Big Changes Coming to Qantas to Stem Losses

Qantas used to have more or less a license to print money. In the early part of the last decade its main domestic rival Ansett Australia had gone under. And it had strong pricing power on key long haul routes.

Come the latter half of the last decade, its international routes were hemorrhaging but a near monopoly domestically helped hide losses.

Qantas’ expansion in Asia, and its shift to a joint business venture with Emirates rather than British Airways, has helped shore up its international business to some extent (although mainline expansion in Asia has done less well than that of its low cost subsidiary). As has their cutback in routes offering international first class, and offering of more seats on the same planes as a result. But an increasingly competitive domestic market has caused Qantas to lose substantial money overall (hundreds of millions a year).

It has higher costs than Virgin Australia, and both airlines are expanding domestic routes rapidly despite insufficient demand to support both airlines’ flights.

It could raise cash by spinning off its frequent flyer program (which it has looked at in the past) or selling its Jetstar subsidiary, but that wouldn’t change its underlying business problems.

And they’re looking to the government for debt guarantees (which would also just mean the ability to sustain more losses, hoping that circumstances change rather than doing something about it) and to life foreign ownership rules (Australia already allows 49% foreign ownership, compared to 25% in the U.S.).

Qantas argues state supports are fair because Virgin Australia is majority owned by Singapore, Air New Zealand, and Etihad and can sustain losses because the airline’s parents are themselves subsidized.

Most likely though is cost cuts. Virgin Australia has a lower cost structure, so doesn’t lose as much as Qantas does at the same ticket price point.

Job cuts — between 1000 and 5000 positions — are expected following tomorrow’s announcement of financial results. It’s hard to invest in a premium product, though (even if that maximizes revenue) at a time when you’re taking away money from your employees unions. The optics of fine dining and top notch wines, and a spa on the ground, are tough in a unionized environment. So I have to think that if they enter a period of cost cuts that passengers will feel the pinch as well.

Big changes coming to Qantas, with tomorrow a flash point and more news to come. The frequent flyer program is profitable. They have assets. But they’re bleeding on their airline operation amidst heavy competition and high costs. And they’re going to make changes.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Well overdue. The least competitive, most arrogant airline that I’ve flown, and I’m so glad Virgin Australia is there for competition. The US should take a lesson from this in terms of what a dominant (monopoly) player can do to jack up ticket prices and offer less customer service – Delta seems to be well on it’s way to doing this, with the new FF scheme, as well as blocking competition in it’s home market (Atlanta) through dubious means.

  2. for an airline that is so keen on shuffling air in first class on A380 across the Pacific this is hardly a surprise. that damn air never pays them a penny!

  3. Australia had a very healthy airline ecology with its duopoly of Qantas and Ansett, both offering some of the best service levels in the world. However, the government decided by buy the myth of Open Skies and let the Middle Eastern carriers (Emirates in particular) flood the market with non-reciprocal flights thus driving down prices (which were actually quite good compared to starting R-t-W journeys in NAmerica or most of Europe). This destroyed the profitability of both Aussie carriers, driving Ansett out of business (and opening the door to Virgin on the domestic front, starting with a fresh LCC business plan QF couldn’t match except by starting new subsidiaries). Erosion of revenue and profits on international routes was to be expected and today we see the end game played out by EK…QF had to surrender half its route system to this ruthless competitor with a massively unfair advantage of sucking up the cream from every market it enters. All aided and abetted by neo-Liberal politicians who sold their own businesses out.

  4. The tie up with Emirates and change of routing on the Kangaroo route through Dubai (instead of Singapore) was the final nail in the coffin. Terrible schedule for business travellers wanting to sleep on that last leg into London.

    Even when I can find award availability I don’t like taking the flight.

    Looks like the members of the Frequent are about to get screwed bigtime.

  5. I entirely agree with DavidB, and would also add to Gary’s post, that it’s not entirely clear where the losses are with Qantas; there is some suggestion that Qantas pushes much of its money-losing overhead onto the international arm, which is the one with the greatest competition, and the one subject to subsidised route competition from EK, etc. Watch how little news there is this morning on the extremely healthy domestic operation.

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