Huge airline profits under threat from weaker leisure demand and falling fares, says Jamie Pherous

As Vanessa Hudson prepares to deliver her first financial result as Qantas CEO, a travel industry leader is predicting an end to record airline profits.

Virgin Australia’s owners Bain Capital are unlikely to see the sort of profits they hoped CEO Jayne Hrdlicka would deliver as the market softens and costs rise. Picture: NCA NewsWire / Sarah Marshall

As Vanessa Hudson prepares to deliver her first financial results as Qantas CEO, a travel industry leader has warned huge profits are about to be history for airlines.

Corporate Travel Management CEO Jamie Pherous said with ticket prices falling and costs on the rise, the record profits posted by airlines in the last year were “unsustainable”.

He said the news was positive for corporates, who could now stretch their travel budgets further, but perhaps not so good for airlines.

“I think they had this rare case where travellers were paying obscenely high ticket prices and the margins airlines were making were not sustainable,” Mr Pherous said.

“There is no doubt that leisure demand is now coming off which means prices are coming down and I think that things are going to start to normalise and so will profitability.”

Corporate Travel Management CEO Jamie Pherous. Picture: Liam Kidston

His prediction will be tested as early as Thursday, when Ms Hudson delivers Qantas’ first half results for the 2024 financial year.

At the same time Virgin Australia’s owners Bain Capital are preparing to farewell CEO Jayne Hrdlicka and embark on a search for a replacement.

Lacklustre profits and low yields compared to rival Qantas were considered a factor in Ms Hrdlicka’s unexpected departure, months before Bain hopes to launch an initial public offering.

In the same year Qantas made a record $2.47bn, Virgin managed a modest $129m in its first full year profit in more than a decade.

With Ms Hrdlicka now expected to leave as soon as a replacement was found, an IPO is off the cards indefinitely.

Making matters worse for Bain Capital is the expectation Virgin Australia’s profitability is unlikely to improve as supply and demand reset.

“You saw these airlines making unsustainable profits because of the yields they were making and anyone who thought they were going to be able to sell these obscene prices forever, well I think the reality is biting,” Mr Pherous said.

“It’s good for corporate (agencies) because corporates have to travel.”

Virgin Australia CEO Jayne Hrdlicka who will leave the airline as soon as a replacement is found. Picture: Bloomberg

A global search is underway for a new Virgin Australia CEO, with Bain Capital remaining close-lipped on potential candidates.

Veteran aviation commentator and chair of Greener Airlines Peter Harbison said the new chief executive would need a unique skill set.

“The Virgin CEO has to be able to deal with greatly empowered unions thanks to the skills shortages and an owner (Bain) who has a steely focus on making a profit from what was a fairly risky investment,” Mr Harbison said. “Then of course there is the matter of competing with Qantas.”

He said in many ways, Virgin Australia could almost be viewed as a start-up, after reworking its business model in the wake of Covid and administration.

While that was a “great challenge” for someone in the airline industry, it also meant there would be few serious contenders for the job, he said.

“I reckon the job of airline CEO is the toughest of any, and there are some like Alan Joyce for example who would relish the challenge – but not this one,” he added.

“(Outgoing Qantas Loyalty CEO) Olivia Wirth would have to be on a shortlist, and grabbing someone like (newly announced Qantas chair) John Mullen would have been ideal but he’s now spoken for.”

Within the ranks of Virgin Australia, there was hope former CEO Paul Scurrah might be lured back but Mr Harbison said he would be unlikely to want to do Bain Capital any favours.

“It’s a softening market too, even if capacity shortages are disguising it, so it could prove a poisoned chalice,” Mr Harbison said.

Flight Attendants Association of Australia national secretary Teri O’Toole said the critical skill for any CEO was to see value in retaining current workers and attracting great candidates.

“Paul Scurrah was a CEO who listened to his people and built enormous goodwill and trust from his employees,” Ms O’Toole said.

“We call on Bain to find someone who recognises the value of discretionary effort.”