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Qantas CEO looks to the two-year turnaround

Qantas CEO looks to the two-year turnaround

Qantas CEO Alan Joyce has warned that the airline faces tough times and tight margins in the coming months, but is keeping his focus on the promise of a dramatically renewed Red Roo in two years’ time.

“We’ve always made it clear that long term gain can’t be achieved without the short-term cost of transition” Joyce told investors at a Macquarie Australia conference in Sydney this morning.

“There will be cost impacts within the second half of FY13, which is typically the weaker half in each year, as we implement our strategy.”

“But as we look forward to FY14 we will reap the benefits from modernising our fleet, operations, maximising our partnerships, taking down costs, upgrading our product and services, and staying ahead of the competition.”

Joyce flagged one major hit on the airline’s international balance sheet as “the $50m impact of transferring our hub from Singapore to Dubai” under its partnership with Emirates, and also called out “costs and losses associated with the start-up and ramp-up of Jetstar Japan and Jetstar Hong Kong.”

International bookings get a boost

However, Qantas is already reaping the first fruits of the Emirates alliance, which some analysts expect will deliver earnings gains of over $100 million a year for Qantas.

“We saw a significant increase in bookings to Europe on the joint network in the first nine weeks of sales, compared to the same period last year” Joyce said.

Even in the second week of ticket sales on the new Qantas-Emirates network Joyce reported that Qantas sold four times the number of seats to Barcelona than the same week a year earlier, 13 times as many seats to Munich, 14 times as many seats to Copenhagen and 17 times as many to Milan.

Travellers are also keen on Gatwick, London’s second airport, which Joyce has previously cited as one of Qantas’ “best performing destinations outside of London Heathrow” in terms of tickets sold.

Read: London Gatwick – Qantas’ new business traveller alternative to Heathrow

Emirates bookings outstrip BA

Qantas is also seeing an upside on domestic flights booked through Emirates, which now sells to some 32 Australia cities as codeshare flights with Qantas.

“The number of Emirates customers booked to travel on Qantas domestically is also well ahead of our previous partnership with British Airways” Joyce observed.

In the first month of ticket sales, Emirates’ passengers booked more than 5,000 domestic sectors, compared to a reported 1,600 domestic sectors booked through BA in all of 2012.

Domestic competition

Despite that fillip, Joyce sees that continued competition from Virgin Australia will impose a short-term drag on the outlook for Qantas Domestic.

“We are resolute in maintaining our profit maximising 65% market share” Joyce affirmed, “however we still face a tough environment with a high degree of capacity growth in the market, pushing down yields andprofitability.”

“While we do not expect any improvements this half, capacity growth is alleviating, which will lead to a healthier domestic capacity position in FY14.”

At the same time, Qantas’ investment in new aircraft and the ongoing retirement of older planes is resulting in a younger and more cost-efficient fleet.

By the end of next month, Joyce claims, “for the first time in approximately 20 years, the group’s average fleet age will be below eight years.”

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