How Qantas got back on its own two feet

Qantas is a textbook study on why Governments should think hard before bailing out distressed groups.

Qantas chief financial officer Tino La Spina (left) and Qantas chief executive officer Alan Joyce (right) announce the group’s results. Picture: AFP/ Peter Parks.

Two years ago Alan Joyce was on his hands and knees doing the rounds of Canberra, looking for a debt guarantee. Today he declared the best result in the company’s 95-year-old history.

Thankfully Treasurer Joe Hockey rejected most of Joyce’s pleas and the Government settled by amending the Qantas Sale Act, to give it more freedom to bring in outside shareholders while maintaining the main restriction of 49 per cent on foreign ownership.

The Gillard Government had expressed some support for a debt guarantee which is why Joyce was hopeful of what would amount to a blank cheque for an albeit national champion in a highly cyclical industry.

The Qantas turnaround is a textbook case study on just why Governments should think very hard before bailing out distressed companies, particularly those in cyclical industries.

Qantas’s (QAN) stock price was up 5 per cent in late morning trade at $3.48 a share, some 3.6 times its price when Joyce was crawling around Canberra.

So what’s changed at Qantas?

The company’s transformation program has been instrumental in the turnaround, including sacking 4,600 people and a raft of operational improvements like quicker turnaround times, which get the planes flying more often and for longer .

No doubt having a more vibrant competitor in Virgin has helped keep Qantas on task but then there is the fuel bill, which was $664 million cheaper last year compared to the previous year and, at $3.2bn, some $1.3bn below the bill when Joyce was doing the rounds .

Qantas bosses traditionally use the Government lobbying in part to knock some sense into its unions and on this score Joyce played the card perfectly .

Better still he has since concentrated on talking up the airline, which is a lot better than talking it down as he did when seeking Government help.

The Joyce transformation has been nothing short of outstanding and full credit to him and his team for getting the airline into the shape it is in today.

He has even gone to trouble of paying staff a $3,000 bonus to thank them for the efforts in helping to restore the airline’s fortunes.

The market liked the result because it included a dividend for the first time in seven years, and better still future capital management will be based around the dividend .

Once again that’s smart tactics in this sort of market .

Net free cash flow increased by $600m to $1.7bn and return on invested capital increased from 16.2 per cent to 22.7 per cent.

Granted much of the financial improvement came in the first half but full credit to Joyce and full credit to the then Abbott Government for telling him to fix the airline on his own, without a Government bailout.