Qantas CEO Alan Joyce sounds a warning on economy

Qantas Group CEO Alan Joyce. Picture: AAP

When Qantas boss Alan Joyce talks down the economy it’s normally a negotiating tactic for union talks. But this time it’s for real, with the coronavirus hitting an already weak market and potentially costing the airline $150m.

The company’s stock price is up 6.2 per cent, at $6.71 a share, for the simple reason it had fallen 19 per cent this year heading into the result and Joyce said enough to tell investors he was in good shape to handle the crisis.

China represents 2 per cent of Qantas’s international network and international travellers are just 8 per cent of domestic travel, so the impact is not as bad as the market had fared.

But that is as events stand now. It all depends on how long the coronavirus runs, with Qantas drawing a line in the sand at May.

It is cutting capacity to Asia by 15 per cent and domestic capacity by 2 per cent.

That is good news for Virgin’s Paul Scurrah, who next week can be also expected to present a gloomy outlook.

The bottom line is this-the Australian economy weakened in February in the wake of the bushfires, and just as it was putting its head above water, the virus struck.

Qantas employs 30,000 people and so far the capacity cuts will affect 700 people, with the initial impact being managed by holiday time and the like.

But the warning bells are ringing. Jetstar unions and the pilots negotiating over terms for the long haul flights to London should be hearing them.

This time around the facts are on Joyce’s side of the table. He has a wage bill of $4.3 billion a year, a weak economy, uncertainty over the coronavirus with capacity already cut and workers on notice. And history shows he won’t be backing down on pay rises.

Yet ultimately Qantas is in good shape.

Returns, at 18.4 per cent, are evidence of a well-managed company in a well behaved duopoly and are up from 16.2 per cent in 2015. Returns peaked near term in 2016 at 22.7 per cent.

For the December half, Qantas domestic revenue fell 0.4 per cent to $3.2bn and underlying earnings by 12 per cent to $465m.

Jetstar saw a 3.5 per cent increase in revenue to $2.2bn and earnings up 13 per cent to $220m, while Qantas international was up 4 per cent at the revenue line and 4 per cent at the EBIT line at $122m. But international posted an operating margin of just 3.2 per cent, compared to 14.4 per cent at Qantas domestic and 10 per cent at Jetstar.

The loyalty division was the star performer with earnings increasing by 12 per cent at $196 million.