Qantas chair Richard Goyder might think Alan Joyce is the best CEO in the world, but danger looms

As good as Joyce may be, the fact is corporate danger looms larger the longer the boss stays in the job. (Photo by Lisa Maree Williams/Getty Images)

Qantas chair Richard Goyder thinks Alan Joyce is the best airline executive in the world, which tells you he is not about to push him out the door any time soon but also raises serious questions over the company’s future.

At the end of next year Joyce will have run the company for 15 years, three times the average for big company chiefs in Australia and just under 15 per cent of Qantas’s corporate life.

There is no firm rule on succession. The 56-year-old Joyce was young when he got the top job in 2008, is arguably at the top of his game, and is also a master of playing the spin around exogenous factors affecting the industry – as shown by his frequent references to Qantas’s performance compared to the global industry.

The argument goes that you need an incumbent to steer you through these tricky events outside your control.

This is a convenient excuse at times and the fact is Qantas, like the rest of the global airline industry, played its part in spreading the virus that caused its financial pain.

If Joyce has a weakness it’s a tin ear, evidenced by a buyback post-Covid handouts and amid ruthless capacity cuts, exploiting his market dominance to boost profit margins.

“The Qantas stock price has bounced over 10 per cent since reporting but over the course of Joyce’s 14 year reign it had underperformed the market in total return terms by 166 per cent going into the results.

A little bit of sprinkle dust hardly compensates for evident market abuse.

As good as Joyce may be, the fact is corporate danger looms larger the longer the boss stays in the job: potential successors leave, corporate arrogance is inevitable, staff get used to the same way of thinking, directors are blindsided by their rapture about the person at the helm, mistakes are made. A new broom offers at least the chance of fresh ideas.

For Joyce, the maxim “leave the stage while the audience is still on its feet applauding” holds true more than for most.

When the company put its hand out for $1.4bn in equity in 2020 after the Covid shutdowns it said Joyce would stay until “at least the end of 2023”, which was designed to reassure investors.

This week after reporting a $1.9bn loss the company also said it would buy back $400m in stock, again as a statement to the market that the company was roaring back to life.

It was a bizarre decision which also says a lot about Qantas heading into Joyce’s 15th year at the helm.

Having received more than $1bn in subsidies, and not likely to pay corporate tax again for some time, and being in control of over 70 per cent of the local market at a time when pent-up demand is being released, one might expect improved performance.

When people talk about the dangers of a consolidated industry in terms of pricing power, look no further than Qantas, which has virtually a free hand to charge what it can to recover costs, albeit those like fuel outside its control.

Given the chance of Qantas paying corporate tax on its own account in the next decade or more is questionable, that means the company is unlikely to pay franked dividends any time soon, so buybacks for the loss-making company is the investor relations weapon of choice.

Running Qantas has long been a high-profile juggling act between its different stakeholders: staff, unions, customers, government and shareholders.

During Covid Joyce sold $800m in land, which was in part the funds needed for the buyback.

In the past week Joyce has spread some candy to staff through bonuses, including “in the money” shares, and assuaged shareholders and customers by somewhat belatedly acknowledging past mistakes.

Joyce sacked a third of staff during the peak of the pandemic to bring numbers down to 22,000 and is now increasing that to 25,500.

He has his eyes focused on the TWU and Steve Purvinas at the Engineers Association but in the meantime has reached agreement on EBAs covering just under 25 per cent of staff across 13 workgroups, including long-haul cabin crew, freighter pilots, Qantas Link pilots and other engineers. This means they get the $5000 bonus the other non-believers won’t get.

Qantas has long suffered from being at the end of the line in global aviation but Joyce will use his time remaining to hammer costs and exploit his domestic market power for more international routes. The hard part for Goyder is to ensure the succession plans are well advanced and work with Joyce in understanding Qantas can actually survive without him in charge.

Chemical reaction

Wesfarmers’ chemical division was the star performer last year, increasing its return on capital from 17.7 to 21.6 per cent with earnings of $540m, second only to Bunnings at $2.2bn.

Also pleasing was industrial safety, which reported increased earnings and returns, up from 6.2 to 7.9 per cent, showing what used to be called Rob Scott’s dogs are now high-performers.

A $2.3bn capital reduction last year helped the parent company to a improve its return on equity, but the retail divisions all suffered falls in returns.

The question now is whether the economy can help reduce the inventory build-up at Bunnings and Kmart, while WesCEF manages the easing of commodity process and the lithium experiment.

Average performance

Not great but not as bad as expected is the wrap from this year’s corporate earnings season, with revenues virtually untouched, companies able to pass on cost hikes and profit margins so far only down a touch.

Certainly the post-Covid recovery peak has passed, and this year’s annual meeting season in October looms as providing a better guide on performance.

By then another quarter of trading will have passed and companies will know better how their customers are faring.

Figures from AMP’s Shane Oliver show 34 per cent of companies came in ahead of consensus and 32 per cent under estimates. The outperformance compares with the historical norm of 43 per cent.

This explains the lukewarm response to the profit season, with dividends up by 49 per cent compared to the average of 59 per cent, and the market up only slightly so far this month.

Fifty-six per cent of companies reported higher earnings than last year but that compares with the average of 64 per cent.

Earnings growth overall came in at 20 per cent, but only 6 per cent is expected this financial year, and calendar year 2024 is expected to be negative.

Australian industry is highly concentrated and pricing power is in the hands of the big corporates, which is why people like Assistant Minister for Competition Andrew Leigh wants more competition to boost the economy.

MST’s Hasan Tevfik reported signs of confidence in the corporate sector, with increases on capital expenditure. But the headwinds are real with higher wages, raw material costs and interest expenses.

Goldman’s Matt Ross noted the market’s underwhelming response, saying: “Stocks have been underperforming the market in the days following their results announcement, regardless of whether they beat or missed.

“Demand environment, while slowing, is not weakening at the pace that sell-side analysts have been forecasting.”