Alan Joyce defends new path for Qantas
As neighbouring carrier Air New Zealand undertakes its own review of long-haul operations to staunch losses on $NZ1 million ($786,000) a week, Mr Joyce predicts the Qantas strategy of linking into major gateway hubs will eventually pay long-haul dividends.
But he concedes that the mainline's market share will shrink in the short term -- an observation underscored by recent government figures showing that Qantas's share of the international market into and out of Australia fell 1.6 percentage points in June to 18 per cent.
The June drop is part of a longer-term trend that prompted the Qantas restructure as the long-haul operations lost an estimated $216m last year.
The losses come as capacity growth into Australia due to the strong economy and higher dollar has seen competition intensify markedly on key routes.
Coverage of the restructure was dominated by the airline's move to axe 1000 jobs and set up a full-service airline in Asia, along with union fears that this would undermine international mainline operations.
The decision to retire four Boeing 747s and defer until 2019 the delivery of the airline's final six A380s further inflamed fears.
But Mr Joyce is hoping the airline's strategy to boost product, switch to gateway hubs and broaden its alliances will ultimately see growth for the international mainline.
Unlike highly competitive routes to Asia and Britain under increasing threat from mid-point hub carriers, the airline sees its North and South American, South African and Japanese routes as healthy and relatively attractive -- at least for now.
Part of the new strategy relies on forging deeper relationships with airlines operating from the hubs, several of them existing Oneworld partners, to provide Qantas with feed and distribution.
A first step was taken in May, when Qantas pulled out of the leisure-dominated San Francisco market in favour of partner American Airlines' hub at Dallas-Fort Worth.
The decision, criticised because the route is on the edge of a Boeing 747-400ER's operational envelope, opened up 52 one-stop destinations in Central and North America. It meant the airline's long-range jumbos are unable to get back directly to Sydney. They must transit via Brisbane and even then are subject to headwinds that have caused a handful of high-profile diversions.
The diversions have drawn flak, but Mr Joyce argues the situation will improve as the company gets more experience on the route. And he says the move has resulted in a big improvement. "The resizing of aircraft to New York from a 747 to (an Airbus) A330, and Auckland-LA to A330s -- all of those changes have resulted in North America going back into profits," Qantas's chief executive says.
"So we'll be looking at growing Dallas, we'll be looking at growing the North American operations as that profitability returns. That's the next big stage for us."
North America is also likely to receive a boost from the arrival of Boeing's larger Dreamliner, the delayed 787-9, in 2014.
The 787-9, with a range of 8000-8500 nautical miles, should be able to handle the 7500 nautical miles trip between Sydney and Dallas-Fort Worth both ways.
Qantas is also taking advantage of LAN Airlines' growing South American network to move its gateway to the continent from Buenos Aires to Santiago from April.
LAN serves more than 70 destinations, is a market leader in Chile and Peru as well as an important player in Argentina, Ecuador and Colombia. Mr Joyce sees potential for Qantas to develop the fast-growing trade, tourism and cultural tiers between the Asia-Pacific and South American markets and aims to build up to daily flights.
There are changes, too, on the kangaroo route, although these also have attracted criticism. Qantas has also restructured the joint services agreement with British Airways and will concentrate its flying to London using its daily A380 services from Sydney and Melbourne via Singapore.
It is also moving to strengthen its relationship with Oneworld member-elect Malaysia Airlines and is likely to seek a deeper alliance with the Malaysian carrier, a proposition that has developed new dimensions since news of an equity swap between the Kuala Lumpur-based flag carrier and AirAsia.
The idea is to provide one-stop access via Kuala Lumpur to European destinations.
Qantas caused some consternation, however, with moves to axe flights to London from Hong Kong and Bangkok, transferring passengers instead to a beefed-up British Airways service.
Mr Joyce argues this will improve profitability on the London routes and allowed for the early retirement of four older Boeing 747s. He is also optimistic the airline will see growth on the route and will take back the Heathrow slots it has leased to BA for the next three years.
"If we can make the significant changes we believe we need to make in our cost base, you can see a re-entry into that Heathrow market," he says. "And if we get the Asian hub right, we are looking at Asian hub entry into the European markets as well."
In terms of fleet, Joyce says slot restrictions and scheduling windows at Heathrow means it will remain the perfect destination for the double-decker A380. But he sees the arrival of the 787-9, with its lower seat-mile costs, as the killer aircraft for opening up new destinations and boosting frequency. Qantas has 35 of the 787-9s on order, but problems at Boeing mean the first plane is not scheduled for delivery until 2014.
One option, according to Joyce, would be to re-jig the network to fly with 787-9s to more destinations past LA, freeing up A380s to go back into London.
"I'm worried about making sure Qantas International is a strong and viable airline and if we don't do something about it, it will wither on the vine and die," he says.
Despite a generally positive reception of the restructuring by analysts, Qantas unions are convinced the main game is to eviscerate international mainline operations and move operations to cheaper offshore labour markets. They are particularly worried about plans to establish a full-service, high-end airline in Asia.
Mr Joyce insists the Asian venture will help boost group market share and allow increased destinations and frequencies. But he concedes there will be some "rebasing" as a result of the high Australian dollar.
Qantas has yet to say where it will base the new airline, which will use Airbus A320 aircraft equipped with lie-flat beds and more spacious economy seating to offer intra-Asia connections to business travellers, but has indicated Kuala Lumpur and Singapore are high on the list.
Unions and some analysts believe it will cannibalise existing traffic from Qantas international.
The Australian and International Pilots Association believes that Qantas mainline over the next three to five years will be "reduced to a shell" and there are worries about what is happening about the regional fleet. "No matter which way you do the spreadsheet, on aeroplane delivery dates and their statements, the airline is going to physically shrink quite a large amount," vice-president Richard Woodward says.
Commonwealth Bank analyst Matt Crowe agrees that the new Asian carrier is likely to eat some of the long-haul mainline's lunch.
"I don't see how it can't and I think (management) is probably quite happy for it to do that to some extent, to get some of those passengers on a lower cost-base business," he says, noting that Qantas marketshare to and from Asia has dwindled to 14 per cent.
Ultimately, he says, growth at Qantas international will depend on whether unions are prepared to give the needed concessions.
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