Can Steph Tully save Jetstar?
The budget carrier’s chief must make major decisions that will turn the high-profile job into either a poison chalice – or a golden crown.
Qantas’ announcement on Monday – that Stephanie Tully would be appointed the new chief executive of Jetstar – seemed to many a move to position the long-time staffer as the anointed one to run the airline when Alan Joyce steps down next year.
After all, one of the many criticisms being thrown at Joyce and the Qantas board is that none of his potential internal successors have had experience running an airline.
Queue Tully to the role Joyce himself had filled before seizing the reins at the airline almost 14 years ago.
The only thing is, she might just be the woman who wasn’t.
Or more to the point, isn’t going to be.
“Steph is not in the running” for the role of Qantas’s next chief executive, says one senior internal figure, despite the incoming Jetstar CEO frequently being named as a contender.
The recruitment process for the next Qantas CEO is well underway and that person will have a huge role ahead of them. The airline, like many of its rivals, has struggled to pivot from a total pandemic shutdown to record demand for flights, and in August posted a $1.86bn loss.
It cut thousands of jobs during the Covid-19 pandemic and is now finding it hard to replace thousands of years of airline knowledge. It fired its baggage handlers – a move found to be illegal and due for a High Court procedural hearing in November – causing a spike in lost bags.
It retired aircraft from its ageing fleet and didn’t keep reordering them. And its customer service and brand reputation – all under the remit of Tully, the airline’s chief customer officer – have dived.
Qantas will also have to contend with higher inflation, a weaker Australian dollar – dampening demand for international travel and pushing up the cost of fuel, some 20 per cent of costs last year – and the high price of new aircraft.
“There are a range of headwinds,” says Hugh Dive of Atlas Funds Management. “I think the market is pricing in a rosy future and not the impact of rising interest rates and jet fuel.”
There is no doubt the Jetstar role has previously been a springboard to ultimate leadership – the one to handle all these post-pandemic and economic issues – but this time insiders swear it’s just not the case.
“The role of Jetstar is not the fast track to the top anymore,” says a second source who also agreed to speak only on condition of anonymity.
Jetstar was certainly the role that made Joyce. He used that position to topple the two other strong internal candidates for Geoff Dixon’s old role. Jayne Hrdlicka also parlayed her time running the Qantas budget carrier to catapult herself into the top job at Virgin Australia.
This time things seem different. The two top internal candidates to succeed Joyce, current chief financial officer Vanessa Hudson and Qantas Loyalty CEO Olivia Wirth sat on the recruitment committee that appointed Tully to run Jetstar – not something they would have done had they needed that stepping stone themselves.
Others have questioned whether an internal candidate was even the right step for Jetstar when it arguably faces its biggest challenges since it was founded in 2003.
“Steph being promoted to that role is the biggest proof of Qantas no longer having depth,” says one recently departed executive.
Missteps attributed to Tully and her team in recent times include the bizarre decision of Qantas to stop offering vegetarian meals and made changes to the arrangements with call centre providers – contributing to wait times spiralling to beyond seven hours.
“Steph is super political, manages up well, and is very prepared to toe the line at the expense of her team or what’s right,” says one recently departed employee.
In an email to staff announcing her appointment, Joyce pointed to the need for internal promotions.
“Having the internal talent to manage succession is so important – we keep our momentum and we can smooth the transition,” Joyce wrote. “In an industry as complicated as ours, being able to develop and promote talent is critical.”
Running Jetstar will certainly be make or break for Tully, and if she nails the brief, it is possible Hudson and Wirth may regret their role putting her in a position of power in the fight for the ultimate job of Qantas CEO.
Until now, the heat has been on Qantas for record low on-time departures, cancellations and lost bags. But the temperature is now rising for its low cost unit.
There has been a steady stream of stranded passengers – 600 in Hawaii last week, 4000 in Bali the week earlier, and 16 stuck in a Tokyo airport for three days the week before that.
One Qantas shareholder, Steve Johnson from Forager Funds Management, says it’s time for the company to seriously rethink its Jetstar international strategy.
“I would be perfectly happy if they decided to give up on it,” says Johnson, Forager’s chief investment officer.
Just a few weeks ago, more than half of its international fleet was out of action because of delays getting spare parts for the 787 Dreamliners, along with bird strike, lightning strike and planned maintenance work. Even now there are still two 787s on the ground.
As the current chief customer officer, Tully should be well placed to handle these tales of distressed customers, but many say it might actually be proof of the opposite.
So who is Tully? Her appointment to Jetstar certainly elicited internal grumbling from some – although as the race for Qantas CEO heats up, those complaints are partly from staff who would rather see their boss take the job instead.
Tully has certainly been a quiet achiever and not one to seek publicity. Johnson is one of many external stakeholders who has not come across her, and yet has faith in Qantas’s ability to train up its executives.
“I don’t know her at all but they’ve been historically good at developing their talent,” Johnson says.
(Qantas also declined to make Tully available for an interview for this piece.)
It is also categorically the case that there are many former and current Qantas staffers who like her and rate her performance highly, particularly from her time in cabin crew management, marketing, and loyalty.
Stuart O’Brien, the founder of brand agency Houston Group, has worked with her for close to two decades in her time across cabin crew and marketing.
“Steph knows the airline business so well,” says O’Brien. “As you know she’s great with people – super fair with agency partners and has a great reputation in the (advertising) industry. She’s got such a solid customer lens on her work.”
Tully will need more than a customer lens on brand work to give Jetstar the strategic reset it needs.
The budget unit faces a number of challenges. In the Australian domestic market its business model relies on having the lowest costs and now faces increased competition from Virgin Australia, which has emerged from bankruptcy with a plan to fight for the lower end of the market. It may soon also face a new low-cost entrant, Bonza.
Before the pandemic, Jetstar accounted for 21 per cent of earnings before interest and tax at Qantas – its ability to outperform rivals is critical to the success of its parent.
Outside of Australia, things look markedly worse.
Even before Covid-19 struck, Jetstar Asia’s profit was patchy at best. Its Singapore-base was particularly hard hit by the pandemic and the global shutdown of international travel that followed. That airline, which is part Singapore-owned, is now down to only seven aircraft from 16 before the pandemic.
Tully will need to turn her attention quickly to whether to continue on with the pre-pandemic strategy of building a fleet to interconnect with Qantas International in a competitive low cost market, or cut her losses.
While details of when exactly Jetstar Asia was profitable are not public, the airline did account for 10 per cent of Jetstar’s revenue in the year before the pandemic.
The situation for Jetstar Japan, part owned by Japan Airlines, looks slightly more promising but not without significant hurdles brought on in part by the Japanese government’s hard line approach to the pandemic.
While loss making right now, Jetstar Japan is one of the biggest low cost carriers in the third biggest economy and expectations had been that it may one day be as profitable to Qantas as Jetstar’s Australian business, due to the massive potential of its domestic market and room to expand internationally. Jetstar Japan leased six of its aircraft to Jetstar in Australia during the pandemic but still has a fleet of 20. It was profitable for the four years before the pandemic on a pre-tax basis.
Tully will face massive strategic decisions that determine if the Jetstar role is a poison chalice or a golden crown.
