Goodbye, cheap airfares: What the Qantas loss means to you

CHEAP airfares look set to go, with consumers tipped to pay the price for the record $2.8 billion loss as competition slows.

A HIGH stakes battle for market share sent Qantas to the brink of financial failure in the last year with the airline losing a jawdropping $89 a second.

Chief executive officer Alan Joyce yesterday announced the group had recorded a $2.8 billion after tax loss, the worst in Qantas’ 90-year history.

ALAN JOYCE: Saviour or destroyer?

REVEALED: How Qantas lost $89 a second

And although Mr Joyce predicted recovery was imminent, customers are likely to pay the price of any easing in competition among international and domestic carriers in higher airfares.

“We’ve had a golden age of low fares but any withdrawal of capacity and easing of competition will impact fares,” said national consumer advocate Christopher Zinn.

“If we want a national carrier we have to expect there to be a cost.”

“Aggressive international competitors” were blamed for pushing down passenger revenue by $431 million — at the same time as passenger numbers grew by 500,000.

Significant one-off costs associated with the airline’s transformation contributed heavily to the result, but the fine print showed all but the Frequent Flyer program went backwards.

Qantas Domestic managed to finish the year in the black despite losing $335 million, Jetstar turned a $138 million profit last year into a $116 million loss, and Qantas International posted a disastrous $497 million loss.

The capacity war with Virgin Australia also cost Qantas dearly, raising questions about the “two services for every one of theirs” strategy the Flying Kangaroo adopted several years ago.

“You’d certainly wonder why they’ve gone so hard for so long to the detriment of the business,” said IG Markets’ analyst Evan Lucas.

Mr Joyce acknowledged the figures were “confronting” but he insisted they would soon be assigned to history as Qantas embarked on a rapid recovery.

“We have now come through the worst,” he said.
“With our accelerated Qantas Transformation program we are already emerging as a leaner, more focused and more sustainable Qantas Group.”

The results were received remarkably warmly by financial markets, who took comfort in the better than expected underlying before tax loss of $646 million.

Mr Lucas said from his perspective the figures were “a very good turnaround story”.

“It’s a horrible, horrible result in the headline figures but from where we sit they’re clearing the decks and trying to get rid of legacy issues as fast as they can,” said Mr Lucas.

Chairman of CAPA Centre for Aviation Peter Harbison said there was every reason to believe Qantas would achieve its goal of returning to underlying profit in the next six months.

“They’re estimating the domestic and international competition is going to reduce a bit, and internationally it’s because the Australian dollar has come down, and so has the enormous interest in putting capacity into Australia,” said Mr Harbison.

He said a reduction in the Australian dollar would make the market a lot less attractive for international carriers and give Qantas “some protection”.

It would also have the effect of pushing up airfares which have shrunk to historic lows on the back of fierce competition.

On the domestic front a “sort of truce” with Virgin would also assist — with Qantas indicating its number one rival had taken 20 per cent of the corporate market.

Unions were not convinced any improvement was possible, accusing Mr Joyce of running the Flying Kangaroo into the ground.

Transport Workers Union national secretary Tony Sheldon said for an airline with 65 per cent market share to lose $335 million from its domestic sector in the space of a year was outrageous.

“This company has squandered every opportunity its got and to see it continuing on the same course is a sign of poor performance and a lack of investor vigilance,” Mr Sheldon said.

Australian Licensed Aircraft Engineers Association secretary Steve Purvinas said his members were bracing for more job cuts as Qantas transitioned to aircraft that were predominantly maintained offshore.

“Our members have already copped a fair chunk of the 5000 job losses, of which 2500 are yet to come,” said Mr Purvinas.

“Unfortunately there’s only one job at the airlines that’s secure and that’s the one that shouldn’t be.”

Originally published as Goodbye, cheap airfares: What the Qantas loss means to you