Terry McCrann: Alan Joyce worth every cent of his $25m pay packet
Alan Joyce and the Qantas frequent flyer program are the reason the airline will thrive and make the future of a rebooted Virgin Australia questionable, writes Terry McCrann.
Terry McCrann
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Qantas had two huge things going for it coming into the virus crisis and the near total grounding of the entire global airline business. They were its loyalty program and a CEO named Alan Joyce.
The two things also pose a similarly huge — in my judgment, quite probably existential — challenge to the long and even medium-term survival of the still as-yet unborn Virgin Australia 2.0.
Both assets were on clear display in the Qantas numbers on Thursday, with the most graphically obvious the loyalty program.
In a year in which underlying group operating profit (EBIT) was slashed by more than three quarters, the profit from loyalty hardly stumbled. It was down less than 10 per cent.
More strikingly, it added to a numbing 86 per cent of the total group profit for the entire 2019-20 year — as the solid earnings of the eight months to February evaporated and then some, as the planes hit the ground and stayed there for the last four months of the fiscal year.
How does that work? Well, the money kept flowing into Qantas’s coffers from all its loyalty partners on the points being built up by their customer spending. And there was zero offset as they couldn’t be cashed into bums on seats.
Now yes, Qantas has built up a lot of unused points out there, but that can be managed, streamed and postponed, just as it always has been.
Starting with what will be at least 80-85 per cent of the market, the ongoing Qantas offer will represent a huge, huge mountain for Virgin 2.0 to climb — especially its loyalty offer into the international market where Virgin 2.0 won’t be flying.
That’s if the reborn Virgin 2.0 sticks to the (Jayne) Hrdlicka plan to be a mid-tier operator with lounges and points, as opposed to the original no frills and no points low-cost Virgin of Richard Branson and Brett Godfrey.
Bluntly, are passengers really going to invest in Virgin 2.0 points, especially with no or complicated international rewards?
Or would they just want cheaper domestic seats — albeit, this time with it being much harder for Virgin 2.0 to differentiate, since they’ve (and we’ve) got the Jetstar of Joyce and his successor (bar one) Hrdlicka, that the original Virgin 1.0 did not have to contend with in its critical early growth years?
Having spent six crucial years through 2018 as Jetstar CEO, Hrdlicka would know exactly what she — and Joyce — have built to slice and dice her new Virgin 2.0, segment by segment.
Then add Joyce.
If there is one message, one message, that should have by now rung out loud and icily clear to everyone, it’s the value-adding proposition that Joyce has proved to be.
It’s not just the way Joyce had Qantas hit the ground running — right across the board, from planes to staffing, to partner contracts and on to its balance sheet, both debt (raising $1.75bn) and finally equity ($1.4bn) — to not just ride through the virus storm but position into the post-virus reality.
Whatever that reality proves to be and whenever it comes.
Quite simply, in August 2020 Qantas is almost certainly the most financially viable airline in the entire world — except only those backed by government blank cheques.
Just as CBA is clearly the most profitable (and financially viable) big bank in the world, on the same criteria.
What Joyce and Qantas have done and done so pre-emptively this year was necessary and among the best-practice corporate responses to both the recession ordered globally by politicians and the specific pain imposed on them.
That’s, somewhat ironically and certainly interesting, also the one big thing that Hrdlicka and Bain have been able to do with Virgin.
They are doing it all that through the administration and DOCA/asset sale process to emerge on the other side with a Virgin 2.0 version of the post-virus Qantas — with debt and operating costs slashed, and a slimmed recapitalised balance sheet.
The really critical thing that Joyce did at Qantas was all the restructuring and re-positioning before the virus struck, running from 2015 into 2020. It — unintendedly — got it into exactly the best shape to respond with alacrity to the existential threat posed by the virus and the global recession.
Indeed, this whole sustained Joyce momentum really started back in October 2011 when he grounded the entire fleet.
That was directed at “settling” a — true, pretty existential — industrial dispute, but everything that followed was built on it; and could not have followed but for the seismic shift engineered.
Could anyone now doubt that Joyce deserved every penny of that $25 million pay packet back in 2017?
He’s committed to stay to 2022. It would now be exactly right to lock that in out to 2025.
THE BOOMING LOCKDOWN RETAILERS
In Wesfarmers, the lockdown recession has proved very good for Officeworks, good for Bunnings and survivable for Kmart.
Work from home saw Officeworks sales surge 20 per cent at very little cost to margin — profit grew 14 per cent.
Continued building activity — and an ability to pivot to online and click-and-collect — saw
Bunnings lift both sales and profit by 14 per cent.
Kmart group grew revenue 7 per cent but profit fell by 22 per cent.
The pain was all in Target with sales going down and a bottom line loss.
Originally published as Terry McCrann: Alan Joyce worth every cent of his $25m pay packet