then you’re going to be a successful business.”

Smaller planes, A380s

A Qantas Dreamliner. (PHOTO: Shutterstock)

The head of Qantas also said it was possible the airline could bring back its fleet of 12 A380s, but the airline was mainly looking at Boeing 787 Dreamliners if and when international routes open. “We’ve had this forecast for some time and that we don’t see that (international routes opening) occurring until 2024 now. How has that corrected our strategy? Well, that’s corrected our strategy by saying we park the A380s. The most premium seats of having the aircraft, on the fleet, as you know, are directed towards the big premium market. And we have luckily enough been replacing the bigger aircraft with the 787, that have a smaller premium cabin, but a smaller cabin overall and a bigger percentage of the revenue coming from the premium cabin.

“And the 787 is such a good aircraft. It can replace the entire A380s and 747s in terms of range with a smaller aircraft with unit costs are even better than an A380. So for us it allows us and our plan was at the end of October, if the international borders, were to open up, we could start 22 of the 25 destinations we have pre-COVID with smaller aircraft, smaller premium seats on it. And we think that’s sufficient to make good money and the economics work on that business. And we’ve been also taking a lot of costs out of our business, a billion dollars out of the Qantas in us and benefits coming through our transformation program…Now if demand comes back earlier, we can reactivate the A380s within three to six months. That’s the level of flexibility we have. We think we will reactivate all of the A380s. We spent a lot money on them and have written down right in our roots. Once demand is there, they’re going to be good aircraft, get back in the air and we can cope with this lower demand environment with some time by just parking them and using the 787 system.”

Vaccine passports

(PHOTO: IATA)

With most of the world suffering through lockdowns of one form or another due to the COVID-19 pandemic, and with international aviation all but shut down for much of the past year, the topic of so-called “vaccine passports” has risen to the top of concerns for people who want to fly.

The aviation industry has already developed digital passports of a sort illustrated by the Travel Pass developed by the International Air Transport Association (IATA) along with many others. These early versions only show the COVID-19 testing status of a passenger with other details like the name of the testing clinic, etc. Most of these early passes it is expected will be able to be modified to show the COVID vaccination status of a traveller. Joyce said it was probably inevitable that some sort of vaccination passport would be necessary for international flying to resume in any real way.

“We’ve said for some time, we think to open up the international waters, you’re going to have to have a vaccination type passport. And the (Australian) government’s even said this, and other governments are saying it. But to travel, you either need to do quarantine or you need to be vaccinated eventually. And we know people we’re not going to go with the 14-day quarantine and it just kills travel. So the vaccination requirements looks like it’s the only way to restart the international markets again.

“And as we said, it looks like the Israelis may be doing a deal with Greece and Cyprus, will allow people to travel to those countries if they’re vaccinate,” Joyce said. “Iceland has said you can enter the country without quarantine if you’re vaccinated, it’s happening and it’s happening in the rest of the world. And then the second thing, we have a duty of care too. As you know, we’re regarded as the safest airline in the world, but we have the duty to the care to our people and to our passengers. And if there’s a way of enhancing that in anything we do, we’re always going to be at the forefront doing it. So having a requirement, even if it wasn’t governments to do it, having a requirement to ask people to be vaccinated before they get on our aircraft…you would of course, think that that’s the sensible thing to do…our customers are saying, it gives them confidence in travelling internationally.

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